Foreclosures in Texas’ multifamily sector are rising, according to experts who spoke at the Connect CRE Texas Multifamily conference. The event, held at the Joule in downtown Dallas, brought together industry professionals to discuss the state’s multifamily market and what lies ahead.
The initial panel highlighted that strong demographics have helped major Texas cities absorb a significant increase in multifamily supply over recent years. However, concerns about distress in the market were addressed more directly in a subsequent panel titled “How Distress is Rewriting the Texas Playbook.”
Foreclosure activity has accelerated across the state. In July, $400 million in commercial real estate loans were headed for auction; by September, that figure had increased to more than $700 million. During Harris County’s August auction, operator Fercan Kalkan faced foreclosure on 3,000 units linked to at least $140 million in loans.
“We’re in the early stages of this,” said Rob Walton of Trimont during the panel discussion.
Market conditions currently favor renters. Kimberly Byrum of Zonda Advisory noted that many property owners are offering six to eight weeks of free rent as concessions remain widespread. There is also an ongoing “amenities arms race” among Class A operators—installing features like golf simulators and pickleball courts—to retain tenants. “It’s all in the service of ‘making the renter feel like they don’t have a reason to move,’” said Kai Pan from JLL.
Landlords are increasing their marketing efforts as they try to convince tenants to renew leases. Byrum pointed out that spending on marketing has seen the largest year-over-year increase among operator expenses.
Austin stands out nationally for rental affordability due to falling rents and high salaries; renters there spend an average of 16.8 percent of their income on rent, according to Pan. Over the past decade, Austin’s population grew by 30 percent and jobs by 48 percent—outpacing Sun Belt averages.
“Everyone’s watching for Fed cuts,” said Matt Hiller from George Smith Partners.
Panelists agreed that interest rates pose a central challenge for operators. “That’s where the problem exists,” said Steve Pumper from Transwestern.
With rental revenues down and costs up, financial pressures are mounting for landlords statewide. James Shevlin of CWCapital warned that $19 billion in CMBS loans tied to Texas multifamily properties will mature over the next five years: “It’s trouble,” he said.
Investors with limited resources have been especially affected by higher interest rates and aging properties needing updates they cannot afford. Walton explained that many distressed or foreclosed properties are now reaching special servicing and tend to be in poor condition.
The consensus among experts is that improvement hinges on changes from federal policymakers: “A drop in interest rates and cap rates will help,” Walton said.
