Silver Star Properties Subsidiary Files for Chapter 11 Bankruptcy
Silver Star Properties REIT Inc., a non-traded real estate investment trust formerly known as Hartman Short Term Income Properties XX Inc., announced that Hartman SPE LLC, an indirect subsidiary that owns legacy office, retail and industrial properties, filed a voluntary petition under Chapter 11 of the Bankruptcy Code.
The bankruptcy filing comes on the heels of the special purpose entity’s sale of its Prestonwood property, which netted $25 million, and is intended “to improve its ability to sell its remaining legacy assets,” the company said in a statement.
Silver Star says the filing will allow the SPE to conduct an orderly sale of its assets to pay its undisputed creditors in full, complete the refinance of its maturing senior indebtedness and maximize capital available for Silver Star’s redeployment into the self-storage asset class.
Further, the company says the bankruptcy filing will allow the SPE to complete property sales without “external interference by a dissident minority holder,” which “sales will be instrumental as the SPE looks to close on the refinancing of its SASB Loan” which has a current remaining balance of approximately $217 million. Silver Star says remaining assets of $131 million under contract for sale are expected to close in an amount sufficient to reach the $200 million loan balance required for refinancing from their replacement lender.
The filing comes after what Silver Star calls “failed efforts” to resolve intercompany ownership matters, a process that has been ongoing since December 2022, involving negotiations between the company and Hartman vREIT XXI Inc. which is under the control of Allen Hartman, who was recently named interim chief financial officer of Hartman vREIT XXI after being removed from multiple executive positions with Silver Star in March 2023.
The company says it has “diligently pursued mediation and sought legal remedies in response to Allen Hartman’s efforts to secure more favorable terms through the use of controversial legal tactics.” The company believes that the bankruptcy filing represents a “viable and constructive avenue to obtain the necessary relief to prove its ownership of the SPE’s properties, thereby safeguarding and enhancing shareholder value.”
Gerald Haddock, executive chairman of the executive committee of Silver Star, stated, “We are pleased with our progress towards our goals of moving the company into self-storage. Having successfully engaged Steve Treadwell, a seasoned executive in self-storage, as our CEO, the, company will be well positioned with his expertise to direct the entire enterprise with a coordinated branding strategy of acquiring institutional quality self-storage properties, allowing us to more readily fulfill our commitment to list on an established national exchange for trading. The bankruptcy filing for our SPE is part of our moving forward strategy as we expect to emerge quickly and with removal of our dissident’s interference. That will allow the company to resume its new growth strategy and make distributions to its shareholders much quicker, all of which have been hindered by the dissident’s interference.”
In May, Silver Star announced that their recently appointed chief executive officer, Mark Torok, had resigned. The company hired Treadwell as CEO in August.
Silver Star, in the aggregate, has sold eight assets in 2023 for net proceeds over $108 million, which includes four assets sold by the SPE for net proceeds of $44 million.
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