The LLCs that own three multifamily complexes comprising 618 units throughout Houston have filed for Chapter 11 bankruptcy protection, pinning the blame on mismanagement by their former property manager.
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The properties named in the Nov. 27 filings are Miramar Townhomes in the Galleria area, The Avenue Apartments in the Heights, and Toro Place at 12101 Fondren Road. The filings name Khaled Noor and Baruch Teitelbaum as indirect majority interest holders of the four LLCs.
Noor and Teitelbaum are affiliated with a private equity real estate investment firm, and the four LLCs are “each special purpose entities which own separate multi-family properties,” according to a declaration filed by Teitelbaum in support of the bankruptcy proceeding. Noor and Teitelbaum have previously been identified as principals of Nord Group, a New York-based private equity firm specializing in real estate whose website says it is under construction.
According to the filing:
The Avenue is a Class-B, 250-unit property at 5050 Yale St. The property was built in 1972 and acquired in 2021 for $34M.
Toro Place, built in 1981, is a 320-unit complex in Southwest Houston. The apartment complex was acquired for $32M in 2021 and refinanced for just under $30M in 2022.
Miramar Townhomes is a Class-B, 48-unit property built in 1992 at 2380 Bering Drive. It was acquired in December 2021 for $21.5M.
The bankruptcy filing says the properties were acquired “at the height of the most recent real estate boom when rental prices were at historically elevated levels.”
The debtors went on to undertake substantial renovations on the properties, but the filing alleges the properties’ management company, identified as Houston-based Better World Properties, failed to effectively manage the process, incurred unnecessary expenses and did poor-quality work, leaving the owner with substantial unpaid debt.
Market rents began to fall and occupancy levels decreased as the Miramar Townhomes renovations were completed, forcing the debtor to reduce rental rates to stabilize the property, the filing says. A similar situation played out at Toro Place and The Avenue, where “cost overruns and shoddy work resulted from the mismanagement of the renovations.”
The properties are now stabilized at 85% to 95% occupancy, and rental rates are expected to increase in 2025, the filing says.
But upon filing for bankruptcy, documents indicate the debtors collectively owed $70.6M in secured debt and about $1.6M in unsecured vendor debt, some of which is disputed.
The debtors were “inexperienced and unfamiliar” with multifamily commercial real estate when they acquired the three properties, according to the filing, leading them to enlist BWP to operate the properties.
The LLCs terminated BWP’s services and sued the company in federal court in 2023, court records show. BWP countersued, and the matter was scheduled for trial on Dec. 3. The bankruptcy filings placed a stay on the lawsuit.
The “costs and time attendant with all of the litigation described herein have further exacerbated each Debtor’s cash flow problems,” the bankruptcy filing says.
BWP declined to comment, instead pointing to a Monday filing asking the court to lift the stay.
“It is unfortunate that the Nord Group sought to blame others, abuse the legal system and take advantage of many who have tried to help them through their challenges, instead of owning up to their actions and doing what is right,” it said in the filing.
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