- A 318-unit multifamily portfolio in Waco and Denton transferred to special servicing after failing to secure a property tax exemption required under its loan terms.
- Texas lawmakers’ 2025 passage of HB 21 reshaped housing finance corporation tax exemption rules, creating compliance and refinancing challenges for apartment owners and lenders.
- The servicing transfers highlight growing stress across Texas multifamily deals that relied on aggressive underwriting tied to property tax savings.
Texas multifamily borrowers are increasingly running into trouble after changes to the state’s affordable housing tax exemption rules disrupted loan assumptions across several apartment deals. The latest casualty is the Texas SH Portfolio, a 318-unit, two-property portfolio in Waco and Denton tied to sponsors Deepika and Swapnil Agarwal.
According to an April 24 Morningstar Credit report shared with Multifamily Dive, the portfolio transferred to special servicing after the borrower failed to secure a property tax exemption tied to the financing structure. The servicer is now negotiating a loan modification that would allow the borrower to gradually fund a required paydown to meet debt yield requirements.
Growing Texas Tax Exemption Problems
The issues stem from Texas House Bill 21, which lawmakers passed in May 2025 to overhaul how housing finance corporations grant property tax exemptions for multifamily developments. The legislation targeted so-called “traveling” housing finance corporations that partnered with developers outside their home jurisdictions to create tax-exempt affordable housing deals.
Before HB 21, developers working with housing finance corporations under Chapter 394 of Texas law could qualify for full property tax exemptions if they met affordability requirements. According to a June 2025 Holland & Knight analysis, the new law retroactively altered some existing agreements and added stricter compliance requirements for maintaining exemptions.
That shift has rattled lenders and owners alike because many multifamily deals were underwritten assuming long-term property tax savings. Without those exemptions, debt service coverage ratios and debt yields can deteriorate quickly.
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The Details
Morningstar said the Texas SH Portfolio loan required the borrower to maintain a 10.33% debt yield threshold if the tax exemption failed. Since the exemption did not materialize, the borrower now faces a required principal paydown.
David Putro, head of analytics at Morningstar Credit, identified Swapnil and Deepika Agarwal as sponsors of the deal. Swapnil Agarwal is also the founder and managing principal of Houston-based Nitya Capital.
The servicing transfer adds to a growing list of troubled multifamily loans linked to Agarwal-backed properties. In October 2025, a $63.5M loan tied to Muse in Dallas and Eden Pointe in Houston also transferred to special servicing, according to Morningstar Credit. At the time, Agarwal told Multifamily Dive that the issues were tied to code violations rather than property performance.
A Wave of Texas Multifamily Distress
The Texas SH Portfolio is not an isolated case. Several Texas apartment properties have entered servicing after losing tax exemptions. Others triggered cash management provisions tied to housing finance corporation agreements.
Morningstar reported in March that Waterford Grove Apartments entered distress after missing a required exemption. The borrower reportedly refused a principal paydown. That payment would have restored compliance with a 1.25x debt service coverage ratio and an 8.5% debt yield covenant.
Another troubled asset emerged in Richardson, Texas. The Riley, a 262-unit apartment property completed in 2016, transferred to special servicing earlier this year. Morningstar said the property participated in the Garland Housing Finance Corporation program. That program offered tax relief when properties met affordability requirements.
These deals show how heavily some multifamily projects relied on favorable tax treatment between 2021 and 2023. During that period, low interest rates encouraged aggressive underwriting assumptions. At the same time, Texas multifamily fundamentals remained relatively stable despite a wave of new apartment deliveries across major metros. Now, rising operating costs and higher interest rates have intensified the pressure.
Why It Matters
HB 21 is creating ripple effects beyond affordable housing policy. Lenders, borrowers, and CMBS investors are now reassessing underwriting assumptions tied to Texas multifamily tax structures.
According to Holland & Knight’s 2025 analysis, the law introduced “meaningful compliance risks, timeline delays and underwriting complexities” for developers and lenders. Deals that once penciled based on full tax exemptions may no longer support their original debt structures.
For multifamily owners, losing a tax exemption can dramatically increase operating expenses overnight, particularly in Texas markets where property taxes are already among the nation’s highest.
What’s Next
Special servicers and borrowers will likely pursue restructurings, paydowns, and recapitalizations as more loans face exemption-related stress. Investors will also watch Texas apartment properties tied to housing finance corporation programs for similar problems in 2026.
Lenders also worry HB 21 could trigger a broader repricing of multifamily risk across Texas workforce and affordable housing deals. Over the next two years, many loans will mature. Meanwhile, refinancing may become harder for properties that no longer qualify for key tax benefits.
