Houston REIT Defaults On Uptown Dallas Office Building Amid Legal Battle
The future of a 253K SF Uptown Dallas office building with a $16.45M loan approaching maturity is in jeopardy amid its Houston-based owner’s inability to refinance and an ongoing legal battle with a limited partner.
Pillarstone Capital REIT said in a Securities and Exchange Commission filing last month that it received a default note on its loan for 4144 North Central Expressway in Dallas, which has $14.4M outstanding. The loan is now with a special servicer, according to a Trepp report.
The property is valued at $27.68M, according to Dallas County Appraisal District records.
Pillarstone has been “working diligently to find alternative financing,” but it can't assure that it will be able to obtain an extension or find new financing before its Oct. 1 maturity date, it said in the SEC filing. The building was 56% leased as of March 31, the filing says.
The loan was transferred to special servicing in June, per Trepp. Special servicer commentary this month indicated the servicer had reached out to the borrower to “provide the hello letter and pre-negotiation letter.”
The loan’s status is complicated by Pillarstone’s relationship and legal entanglement with Houston-based Whitestone REIT, which owns 81.4% of Pillarstone as a limited partner, according to SEC filings. Whitestone is actively trying to exit the partnership, and the two REITs are embroiled in a pair of legal disputes that have yet to be resolved.
Pillarstone and its operating partnership allege in a lawsuit that Whitestone's leadership embarked on a scheme to breach contractual agreements, violate fiduciary duties owed to Pillarstone and “pillage Pillarstone OP's assets.” Whitestone CEO David Holeman previously told Bisnow that Pillarstone owns assets with Whitestone’s former CEO, James Mastandrea, who was fired early last year and later filed a wrongful termination suit against Whitestone.
Whitestone has also brought a lawsuit against Pillarstone to invalidate a "poison pill" provision preventing Whitestone from exiting and monetizing its stake in the Pillarstone partnership, according to Whitestone.
“We seek to obtain fair value for our shareholders and exit the partnership altogether,” Whitestone said last week in a statement to Bisnow.
Whitestone is a guarantor of the loan on the Uptown Tower, according to the SEC filings. In a statement, Whitestone said it was evaluating its options for the future of the building, though it said there is a court order in place that prohibits Pillarstone from “handing the keys” to Uptown Tower to the lender or otherwise abandoning the property.
As for its own obligations for the property, its guarantee “is limited to specific listed recourse obligations of the borrower,” Whitestone said in the statement.
“The loan is secured by the building and property,” Whitestone said. “We will evaluate our options based upon the agreement in place.”
Pillarstone didn't respond to requests for comment.
Pillarstone owns about 927K SF of office and industrial space throughout Houston and Dallas. Uptown Tower is its only financed property, it said in an SEC filing, adding that it may be required to sell one or more assets to allow Whitestone to exercise its redemption right for cash.
Whitestone is a retail-focused REIT with more than 50 open-air centers throughout Phoenix, Chicago, Austin, Dallas-Fort Worth, Houston and San Antonio.