$66.4 Million: Arbor Lends Buyers the Money to Take Its Texas Foreclosures

Arbor Realty Trust has found buyers for three Texas apartment properties it took back this year, and it is also their lender. The bridge lender sold the three for $67.5 million and wrote $66.4 million of new bridge loans to the buyers, according to its third-quarter 10-Q.

Those properties had backed bridge loans with $67.0 million of unpaid principal, two of them non-performing. Arbor booked $0.5 million of gains on the foreclosures and charged off $1.8 million through its loss provision.

Same property, new borrower, new loan

The filing does not name the properties or the Texas cities they sit in, but it does give the terms. The old loans paid a weighted average of SOFR plus 3.44%, and the new ones carry SOFR plus 2.50%, with two of them subject to a 6.14% rate floor.

Arbor sized the new loans at 81% to 88% of each buyer's total capitalization, which counts the purchase price, closing costs, capital work and reserves. The buyers' own equity covers the rest.

The sales came in two steps. One Texas foreclosure came in the first quarter, on a $25.0 million non-performing loan, and two more followed in the second quarter on $42.0 million of loans that resold for $42.5 million.

Arbor has used the same playbook outside Texas. In the third quarter it sold five multifamily REO properties for $40.2 million and lent $32.7 million to three of the buyers; the earnings release puts those five sales at $39.0 million.

Why a lender sells this way

Arbor's own REO shows why a sale with financing attached appeals to it. Its multifamily REO was about 42% occupied on Sept. 30, down from 51% on June 30, and that average leaves out three properties that were empty for renovation.

Arbor took $34.1 million of impairments on six REO properties in the quarter and carried $491.2 million of real estate owned, net. Management now expects roughly $500 million of REO at year-end, up from the $300 million it guided to a quarter earlier, Earnings Whispers reported Oct. 30.

Houston owners described the same bind at a Bisnow multifamily conference on Oct. 19. Lenders often can't sell older Houston complexes for what they lent, so they run them, and Urban Genesis founder Matt Shafiezadeh said one lender-held property was "running at 50% occupancy."

Seller financing gets around part of that problem. On the three Texas sales Arbor collected more than the old principal, and it kept the credit exposure, now with a new sponsor and fresh equity in front of it.

The book behind the sales

Arbor reported 32 non-performing loans with $647.6 million of unpaid principal on Sept. 30, up from 19 loans and $428.8 million three months earlier, in its Oct. 30 earnings release, and it lost $85.4 million for the quarter and suspended its common dividend.

Multifamily bridge loans are 64% of its $12.00 billion portfolio, and Texas properties back 23% of the whole book, more than any other state. Arbor rates more of its multifamily loans special mention than any other grade, and their weighted average last-dollar loan-to-value is 83%.

Six loans with $192.1 million of principal were modified in the third quarter, most of them after borrowers put in more capital.

Arbor's agency servicing book, mostly Fannie Mae and Freddie Mac loans, had $1.38 billion of loans 60 or more days past due on Sept. 30, up from $959.0 million at the end of 2025.

Other lenders are working through similar collateral. TPG RE Finance Trust took a multifamily property with a $30.1 million fair value through a non-judicial foreclosure in the quarter, and Bridge Investment Group took back the 248-unit Wythe in Irving and the 376-unit Archer in San Antonio, CommercialSearch reported Nov. 2.

What it means for owners and investors

For a buyer with equity, a lender that wants out and will finance the exit is a useful counterparty right now. Loans at 81% to 88% of capitalization look generous next to what existing borrowers face: CBRE's Maximiliane Leachman told Multifamily Dive that debt funds that once asked 1% to 3% of the balance for an extension may now want 10%.

Arbor gives no unit counts, so nobody outside the deals knows the per-door basis on its three Texas sales. For comparison, Holly View's 324 units in northwest Houston sold in October for $31.5 million, roughly $97,222 a unit, and Lee & Associates put Houston's third-quarter average at $150,010.

SOFR printed 3.94% on Nov. 4, so the new loans' SOFR-plus-2.50% rate is already above their 6.14% floor. The Fed raised its target range to 3.75% to 4.00% in September, Northmarq noted in its Oct. 12 commentary.

Further hikes would land hardest on buyers carrying that much leverage. CRED iQ estimated that each further 25 basis points adds roughly $1 billion to the refinancing gap on multifamily loans maturing through 2028, Commercial Observer reported.

Leasing up a lender-owned property in Houston starts from a soft base. Yardi Matrix put Houston's total occupancy at 91.3% in September, the lowest of its top 30 markets, with advertised rents down 2.0% from a year earlier.

What to watch next

Houston has a lender-owned listing on a deadline. Colliers is marketing Alegria I and II, 624 garden units on 17.66 acres inside Loop 610 near Kirby Drive, as a lender REO portfolio with offers due Nov. 11, and its Nov. 3 email blast says occupancy sits "meaningfully below submarket norms."

The blast does not say whether the seller will finance a buyer. Trepp's October report put multifamily CMBS delinquency at 8.09%, up five basis points, while KBRA said lower multifamily delinquencies helped pull its own overall rate down; the two track different loan pools.

Arbor's notes payable on its REO, $255.0 million at Sept. 30, mature between December 2026 and September 2027.