Thistle Creek Partners is moving to foreclose on a Houston motel-turned-multifamily property after the owner defaulted on more than $36M worth of loans, public records show.

Thistle Creek Partners, which is tied to the real estate investment fund Thistle Creek Capital, issued three rounds of funding in early 2022 to LLCs tied to Utah-based Mountain Classic Real Estate for the former Studio 6 motel project, according to foreclosure filings.

Now known as The Reveal at Rye 220, the multifamily property at 220 Bammel Westfield Road in the Cypress Station area of north Houston was completed in May 2022, CoStar data shows. The property offers 137 units averaging 260 SF for $699 to $999 a month.

Mountain Classic’s website says it is a hotel-to-multifamily conversion specialist recognized for “delivering high-design projects into high demand markets.” It planned to convert over $500M of real estate in the next three years, according to an undated statement on its website.

Neither Mountain Classic nor Thistle Creek responded to emailed requests for comment.

The loans of $22.5M, $8.3M and $5.9M were issued from January to February 2022, the foreclosure documents say. Thistle Creek now plans to sell the property at the Harris County foreclosure auction on Nov. 7, according to the filings.

Other Mountain Classic motel-to-apartment projects include a former Motel 6 in Santa Fe, New Mexico, that began in February and a former Country Inn & Suites in San Marcos, Texas, that began in December and was expected to open in February.

While it is unclear what led to the default for the Houston property, nearby apartment complexes offer more space for comparable rents. Rock Creek Apartments, about a mile away from The Reveal at Rye 220, offers 518 SF for $680 a month, according to MRI ApartmentData. At The Arden Cypress Station, also a mile away, a 700 SF apartment runs about $776 a month.

Michael Knight, executive vice president of Better World Properties, said given the ongoing valuation reset making numerous multifamily properties available at attractive prices, it is hard to see how returns on motel conversions would be more attractive at this juncture.

“In markets where spacious apartments at attractive rates are readily available, who really wants a Manhattan-size shoebox for the same price?” Knight said by email. “There are certainly people that need a $725 per month apartment and will live in 259 SF, but such product also tends to attract very challenged folks which leads to an inefficient operation and excessive turnover.”

The foreclosure on The Reveal at Rye 220 would add to a growing list of Houston multifamily properties with the same fate this year. Notable complexes sold at the Houston foreclosure auction this year include one Rockstar Capital lost last month and five complexes lost by Applesway Investment Group over a four-month span this spring and summer.

The Landings at Northpoint sold this month at the foreclosure auction to 220 Northpoint Drive Holdings LP for $14.8M, a steep discount from the original $20.4M loan and January appraised value of $27.9M, according to public records.