Nitya Capital Rescues Dallas Apartments from Foreclosure via Morgan Stanley Refinancing

How Nitya Capital Saved The Interlace from Foreclosure

Swapnil Agarwal’s Nitya Capital has pulled its Dallas apartment property, The Interlace, back from the brink of foreclosure. The Houston-based multifamily syndicator closed a refinancing deal with Morgan Stanley, securing a new loan on the 432-unit complex at 3801 Gannon Street. The exact size of the Morgan Stanley loan was not disclosed, but the transaction replaces a previous $31.4 million loan from One William Street Capital Management that had fallen into alleged default.

The Interlace was first flagged for foreclosure in May, putting the asset in jeopardy after Nitya missed payments on the original debt. The refinancing effectively wipes that slate clean, giving the property a fresh capital structure and staving off a forced sale. The rescue comes amid a broader picture of distress for Nitya, which still faces foreclosure actions on two other Dallas-Fort Worth apartment properties – The Palace Apartments in Arlington and The Chaparral Apartments in Fort Worth.

The Interlace deal also draws attention to a creative—and controversial—tax strategy Nitya used on the property. In 2023, the firm completed a sale-leaseback with the Texas Essential Housing Public Facility Corporation, a nonprofit based in Austin, to secure a property tax exemption through a state affordable housing program. At the time, a loophole allowed so-called "traveling" public facility corporations to partner with properties outside their own communities. That loophole was closed later in 2023 by House Bill 2071, raising questions about the long-term durability of such exemptions.

The Strategic Calculus Behind the Refinancing and the PFC Loophole

The Tax Exemption Controversy and HB 2071

Nitya’s use of a "traveling" public facility corporation to land a tax break on The Interlace was a legal but politically contentious move. By selling the property to a public facility corporation based in Austin—more than 200 miles away—the syndicator effectively shielded the asset from certain local property taxes while maintaining operating control through a leaseback. This technique, once replicated by other investors across Texas, prompted lawmakers to act. House Bill 2071 reformed the program to prohibit such remote partnerships, aiming to keep affordable housing benefits tied to local communities.

While the legislation does not appear to nullify existing exemptions, the regulatory optics are now far less forgiving. Any attempt by Nitya or other landlords to continue using or renewing similar structures post-reform would face heightened scrutiny. The tax benefit was a key piece of The Interlace’s financial model; its sustainability—and the broader precedent for other properties in Nitya’s portfolio using the same mechanism—remains uncertain.

Other Distressed Assets in Nitya’s Portfolio

The refinancing of The Interlace does not resolve Nitya’s wider liquidity challenges. One William Street is pursuing foreclosure on two other Dallas-Fort Worth complexes—The Palace and The Chaparral—backed by $38.9 million in combined loans. Those actions suggest that the original lender is unwilling to extend forbearance on the entire book, even after a piece was refinanced out. Nitya has also been actively trading assets: it recently offloaded a 1,000-unit Houston portfolio to Triten Real Estate, including a property that suffered a major fire, and simultaneously bought a Phoenix complex from Tides Equities for $41 million. The pattern of selling distressed or fire-damaged stock while selectively acquiring hints at a strategy to shore up liquidity and concentrate capital on higher-potential assets.

Morgan Stanley’s Calculated Gamble

By stepping in as the new lender on The Interlace, Morgan Stanley is betting that the underlying real estate—and possibly the post-refi cash flow—will perform well enough to justify the risk. The undisclosed loan size probably reflects a conservative loan-to-value ratio, giving the bank significant downside protection. For Morgan Stanley, this is not just a credit play but also a signal of confidence in the Dallas multifamily market, where fundamentals remain relatively strong despite elevated interest rates. The firm’s willingness to work with a syndicator under distress across other properties suggests a deliberate, asset-by-asset underwriting approach rather than a broad retreat from the sector.

What Distressed Property Owners and Lenders Can Learn from Nitya’s Maneuver

• Syndicators who used traveling PFCs should review compliance urgently. House Bill 2071 explicitly bans the practice, and while existing exemptions may be grandfathered, any change in ownership or lease terms could trigger a reassessment. Losing the tax exemption would materially alter net operating income, potentially violating loan covenants.
• Distressed asset owners facing foreclosure should explore selective refinancings. Nitya’s ability to pull one asset out of default while two others remain in legal crosshairs shows that lenders may allow piecemeal rescues if individual property performance justifies it. Preparing a clean, asset-level financing package—separate from troubled corporate-level debts—can open doors even when the broader portfolio is stressed.
• Lenders and investors should scrutinize tax-abatement dependency in multifamily underwriting. The Interlace’s tax exemption was central to its original capital stack. Any property whose pro forma relies heavily on a loophole or a single policy must be stress-tested for legislative change; discounting or removing that benefit in a downside case can change a deal’s viability.
• Commercial mortgage servicers and CMBS investors tracking Nitya-related debt should watch the two remaining foreclosure cases. A successful workout on The Interlace does not guarantee the same outcome for The Palace or The Chaparral. The resolution of those actions will clarify whether One William Street intends to liquidate or eventually restructure, setting a precedent for other syndicator loans with the same lender.