Multifamily Investors Sue Troubled Applesway Over Alleged $12.4M Fraud
A group of 123 investors have filed a lawsuit against Jay Gajavelli and his Applesway Investment Group, claiming their $12.4M investment was shifted to a different, unsuccessful deal than the one they believed they were buying into, and that Applesway then lied about it.
The fraud claim is the latest in a series of troubles stacking up for Irving-based Applesway Investment Group. The company lost ownership of a four-complex Houston portfolio through a $229M foreclosure in April. Gajavelli is also facing a $1.6M lawsuit related to unpaid work on his properties, which have been described by tenants as run-down and vermin-infested.
Reza Farahani filed the $12.4M lawsuit in Harris County’s 295th District Court on May 24, according to online records. The lawsuit claims that the group of 123 investors gave Applesway Investment Group the money expecting it would be used to purchase the 643-unit apartment complex Siena on Westheimer, at 6263 Westheimer Road, for $68M.
Instead, funds were redirected to another property without the investors' knowledge.
Defendants include Gajavelli, Vijay Atti and an LLC they had created to purchase Siena on Westheimer, the lawsuit states. Another defendant is S3 Your Financial Future, an LLC owned and operated by Atti, according to the lawsuit.
S3 Your Financial Future began raising money for the deal in March 2022, promising “lofty future returns.” Some investors used retirement savings to buy in, the lawsuit states. In September 2022, plaintiffs were told that the Siena on Westheimer deal closed.
“It was a lie that defendants maintained for months,” the lawsuit states. “In February 2023, plaintiffs were shocked to discover that the Siena on Westheimer deal never happened and that, in fact, their money had been moved months earlier, without their notice or their consent.”
The filing indicates the money was moved to a larger potential apartment complex deal in the Spring Branch area, which collapsed due to the defendants’ default on earnest money terms they negotiated with the sellers.
“Defendants desperately tried to resuscitate the deal — including with plaintiffs’ money already in the possession of the sellers as the nonrefundable earnest money down payment,” the lawsuit states. “Despite plaintiffs’ March 2023 demand for the return of their investment money, defendants have offered no help beyond lip service or their endless assurances to trust them in fixing the problems.”
That left investors out of pocket, seeking the return of their $12.4M along with other damages.
Applesway is also facing foreclosure on a $65.2M loan for the Cabo San Lucas apartments in southeast Houston, The Real Deal reported. The Wall Street Journal, reporting on Gajavelli’s failing investments, noted that floating-rate loans were a contributor to his downfall.
Gajavelli did not respond to previous requests for comment from Bisnow or the WSJ. The Applesway Investment Group's website has been "under maintenance" for over a month.