The distress in Rao Polavarapu’s Houston multifamily portfolio is so pervasive, it’s coming for his healthy properties.
Two CMBS loans totaling $89.5 million backed by four Polavarapu-owned properties headed to special servicing this month even though the properties appear to be performing as expected, Morningstar Credit reported.
The $25 million loan tied to the Falls of Deer Park Apartments was transferred after being delinquent for 60 days. It’s unclear why the loan is delinquent, since the property’s net cash flow last year was 16.7 percent, about the underwritten level, Morningstar said.
Similarly, a $64.5 million loan was transferred for “imminent monetary default,” but the property was 89 percent occupied in December (up from 88 percent when the loan was issued earlier that year). Also, net cash flow for last year was only slightly below the underwritten level, according to Morningstar.
“The servicer provided no additional details about the transfer, and the loan is not set to mature until July 2029,” Morningstar said.
The second loan is backed by Falls of Braeburn Apartments at 9707 Braeburn Glen Boulevard; Falls of Chelsea Lane Apartments at 8039 Boone Road; and Miami Gardens Apartments at 9540 Kempwood Drive, according to loan documents.
Polavarapu’s Falls Apartment Group faced foreclosure on two other properties last fall, the 468-unit Falls of Las Villas, at 407 Richey Street, and the 514-unit Falls of Alta Vista, at 621 Richey Street.
Despite being scheduled for auction, Falls is still listed as the owner of the properties, meaning Polavarapu may have worked out an extension on the loan tied to the assets.
The $33.5 million mortgage was provided by Toronto-based Ontario Wealth Management Corporation and TIG Romspen US Master Mortgage, which is based in the Cayman Islands, in 2022, deed records show.
However, the properties are no longer listed on Falls’ website; neither is Miami Gardens Apartments. In October, Falls said it owned 21 properties. Now, its website says it owns 12 properties.
Rising interest rates have been a wrecking ball for value-add multifamily investors, who quickly picked up aging properties when rates were low, with plans to update them and increase rents. Instead, rising rates ballooned floating-rate debt, leaving operators unable to pay their bills.
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