The path to disposing of office assets and pivoting to self-storage has been riddled with road bumps for Silver Star Properties REIT.
The Houston-based real estate investment trust is facing loan defaults, a delayed shareholder meeting and continuous sparring with its founder and CEO, who is trying to replace the board of directors and liquidate the company’s assets.
Benefit Street Partners filed to sell multiple properties at a foreclosure auction this month after Silver Star defaulted on two notes totaling $57.8M, though the auction was canceled with another filing late last week, public records show.
No reason was given for the cancelation and Benefit Street reserved the right to file again for an October sale.
The three buildings threatened with foreclosure are office properties throughout Texas, The Real Deal reported, citing Roddy’s Foreclosure Listing Service. Ashford Crossing II is a six-story building at 1880 S. Dairy Ashford Road in Houston, the 366K SF Three Forest Plaza is at 12221 Merit Drive in Dallas, and One Technology is a 14-story building at 7411 John Smith Drive in San Antonio.
Silver Star did not respond to a request for comment.
The offices are three of six legacy assets remaining in Silver Star’s portfolio, according to an Aug. 12 Securities and Exchange Commission filing from the REIT’s founder and previous CEO, Allen Hartman. Hartman said in the filing that the occupancy on those six properties is 27% lower than three years ago, when he was at the helm of the company.
That was one of 67 filings from Silver Star and Hartman promoting their proxy positions to shareholders since the start of June. Hartman is putting forward himself, Brent Longnecker and Benjamin Thomas for the board, while Silver Star is promoting current CEO Gerald Haddock as well as Jack Tompkins and James Still.
The proxy contest ends Oct. 6, when Silver Star’s postponed shareholder meeting is scheduled. Silver Star’s board delayed the meeting so that shareholders have time to get “full and accurate information” before casting their votes.
“Unfortunately, Allen Hartman, once again, is creating chaos — just as he did when he was in charge of your Company,” the Silver Star press release states.
Hartman pointed Bisnow toward SEC filings laying out his plans for the company.
Hartman, who owns nearly 7% of Silver Star’s stock, said in an SEC filing he hopes to gain control of the board in order to strategize liquidation. He would aim to immediately sell the REIT’s retail and storage assets and then lease up and stabilize the remaining legacy assets to sell over the next two years, returning capital to shareholders as assets sell.
Silver Star argues that it should continue its pivot toward self-storage, which it started in 2023. It acquired nine properties that year through the acquisition of Southern Star Self-Storage, which it reported as a “turnaround success” in May with increased occupancies and net operating income.
But the REIT’s pivot had already been complicated by blocked deals, an SEC investigation and litigation. Silver Star sued Hartman in late 2023, accusing him of fraud, breach of fiduciary duty and illegal meddling in the attempted sale of Silver Star’s assets.
That case, consolidated with a case Hartman brought against Silver Star in March 2023, is still working its way through Harris County District Court.