A $60 million commercial mortgage-backed securities (CMBS) loan tied to the Langdon at Walnut Park apartments in Austin has been transferred to special servicing after the borrower, Langdon Street Capital, failed to make a required principal paydown. The payment was contingent on the property maintaining its affordable housing property tax exemption by August 29. The exemption was lost following the passage of Texas’ House Bill 21 (HB 21), which targeted a loophole in affordable housing law previously used by Langdon Street Capital.
Langdon Street Capital, based in Beverly Hills, California and founded by Adam Daneshgar, had agreed to reduce its debt service coverage ratio to 1.28 if the exemption was not secured. Without it, the property’s value dropped from an estimated $90.1 million with the exemption to $67.1 million without it.
The company acquired the apartment complex at 12101 N. Lamar Boulevard in 2021 using what is known as the “traveling” housing finance corporation loophole. This approach allowed multifamily operators to obtain property tax exemptions by partnering with affordable housing organizations located far from major Texas cities, bypassing local municipal approval processes.
After acquiring the property, Langdon conducted a sale-leaseback transaction with Pleasanton Housing Finance Corporation—an organization over 100 miles from Austin—to secure these benefits. The complex reserves some units for households earning less than $78,640 annually.
Daneshgar did not respond to requests for comment.
House Bill 21 was authored by Houston multifamily operator and state representative Gary Gates and aims to restrict such deals by requiring partnerships between apartment owners and organizations within the same jurisdiction while also introducing stricter affordability requirements.
Despite allowing pre-existing deals until 2027 to comply with new rules, appraisal districts have started interpreting and enforcing HB 21 immediately by denying property tax exemptions for properties involved in such arrangements.
When asked whether Travis Central Appraisal District was denying exemptions under these circumstances, Cynthia Martinez, chief strategy officer for the district, said that property owners “must submit an application and meet the requirements outlined by Chapter 394 of the Local Government Code” in order to receive an exemption.
This issue is now part of ongoing litigation filed by the Texas Workforce Housing Commission and ground lease tenants at Willowbend Apartments in San Antonio—a deal involving Los Angeles-based Post Investment Group and a Brownsville housing finance corporation—which challenges HB 21’s impact before its full implementation deadline in 2027. The lawsuit claims appraisal districts are jeopardizing exemptions for years prior to this deadline.
Gates commented on appraisal districts’ actions: “I could see where an appraisal district would take the position: we think your deal is a scam, and we’re not going to give a tax exemption until you have a court determine that it’s a valid HFC.”
“I think they have every right to deny it.”
For more information on related legal disputes over HB 21 and its effect on affordable housing developers across Texas:
Lawsuit claims HB21 constitutes “war on Texas’ affordable-housing developers”
https://therealdeal.com/texas/2024/08/19/lawsuit-claims-hb21-constitutes-war-on-texas-affordable-housing-developers/
Texas is asking for lawsuits in crackdown on housing tax loophole
https://therealdeal.com/texas/2024/08/20/texas-is-asking-for-lawsuits-in-crackdown-on-housing-tax-loophole/
Fine kettle of fish: Affordable housing loophole divides real estate
https://therealdeal.com/texas/austin/2023/06/09/fine-kettle-of-fish-affordable-housing-loophole-divides-real-estate/
