Distress Signals: Three Multifamily Loans Enter Servicing in January, Highlighting Regional Pressures
This analysis was originally reported by Multifamily Dive. For daily insights on the apartment industry, subscribe to our free newsletter.
The new year opened with fresh signs of strain in the U.S. multifamily sector, as loans tied to three apartment properties in Colorado and Texas were transferred to special servicing in January. The moves underscore how localized regulatory shifts and sponsor-specific troubles can trigger distress even as broader market metrics show improvement.
In the Denver suburb of Thornton, the loan on the 104-unit Meadows at Town Center Apartments was moved to a servicer. According to a Morningstar Credit report, cash flow issues stemmed from timing delays in fee collections and sharp spikes in utility and insurance costs. Analysts point to a newly enacted Colorado law that limits landlords' ability to pass certain operating expenses to tenants as a contributing factor at this property.
Meanwhile, the 322-unit Boulder Crossroads Apartments in Denver also entered servicing. Notably, the property reported a robust 94% occupancy and a debt service coverage ratio of 1.45x. The transfer was triggered by a technical clause related to preferred equity within its Freddie Mac loan agreement, suggesting financial structuring played a role beyond operational performance.
In Houston, distress followed a more familiar pattern. The loan backing the 288-unit Falls of West Oaks was transferred after its sponsor, Falls Apartment Group led by investor Rao Polavarapu, filed for bankruptcy in November. Morningstar noted the property's performance had been "adequate" with timely payments until the late 2025 default, placing ownership stability at the heart of the problem.
Houston remains a focal point for multifamily loan challenges. The city has seen several high-profile defaults in recent years, including a nearly $230 million default by Applesway Investment Group in 2023. Other properties, like the rebranded Palm Beach Estates (formerly Rockridge Apartments), have seen valuations plummet after entering servicing.
These January transfers present a contrast to the national picture. Data from Trepp shows the overall CMBS special servicing rate for multifamily loans actually declined to 8.08% in December, marking an improvement from the previous year. This suggests that while systemic risk may be easing, asset-specific and regional pressures continue to surface.
Industry Reactions
Michael Thorne, Portfolio Manager at a Denver-based REIT: "The Colorado cases are textbook examples of how well-intentioned legislation can have unintended consequences on property-level economics. It's a reminder that underwriting must now account for regulatory risk, not just market fundamentals."
Lisa Chen, Senior Analyst at a Houston Investment Firm: "Houston's issues are less about the market and more about sponsor over-leverage. We're seeing the tail end of the aggressive acquisition cycle from a few years ago. Strong assets are getting caught in weak capital structures."
David R. Miller, a vocal multifamily blogger and critic: "This is the canary in the coal mine. Freddie Mac is quietly moving loans, owners are going bankrupt, and everyone points to 'local issues.' It's denial. Rising insurance, flat rents, and expensive debt are a national cocktail for distress. The headline rate decline is a mirage."
Sarah J. Wilkins, a property manager in Austin: "It's frustrating to see solid properties like Boulder Crossroads get flagged because of a paperwork clause. It creates unnecessary stigma. The focus should be on supporting assets with good occupancy, not triggering defaults over technicalities."
Click here to sign up for daily multifamily news and analysis delivered to your inbox.