According to a June 29 Morningstar report, the Steeples Apartments in Houston have been transferred to special servicing after the borrower failed to implement cash management measures required by the servicer. The property's loan amount is $28.3 million, initially financed by Nitya Capital, but Swapnil Agarwal told Multifamily Dive that he sold the property in 2022.

Morningstar noted in its commentary that the specific debt service coverage ratio (DSCR) threshold triggering cash management is unclear, but the DSCR has declined from 1.85x at loan origination to 1.31x by the end of 2025.

Morningstar wrote: "The servicer commentary noted that the borrower attributes the decline in cash flow to construction on the road and sidewalks outside the property by the city, as well as a fire that occurred in the leasing office."

Troubled asset portfolio

Steeples Apartments is not the only multifamily loan issue flagged by Morningstar in recent weeks. According to a June 26 Morningstar report, a portfolio of four buildings—two in Hoover, Alabama, and two in Greenville, South Carolina—was transferred to special servicing due to maturity default. Payments became delinquent in December 2025, and the loan was designated as in default in March 2026.

Morningstar stated: "No reason for the default was provided, and no financial reporting has been provided since issuance. The servicer commentary also noted that insurance has been past due for the past few months."

In the same June 26 report, Morningstar noted that The Park At Saronno, a 316-unit property in Houston, was transferred to special servicing due to a payment default. The property's cash flow has continued to underperform initial underwriting levels. Additionally, occupancy declined from 97% at loan origination to 85% in March 2026. Morningstar said: "The city has also identified some violations that are currently being addressed."

Bankruptcy-related issues

While other properties are returning to servicers, Independence Lofts in downtown Philadelphia may see its loan reinstated. According to a Morningstar report, the property's loan amount is $26.2 million, with a new appraisal of $25 million in June. The property entered servicing in August 2024 after the guarantor filed for bankruptcy, with an appraised value of $47.5 million at loan origination. Morningstar said: "New commentary this month notes that the court has ruled in favor of the lender on liability, but has not yet ruled on damages."

In a more high-profile bankruptcy case, short-term accommodation provider Sonder announced bankruptcy in November 2025, as reported by Hotel Dive. The company's 2 Washington property in New York recently entered servicing due to Sonder's bankruptcy, "effectively cutting off most of the property's cash flow," Morningstar said. The property is classified as multifamily, with units leased entirely by Sonder. However, Morningstar noted that 286 of those units are designated as "R-1" category, restricting lease terms to 30 days or less, making conversion to apartments less likely.

The ongoing return of loans to banks and servicers has provided a buying window for some investors, said Stephen Squatrito, managing director of the West region for Alliance Residential's acquisition division. But in some cases, lenders have not yet listed these assets for sale. "We are seeing some properties return to lenders," Squatrito said, "but we are also seeing lenders show a willingness to take them back and operate them themselves."

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