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Rats And Roaches: $229M Foreclosure Just The Start Of Troubles For Texas Investor

An Irving, Texas-based investment group’s mission to entice investors to generate passive income from "high yielding multifamily investment opportunities" is not going according to plan in Houston.

Applesway Investment Group, led by founder and CEO Jay Gajavelli, saw its inability to pay loans on a four-property portfolio lead to foreclosure and resale at auction last week. Meanwhile, it is facing a $1.6M lawsuit for unpaid work at some of those properties and fending off accusations one property was uninhabitable and filled with vermin.

Timber Ridge Apartments at 12200 Fleming Drive in Houston

Gajavelli and Applesway Investment Group lost ownership of four complexes in March after stopping payment on about $229M worth of loans on them, foreclosure documents show. The properties were all sold to New York-based Fundamental Partners during an April 4 "courthouse sale" that saw Fundamental take all four for $32.5M under the total loan value, or about 14%.

The Reserve at Westwood, Heights at Post Oak, Redford Apartments and Timber Ridge Apartments, the complexes in the foreclosed-upon portfolio, are all aging Class-B and C properties built before 1981 that total about 3,200 units in Houston’s periphery. 

Arbor Realty Trust was the lender for the portfolio and continues to be the lender for Fundamental under a restructured sale, a spokesperson told Bisnow.

Arbor Realty confirmed the sale details, which differed from other published accounts. Fundamental Partners did not respond to a request for comment. About 22%, or $3.2B, of Arbor’s loan and investment portfolio is based in Texas, a recent Securities and Exchange Commission filing shows. 

Timber Ridge originally had a loan of $47M and sold for $40M, Harris County records show. Heights at Post Oak at 12500 Dunlap St. has 940 units and was remodeled in 2019. Its loan was for $47.8M and it sold for $46.5M, according to sale documents.

Reserve at Westwood at 10225 Bissonnet St. has 708 units and was remodeled in 2013. Its loan was for $65.7M and it sold for $60M.

Redford Apartments at 1221 Redford St. has 856 units and was remodeled in 2012. It sold for the largest discount of all the properties. Its loan was for $68.8M and it sold for $50M, sale documents indicate, meaning the total portfolio sold for $196.5M. 

Applesway, a company focused on acquiring “cash-flowing multifamily properties with value-add potential” for investors, according to its website, bought up the four properties from August 2021 to April 2022, as Ningi Research noted on Twitter.

"I'm sick and tired of working for money. If I don't go to work, no money is coming," Gajavelli says in a prominently featured promotional video on Applesway's site, going on to paint a picture of how he emerged out of financial insecurity and could do the same for others. "So I was asking this question: Is there any way my money works for me? Is there a way I can have a steady stream of income month after month?"

Multiple attempts to contact Applesway and Gajavelli were unsuccessful. Applesway’s LinkedIn page ceased its formerly consistent activity about four months ago and all four foreclosed properties still feature on its website as active investment opportunities in its portfolio.

The troubles for the company don't end there. Gajavelli also faces a lawsuit from a contractor who says he hasn’t been paid for $1.6M worth of work at the investment firm's apartment complexes and complaints to Houston City Council that at least one foreclosed property was kept in filthy, untenable conditions.

Residents of Timber Ridge Apartments, at 12200 Fleming Drive, attended a Houston City Council meeting in July 2022 to bring attention to roaches, rats and a mailroom in such disrepair that the U.S. Postal Service stopped delivering to it, the Houston Chronicle reported. One resident said the apartments were the “worst conditions a human being can live in,” and none had luck contacting the landlord. 

At that time, Applesway was operating under a hard-to-identify LLC, per the Chronicle. Photos submitted to Google Maps by tenants depict a window shot by a bullet, multiple boarded-up residences and photos of copiously overflowing dumpsters and parking lots overtaken by trash to the point little parking was available.

“It doesn’t matter if you pay $50 a month, you’re not entitled to live in filth and substandard conditions,” Houston Mayor Sylvester Turner said at the time.

The Class-C apartment has 704 units and was built in 1981. Unlike the other three properties, it has no renovations listed on Harris County property records. 

In addition, Westward Holdings filed a lawsuit on Jan. 26, claiming Gajavelli, through Gajavelli’s business Cabo Houston Borrower DE, failed to pay him for $1.6M worth of labor and materials for repairs and renovations. Westward worked on the Heights at Post Oak, Redford Apartments, Timber Ridge Apartments and Cabo San Lucas Apartments, according to the lawsuit.

Gajavelli, also known as Koteswar Rao Gajavelli, filed an answer on March 20, denying the allegations and claiming he does not owe the plaintiff money pursuant to any written agreement.