Financial difficulties are forcing a New York-based owner to sell apartments. simpson33 via Getty Images
The Chetrit Group is taking steps to reduce its debt in an 8,671-unit portfolio comprising 43 properties in 10 states. The $481 million loan backing the assets went into special servicing for default in November, according to Trepp.
The New York City–based firm paid down $100 million of the loan in November and is under contract to sell 12 of the assets in the loan pool in Tennessee, Florida, Indiana and Ohio. The company is working with special servicer SitusAMC on a forbearance agreement, a spokesperson told The Real Deal. The property sales should bring in roughly $175 million.
In addition to the 43-property portfolio, Chetrit's $225 million mortgage, securitized through PKHL Commercial Mortgage Trust, for the 538-unit Parkhill City apartment complex in Queens, New York, was newly delinquent at year-end. The property was not stabilized when the loan was originated, according to Trepp. Multifamily Dive reached out to Chetrit, but did not receive a comment as of press time.
The volume of multifamily loans in servicing rose 40% year over year in November, according to Trepp. However, Chetrit's $481 million loan and Veritas Investments' $448 million loan backing 1,734 rent-controlled units in 62 multifamily properties across its hometown of San Francisco were responsible for this increase, according to Trepp.
Chetrit bought the 43-property portfolio in 2019 from Bloomfield Hills, Michigan–based Roco Real Estate, according to Crain's Detroit Business. It financed the acquisitions with a $481 million commercial mortgage-backed securities loan from JPMorgan Chase.
The 43-property portfolio was only 76% occupied during the 12 months through last March, according to Trepp. It also wasn't generating the cash flow necessary to fully service the loan, which was increasing at a floating rate pegged to Libor plus 498 basis points.
Although Chetrit has struggled with occupancy issues, it won't be the only owner facing challenges with floating-rate debt as rising interest rates become a major obstacle to apartment owners who want to refinance their properties.
Apartment owners that financed their properties with floating-rate debt will face pressure to sell as the loans are coming due soon, said Bobby Lee, CEO of Los Angeles–based apartment owner JRK Holdings.
"I certainly think anybody who has floating-rate debt, whether it's a construction loan or agency debt, they're going to face problems," Lee said. "Their interest rate is going from 2.5% or 3% to 6.5% or 7%."