In late July, multiple apartment properties were transferred to special servicing, while valuations for some other properties were downgraded, as revealed in several reports from Morningstar.

Texas once again was the center of such transfers, although according to Morningstar reports, a property in Brooklyn, New York also faced challenges.

Two Keener Investments properties in League City, Texas - Harbor Walk and The Shore - have been transferred to special servicing. According to a July 31 Morningstar report, the Houston-based owner stated it could "no longer fund debt service and escrow shortfalls out of pocket."

Both properties remain listed on Keener's website, and the company did not respond to Multifamily Dive's request for comment.

At the 138-unit Harbor Walk, income was above underwriting levels, but expenses increased more significantly; the 176-unit The Shore faced similar revenue and expense issues.

"Occupancy at both properties has dropped to around 85%, but income remains strong," David Putro, managing director at Morningstar Credit, told Multifamily Dive in an email. "Expenses are also rising, but floating-rate debt has pushed up debt service payments, and combined, this has resulted in cash flow being unable to cover debt service," David Putro said.

The servicing transfers are not limited to Texas. In New York City, the 110-unit Georgetown Apartments was transferred to special servicing due to several months of delinquency.

According to a July 29 Morningstar report, the Brooklyn property performed well in the five years prior to the reporting period, with a debt service coverage ratio exceeding 2.00x and occupancy at 99%. The asset defaulted in April 2026, and Morningstar noted that servicer commentary has been sparse.

Valuation Changes

In July, some new apartment properties were transferred to special servicing, while loan valuations for properties already facing issues were updated.

At Falls of Deer Park Apartments in Pasadena, Texas, according to a July 30 Morningstar report, the new appraisal was slightly higher than the loan amount. However, the new valuation of $27.5 million is 27% lower than the $37.6 million appraisal in March 2021.

The asset is held by Falls Apartment Group, owned by Houston apartment investor Rao Polavarapu. According to Morningstar, the property was transferred to servicing in July 2025 "due to delinquency caused by sponsor issues," and became REO (real estate owned) in February 2026.

"The appraisal at Falls is positive because the property is REO and the appraisal is above the loan amount, but it appears capital expenditures are needed to sell, so the appraisal itself does not indicate a near-term sale," Putro said.

Additionally, the appraisal for Houston's Waterford Grove Apartments was reduced by 32% from $93.5 million at issuance to $63.2 million, according to a July 20 Morningstar report. Net cash flow in 2025 was 31% below underwriting levels.

In March, Morningstar reported that the borrower failed to obtain the tax exemption required by the loan agreement, leading to the property being transferred to special servicing. At that time, the borrower was required to make a principal payment to meet the 1.25x DSCR and 8.5% debt yield thresholds but refused to do so.

"Waterford appears to be on a modification path, so a sale is unlikely to be triggered," Putro said.

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