‘A mass improper eviction’: 120 residents baffled by faltering landlord’s move to oust them

The problems in Esmeralda Nolasco’s southeast Houston apartment are endless. 

Black mold creeps along the walls, aggravating her two teenagers’ asthma. Water leaks from the ceiling, bubbles up through the floors from sewer lines and rots her cabinets. The ceiling above the kitchen table is caving in. Bedbugs infest the place.

The latest affront came last month, when management at the Cabo San Lucas apartment complex delivered an eviction notice.

“I laughed into the manager’s face,” Nolasco said. “I said, ‘Oh, now you come knocking at my door?’”

Nolasco and dozens of her neighbors filled an eviction court Wednesday, bewildered by a rare mass eviction effort launched by their one-time landlord, whose crumbling business has garnered national attention.

About 120 tenants were served in recent weeks with eviction papers by a subsidiary of Applesway Investment Group, a real estate firm based out of the Dallas area. Multiple properties owned by the company and its subsidiaries, including Cabo San Lucas, fell into foreclosure this year as a result of risky financial bets that backfired when interest rates rose.

A Florida real estate company specializing in short-term loans bought Cabo San Lucas at a foreclosure sale last week, trade publication Bisnow reported Tuesday.

A visiting judge at the Justice of the Peace Precinct 2, Place 1, Josefina Rendón, dismissed the eviction cases on largely technical grounds, but the chaos illustrated the real-world impact of Applesway’s collapse. The filings also added to the tenants’ exasperation with management at Cabo San Lucas, which has faced criticism from residents and local leaders for months about terrible living conditions. 

Inside the courthouse, tenants clutched eviction notices and conferred in hushed tones with lawyers volunteering to help their cause. Most were unsure why they were being evicted and outraged that a company they view as negligent would try to oust them. Others sat in silence, hands clasped loosely between their knees. 

“You want people to stay here and pay the proper rent, you gotta do right by your tenants,” said Cabo San Lucas resident Daliyah Werdlow, who complained of a rat infestation, faulty electricity and persistently broken air conditioning.

Sarah Montgomery, an advocate for the affordable housing nonprofit Texas Housers, said some residents were told they owed astronomical amounts of money to the property owners, with one bill totaling up to $800,000.

“This is just a mass improper eviction on top of a bunch of other issues,” Montgomery said.

Who’s the owner?

Applesway has become a prime example of national concerns about aggressive financing of multifamily housing purchases in recent years. The Wall Street Journal reported in April that Applesway borrowed hundreds of millions of dollars at low, variable interest rates to buy the properties a few years ago, then couldn’t make debt payments when interest rates soared.

It is not immediately clear why the Applesway subsidiary that owned Cabo San Lucas sent more than 100 eviction notices to residents of the complex last month. Efforts to reach Applesway and its owner, Jay Gajavelli, were unsuccessful Wednesday.

Clarissa Ayala, communications director for the nonprofit Lone Star Legal Aid, described the mass eviction attempt as uncommon.

“The last time I’ve seen something like this was in 2017,” Ayala said.

Last week’s sale of Cabo San Lucas ultimately gave residents a reprieve from their eviction notices. The cases were dismissed amid confusion over who owned Cabo San Lucas and whether the Applesway subsidiary still had the legal authority to pursue evictions. 

“I don’t know who the landlord is,” said Dana Karni, an attorney and litigation director for Lone Star Legal Aid. “I think that was exactly part of the problem in this case. There’s one landlord that’s listed as the plaintiff, and property records show something totally different because of the foreclosure that’s taken place.” 

Housing advocates on hand to assist renters also said some tenants didn’t receive advance notice to vacate, as required by law. 

The unexpected eviction notices compounded issues described by tenants.

Residents said the building’s management has changed multiple times in the past year and refused to respond to their complaints. Cabo San Lucas resident Suzanne Dowling said she stopped paying her rent in hopes of getting the property owner’s attention.

“They don’t give a damn about their tenants,” Dowling said.

Reports of shoddy conditions prompted state Sen. Carol Alvarado, D-Houston, to visit the complex in December. She met with management and handed out water bottles, KPRC reported at the time.

A bad bet

Court records show a company tied to Applesway bought Cabo San Lucas Apartments in late 2021 using a $65.2 million loan from EMG Transfer Agent, a subsidiary of a national investment firm.

In January, EMG Transfer Agent filed a lawsuit against the Applesway-linked company after it missed two monthly payments.

In the lawsuit, EMG Transfer Agent said the city of Houston served Cabo San Lucas’ owner in mid-2022 with at least 116 habitability violations, including 65 structural and electrical violations in which the city ordered the company to obtain the necessary permits and begin repairs immediately. Two months later, the city issued a notice that indicated most of the violations remained unresolved, according to the lawsuit.

A separate inspection commissioned by EMG Transfer Agent found that at least $1 million would be needed to make nearly half of the complex’s units habitable. 

The lawsuit also alleges that Cabo San Lucas’ occupancy rate plummeted from 94 percent to 54 percent in the year after the Applesway subsidiary bought the property.

The Wall Street Journal reported that Applesway financed its properties with above-average amounts of debt. Citing data from a data firm, the Journal said the interest rate on one Applesway property loan recently jumped from 3.4 percent to 8 percent.

For Nolasco, who plans to return to school to pursue a counseling job, simply talking about the litany of problems at her apartment is exhausting. But the thought of her future — thrown into flux by Applesway’s investment decisions — brings her to tears.

Trapped between terrible living conditions and the threat of eviction, she sees no way out of her predicament.

“I just don’t know where I’m gonna end up,” Nolasco said.

Correction, Aug. 10: An earlier version of this story incorrectly identified the judge who presided over the eviction court. It was Josefina Rendón.

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