Silver Star Properties Chairman Accuses REIT’s Founder Of Mismanagement, Illegal Meddling
Adding to a tumultuous year full of leadership changes, maturing debt and a bankruptcy filing, Silver Star Properties’ chairman has now accused its former CEO and founder of mismanagement and unlawful meddling.
Gerald Haddock, executive chairman of the Houston-based REIT formerly known as Hartman Short Term Properties XX, blamed Allen Hartman for the REIT’s financial woes in a video sent to the company’s shareholders Monday, The Real Deal first reported. A transcript of the video was filed with the Securities and Exchange Commission.
Haddock said that when he began working at Silver Star in 2020, he and others discovered “turnover at the executive level, lack of liquidity for shareholders, routine delinquent SEC filings of financial statements, and a noticeable pattern of evasive comments ... concerning Allen Hartman’s lack of focus on company business.”
The transcript accuses Hartman of conflict of interest, developing succession plans for young, inexperienced family members rather than devoting himself to company priorities, borrowing cash from Hartman vREIT XXI to subsidize Silver Star’s shortfalls and not engaging in the business, instead focusing on what Haddock described as personal, religious and political matters.
The firm’s debt ballooned to $322M in 2022 as a $259M commercial mortgage-backed securities loan maturity loomed, the transcript states. The loan was transferred to special servicing before its Oct. 9 maturity date, after the company filed for Chapter 11 bankruptcy.
“Adding to this situation that the debt maturity was just around the corner, our bankers told us that if Mr. Hartman is at the helm, Silver Star will not be able to raise any capital,” Haddock said in the video.
Hartman was ousted as CEO shortly after, Haddock said. Mark Torok was named CEO in late 2022 and led the company’s transition into self-storage. Hartman was still serving as the executive chairman of the board as of May, but Haddock was identified as the executive chairman by August.
This month, Silver Star sold three of the 30 properties backing the $217M loan for a combined $41M, including the 117K SF Garden Oaks Shopping Center in Houston, which went for $27.2M. Sales of assets exceeding $152M have been made this year, the transcript states.
The REIT is looking to sell nine additional properties that are under contract for purchase, per bankruptcy court filings. Those sales would shave another $80M off the CMBS debt.
The asset sales have been and are being “executed in an orderly fashion while pivoting to acquire self-storage assets, utilizing along the way Section 1031 exchanges to save taxes and preserve value,” Haddock said in the video.
“This strategy has been, and continues to be, quite successful.”
The Chapter 11 protection was filed to clear the sales from the hurdles of Al Hartman filling “illegal Lis Pendens liens” and claiming erroneous interest, Haddock said.
Silver Star said it expects to exit bankruptcy with $370M to invest in future business plans, primarily to acquire self-storage assets.