Dive Brief:

• A $195.8 million loan backing The Aire, a 310-unit luxury apartment tower in the Upper West Side of Manhattan in New York City, has gone into special servicing, according to a Trepp email shared with Multifamily Dive. The asset is owned by New York City-based A&R Kalimian, according to Commercial Observer.
• Trepp reports that the occupancy at the property, which also has street-level retail, fell from 97% in 2018 to 70% in 2020. Although occupancy rebounded to 97%, The Aire’s debt service coverage ratio has sat below 1.0 times since 2017. The DSCR dropped to 0.36 times in 2021 before rising to 0.84 times in 2022.
• In 2013, The Aire was valued at $365 million. The current loan, which matures in November, is broken up into a $117.5 million piece and a $78.3 million slice. The deals are part of the CMBX 7 index, which includes a mix of retail, office, multifamily, lodging and industrial loans.

Dive Insight:

As The Aire entered servicing, the overall rate for multifamily servicing fell four basis points to 2.97% in May, according to Trepp. The delinquency rate for apartments also declined, dropping 36 basis points to 1.46%.

Although multifamily continues to show strength, problems are emerging for commercial real estate in general. Overall U.S. CMBS delinquencies jumped 53 basis points to 3.62% in May and special servicing rates climbed 49 basis points to 6.11%.

The increase in interest rates and the plateauing of rents could mean financial stress for some owners. Already, some are facing issues. Last November, The Chetrit Group’s $481 million loan backing an 8,671-unit portfolio comprising 43 properties in 10 states went into special servicing.

In December, a joint venture between San Francisco–based Veritas Investments and affiliates of Boston-based Baupost Group defaulted on a $448 million loan backing 1,734 rent-controlled units in 62 multifamily properties across San Francisco, according to Fitch Ratings.

Earlier this year, Dallas-based Applesway Investment Group defaulted on nearly $230 million backing four Houston apartment properties totaling 3,200 units. The loans on the four properties were originated at the top of the market before interest rate increases started to dent values. 

Still, with capital still lined up for apartments, many owners will be able to find buyers for their properties before those assets go back to the bank. For instance, in May, Houston-based owner Three Pillars Capital Group purchased the 426-unit Chateaux Dijon Apartments in the Galleria section of Houston from Austin-based owner InvestRes, which acquired the property in 2018.

InvestRes was motivated to move the property, according to Gautam Goyal, CEO of Three Pillars.

“The seller’s loan was due in June and they were unable to refinance due to the fact that they didn’t grow income,” Goyal said. “They could have refinanced, but they would have had to put money in.”

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