Multifamily firms collpasing in Dallas whose next?
Work in Multifamily brokerage watching the whole S2 debacle unfold along with other firms blowing up. Must say I'm not shocked by some of them. What multifamily platform is next to blow up in Dallas?
My take is NexPoint's REIT NXRT.
- Next, looking at the financials of NXRT it looks like they still have a slew of legal issues with UBS and from an intrinsic financial perspective if UBS where to say win their lawsuit that right there has huge implications. The unresolved $1.3 billion UBS litigation against the external adviser's senior leadership is huge.
- IMO the bigger problem is the balance sheet: leverage sits near 10x EBITDA, roughly double the multifamily peer set, and the entire mortgage stack is floating-rate. The only thing keeping interest expense manageable has been a book of legacy swaps, and those hedges roll off through late 2026, resetting the effective cost of debt from the 3% to nearly 7%.
- Their NOI has already been compressed, which will affect their FFO. Maing it unlikely the divided continues. This will put more pressure downward on the share price.
- Cap rate expansion alone will cause issues with refinancing, which will cause the equity to be highly imparied.
- Reputation risk. I have never had anyone say anything positive about Nexpoint in the industry. Even former employees some of whom have had tremindous success after they left talk about what a clown show it is.
I think combined with the aforementioned issues once the wheels come off and people smell blood in the water the sharks will come out.
Somebody update the bingo
https://www.wallstreetoasis.com/forum/real-estate/mf-syndicator-bingo
When I have time.
Actually... at second glance I will do this soon as we actually already have BINGO. Applesway and Carroll were early but since then Tides, GVA and now S2 can be crossed off which gives us BINGO.
Pretty sure Laguna Pointe is also gone and can check off Arbor since they're equity has been impaired 85%. Haven't stayed up to date on the others.
Ashland Greene is having a ton of trouble. Underwater on most of their assets.
S2 will survive but as a shell of its former self. Scott is trying everything to salvage the firm and he’s scrappy so he might pull it off but who knows they’ll look like 5 years from now. He may be able to raise some equity but sourcing debt will be extremely tough given prior losses.
Nexpoint is a dumpster fire. Work in lending and we refuse to touch them.
Eh, debt is easy. Next cycle comes around and every lender wants their bonus for putting enough money out the door - risk standards always collapse.
That is the main structural problem with real estate, and indeed finance in general. Gains are privatized and losses are socialized. Bad actors and total incompetents always get access to the well a second, third, or fourth time... because the people they're borrowing from are incentivized to lend to them, and pay no penalty for the inevitable failure.
It is good firms, and especially newer/younger people, who get hit the worst. You get into a frothy part of the cycle, people are handing out money to people/firms with no idea what they're doing or who are just straight up lying, and when shit hits the fan lending standards tighten across the board and you get liquidity issues. The obvious answer is to spend a little extra time diligencing sponsors, but no one ever bothers to do that because that requires more individual work and means a smaller bonus.
I’ll put CONTI Capital into this bucket as a firm. Had capital not been easy to source Carlos had zero business in real estate. Carlos had a good story but was a try hard. Doing all these goofy certificates at Harvard that mean nothing and constantly talking about Harvard. You didn’t go to Harvard you did a weekend certificate not the same. Happy the guy was an immigrant and had some success that’s the American dream.
When dealing with him and having conversations it was painfully obvious he just didn’t comprehend the intricacies of CRE or macro level cycles. He just couldn’t grasp the business, finance or macro aspects. He also didn't comprehend the relationship piece he was late or would cancel meetings 5 minutes before and just didn't comprehend why it was bad form.
He’s a nice guy but just doesn’t have the financial acumen to last in a down cycle. I think his firm is down to himself and maybe 1 or 2 others now.
He had an RIA trying to raise him money and kept hiring and firing capital raisers. Hiring and firing multiple capital raisers is a bad look and bad sign it means what you are offering is not competitive, or desired in the market. That right there should have been his first flag to take a step back. Our capital markets team kept telling him to stop moving people across the country then letting them go a few weeks later. He just tried to act like it was business instead of what it really was which was not having an actual training in how to run a business or how to do real estate.
Ashland Greene is another firm that when I met them I thought they had no clue what they were doing. Unfortunately they had some foreclosures, but can’t say I’m shocked.
S2 will survive. Scott is too scrappy to let it blow up. Will they ever reach their peak again. No, I think they slowly dwindle to a few employees. Imagine their LP base will dwindle as well.
Our firm has been watching Nexpoint for a while. Never comprehended the story or believed they were legit. We met them and thought they were arrogant jackasses for guys who had zero talent. After that we put them on our REO watchlist. I’ve also never heard anyone say anything postive about their CRE group. People who worked there trash the whole group. I’ve heard of people leaving firms and hating their former coworkers but every person I’ve ever met who worked there rips the same people. I mean they leave and give us the dirty laundry on the firm. No clue how they are even in business.
Who is going to buy these assets in 3-5 years once someone stabilizes them?
We are seeing a lot of 80s MF distress but I’m just not sure prices will hit 2022 peak again.
There will be funds that will buy them based on pricing. I just don't see many of the syndicators surviving.
The banks who control them at that point will sell them at current market value.
I’m a note buyer in TX and have relationships with local banks here. They generally do not understand the scale of the problem they have and surely do not want to record a loss. It’s hard to explain to someone their note is worth maybe 70% of UPB.
I’m seeing them wait too long and the value gets impaired even more.
On the capital flow side, I’m just not sure when or who replaces the syndicators. Also, tenants who are living in the “older” buildings don’t care about nice backsplash, countertops from what I’ve seen. The juice isn’t there on the cost / effort and I will argue tenants like non-renovated units more.
Just my 2 cents
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