The rapid rise in interest rates are pummeling real estate investment companies with adjustable rate loans. In Applesway’s case, at one property, the interest rate on the loan skyrocketed from 3.4% to about 8%. Two of their properties were also heavily leveraged with 80% debt.
Arbor Realty Trust’s stock is down around 47% from a year ago.
Applesway Investment Group borrowed nearly $230 million to buy the buildings with more than 3,200 units as part of a Texas buying spree during the pandemic. Arbor Realty Trust, a publicly traded mortgage company, foreclosed on the properties after Applesway defaulted on the loans, according to public documents filed in Harris County, Texas.
New York-based investment firm Fundamental Partners bought the Houston properties, public records show, for an undisclosed amount.
Turmoil in commercial property markets is starting to spread beyond urban offices and aging shopping malls to rental apartments. The multifamily sector has long been considered a relatively safe investment, especially when home prices rose so much during the pandemic and forced many home shoppers to keep renting.
Landlords have benefited from surging apartment rents and cheap debt in recent years, which pushed property values to record highs. Investors paid high prices for the buildings in part because they were betting on a continued rise in rents. They also considered apartments a safer bet during a recession because people always need a place to live.
Now, the recent increase in interest rates has cooled off the apartment sector. Investors who bought properties at the peak of the market in 2021 often financed those deals with floating-rate mortgages. Many of those loans have reset at higher rates.Houston Apartment Owner Loses 3,200 Units to Foreclosure as Multifamily Feels the Heat – WSJ