Scott Everett has made some big decisions lately, with the founder and CEO of S2 Capital opening his own wallet to pay off the debt of 12 apartment properties and save them from loan default.
Everett founded S2 in 2012 to acquire multifamily properties that could have their value increased through investments in upgrades. Since he launched S2, it has completed transactions for complexes valued at a combined $11 billion and that contain more than 50,000 apartments. But some properties have struggled amid higher interest rates and other economic challenges in recent years.
Everett is investing "a lot of cash" to pull the dozen properties that the firm owns from special servicing because he continues "to believe in the assets." He declined to disclose how much he is investing in the move but said "it's not an insignificant amount." The properties are expected to exit special servicing in the next 30 to 60 days, he said, reverting back to S2 Capital, a Dallas-based real estate firm with about 27,000 apartment units in its portfolio.
"We are in active discussions on S2 Capital's end" that are ongoing "with the intent to invest more money in all of our assets," Everett told CoStar News in an exclusive interview that offers a rare look at how one firm is working through its distressed assets.
Everett said each property has been challenging during the past five years but for different reasons.
"We believe there's been two broader real estate recessions, smashed together," he added. "In the 2022 to 2024 downturn, we survived with no real issues. Now, in 2024 to 2026, it's been ongoing, and it's been a challenging environment specifically for workforce housing."
Married with four children, he and his family live in Dallas, where he serves on the boards of the Dallas Children’s Advocacy Center and the Children’s Cancer Fund. He also is a member of the Washington, D.C.-based Real Estate Roundtable, a public policy advocacy group for the U.S. commercial real estate industry.
S2 Capital has an outstanding balance of nearly $558 million tied to the dozen apartment properties that transferred to special servicing beginning in late April through May. Analytics firm Morningstar shows the commercial mortgage-backed securities loans tied to the 12 apartment properties in four U.S. states include:
Arizona: The Jerome, a 408-unit apartment complex in Glendale with an outstanding loan amount of nearly $79.9 million.
Florida: The Landing at East Mil, a 360-unit property in Orlando with an outstanding balance of nearly $45.6 million.
North Carolina: The Winslow Apartment Homes, a 220-unit apartment property in Charlotte, with an outstanding loan balance of nearly $29.1 million. The Tatum, a 176-unit apartment complex in Charlotte, with a loan balance of nearly $19.8 million. The Quinn on Ravenglass, a 168-unit apartment property in Raleigh, with an outstanding balance of nearly $24.6 million.
Texas: The Loren, a 250-unit property in Dallas, has a balance totaling more than $27.5 million. The Kace, a 720-unit apartment complex in Grand Prairie, with an outstanding balance of nearly $92.2 million. Weston Medical Center Apartments, a 793-unit property in Houston, with an outstanding balance of more than $84 million. The Sophia, a 377-unit apartment complex in Dallas with an outstanding loan of more than $38.8 million. Hyde Park at Valley Ranch, a 525-unit apartment property in Irving with an outstanding balance of nearly $69.4 million. The Felix, a 272-unit apartment property in Arlington, with an outstanding loan of nearly $23.9 million. And the Mark at 2600, a 250-unit apartment property in Irving with an outstanding balance of more than $28.1 million.
Concessions
Many of S2's properties in special servicing last traded before and in the immediate wake of the pandemic. That was before interest rates rose and ongoing supply chain challenges "hurt pockets of the Sun Belt," Everett said.
"It's been a very challenging environment," Everett said. "We approached our lenders and everyone is working with us.
"Our portfolio remains full and we are seeing one of the better spring leasing seasons even though concessions are heavy," he said. Typical apartment rent concessions include four to six weeks for free but harder hit markets, such as Austin and Phoenix, are ponying up even more concessions ranging between six to 12 weeks of free rent.
"We actually have more conviction that we are closer to a recovery in those markets" as income and job growth remain strong, Everett said.
"The demand is strong, it's more of supply issues, which is temporary," he added.
Seeking to sell
Even as S2 Capital prepares for a dozen of its properties to exit special servicing, there are a handful of other properties owned by the firm up against loan maturity deadlines, spurring each toward a sale.
Each property is headed to different undisclosed buyers in the next 30 days, he added. Those apartment properties include The Hathaway at Willow Bend in Plano, Texas; The Melville in Dallas; The Bowie near Atlanta; The Republics: West and East apartments in Garland, Texas; and The Ellington Apartments in Plano, Texas.
"The appetite for investment-grade trades is still really good," Everett told CoStar News. But investors "are picky" and "only want 1980s workforce housing in a good location. The spreads for 1970s and 1980s product are wildly different in terms of valuation and liquidity pool. It's some of the widest spreads I've seen in a long time."
S2 Capital is also a buyer, having recently nabbed a big apartment complex in Chicago in December with its own fund. The company launched a new industrial division after acquiring Fort Capital in August 2025 to help diversify its business.
Last month, S2 Capital brought on a new leader for its apartment and industrial development platform that the firm plans to grow over the next three to five years, Everett said.
"Other than solving these legacy issues from various downturns, we remain committed to our assets, and we are working through everything," Everett said. "We are actively buying through the cycle with our current fund," Everett said. "We are buying industrial, multifamily, student housing and even through the asset sales, we will grow our portfolio slightly by unit count.
"The old adage, smooth waters never made good sailors, is accurate, and we are continuing to grow," he added.
So, what went wrong to cause the need to rework debt?
Perhaps the firm bought too much in 2022, he said. Everett also learned he doesn't love S2 Capital being super focused on a niche sector. For example, the firm may step away from being a 1980s value-add workforce housing player and raise funds around industrial properties, newer apartments and development projects.
But S2 Capital's thesis for investment won't change, he said, adding that "we like to buy broken deals and fix them."