I want to tell you about one of the hardest years I’ve had in this business — and why I’m glad I stayed in it.
A couple of years ago, I co-sponsored a loan on a large multifamily deal in Texas. It was a passive role for me. The other general partners were the operators and the money guys. They just needed my balance sheet and my experience to qualify for the loan. Rates were low, insurance was manageable, and the deal looked solid. For about eighteen months, it was quiet.
Then everything fell apart.
What Actually Happened
The property management company the GPs had hired turned out to be running a fraud operation. They placed somewhere between 150 and 200 unqualified tenants — people with failed background checks, fabricated income amounts, and missing or pocketed security deposits. And they hid it. For about six months, the financial reporting they sent to the ownership group was manipulated to mask what was actually happening on the ground.
By the time we found out, in early 2023, the damage was done. Every tenant in place was either unqualified, not paying rent, or causing problems. The good tenants who had been there before were moving out. Crime was up across the property. The city was asking questions. The lender was asking questions. And I was sitting there as a loan sponsor finding out about this at the same time as everyone else, having had essentially no visibility into daily operations.
That’s the part that still stings. Not the fraud itself — fraud happens, and there are bad actors in every industry. What stings is that better operational visibility would have caught it months earlier. A recurring billing that disappears. Occupancy that looks fine on a report but doesn’t match the delinquency numbers. Income verifications that don’t hold up to scrutiny. Smart Management is built specifically to surface those red flags in real time — the kind of thing that was sitting in their system for months before anyone looked closely enough to find it.
Taking Over
At that point I had a choice. Walk away and take the hit, or step in and fix it. I had the most experience, the most resources, and the most ability to raise additional capital. So we went in.
We moved people from my team onto the property. We raised additional capital to fund the turnaround. We started the process of removing the problem tenants, renovating units, and rebuilding occupancy with qualified people. It was not a fast or clean process — we’re talking about a large property in a market where we had to rebuild trust with the city, the lender, and the remaining good tenants all at the same time.
When we took over in 2023, delinquency was at $1.1 million. By the end of 2023, it was under $15,000. We took economic occupancy from the mid-to-high 30s up to around 80%, with a clear path to the 90% threshold we needed to refinance into agency debt.
That was ten months of the hardest work I’ve done in this business.
The Storm After the Storm
If you think the fraud cleanup was enough, here’s where it gets almost cinematic.
A few weeks after we had the property stabilized and running well, massive storms rolled through that part of Texas. Tornadoes. The kind of weather that tears through a neighborhood and leaves a trail of devastated buildings. I’m watching the weather reports, watching the storm track, and watching it veer toward our building, then away, then back toward it, then away again. Back and forth, over and over. Like Lieutenant Dan on the shrimping boat in Forrest Gump, screaming into the hurricane.
The building made it through untouched. Not a single unit damaged.
And here’s what happened next. Our operations team — the same team that had spent months turning this property around — looked at the situation and saw an opportunity. A lot of the competing apartment buildings in the area had taken significant damage. There were displaced tenants everywhere with nowhere to go, actively looking for apartments right now. The team went out, printed flyers, and started talking to those displaced tenants directly.
In six days, they signed 56 leases. On a 600-unit building, that’s a 10% jump in occupancy in less than a week. We had been grinding for months to push past the 90% threshold, and the same team that knew how to operate under pressure found a way to get there when the opportunity appeared.
That’s what staying power looks like in practice. You grind through the hard stretch, you keep the operation tight, and when the moment comes you’re ready to move on it.
What I Learned
A few things I’d take away from this for anyone building a portfolio:
Passive is never completely passive. When you co-sponsor a loan, your name and your balance sheet are on the line regardless of how operational you are. That means you need visibility into what’s happening, even if you’re not the one running the property day to day. If the GPs won’t give you that, walk away from the deal.
Fraud hides in disconnected systems. The manipulation that happened on this deal was possible because the financial reporting lived in a separate system from the operations data, and nobody was cross-referencing them in real time. One system can be massaged. When your leasing data, your billing data, your maintenance data, and your financial reporting all live in the same place and update in real time, the kind of thing that happened here becomes visible in days, not months.
The operators who last are the ones who stay. I know a lot of people who would have handed this property back to the lender and moved on. That’s a valid choice in some circumstances. But if you have the resources and the team to fight through it, staying in a bad deal and turning it around builds something that walking away never does. It builds the kind of operational capability and organizational trust that you can only earn by actually doing it.
Staying power is a competitive advantage. When those tornadoes came through and flattened our competition, we were positioned to take advantage of it because we had survived what came before. The operators who get shaken out in a difficult market leave opportunities for the ones who stayed.
The storm will end. The clouds will part. Make sure you’re still standing when they do.
Real-time visibility across your entire portfolio — occupancy, collections, maintenance, financials — is what Smart Management was built to provide. The kind of situation described in this post doesn’t disappear entirely, but it gets caught a lot earlier. See how it works.
This post reflects my personal experience as an operator and loan sponsor on a multifamily property in Texas. It is not legal or financial advice.