In the complex landscape of real estate investment trusts (REITs), Silver Star Properties REIT Inc.’s recent announcement that its subsidiary, Hartman SPE LLC, has filed for Chapter 11 bankruptcy is a significant development. However, it’s crucial to understand the strategic underpinnings of this move rather than viewing it as a straightforward financial setback.
For starters, Silver Star Properties REIT Inc., a publicly-listed, non-traded real estate investment trust previously known as Hartman Short Term Income Properties XX Inc., is based in Houston, Texas. Recent news has cast doubt on its future viability in its most recent quarterly report submitted to the Securities and Exchange Commission.
Silver Star REITs offers investors the opportunity to participate in the warehouse and office REIT markets. Unfortunately, many investors are reporting substantial losses.
Haselkorn & Thibaut is helping investors recover investment losses that were sold Silver Star Properties (Hartman REIT). Please call us at 1-800-856-3352 for a free consultation and portfolio review.
In this blog post, we’ll take a closer look at Silver Star Properties, its investment strategies, and the risks and potential returns associated with REIT investments. We’ll also explore the importance of seeking advice from a financial advisor, understanding securities arbitration, and navigating the investment loss recovery process.
Short Summary
Table of Contents
- Investors must assess risks and potential returns to make informed decisions about REIT investments.
- Hartman Short Term Income Properties XX, Inc. is taking steps to improve its financial position in order to generate sustainable income for investors.
- Seeking advice from an experienced investment fraud lawyer on investment loss recovery through securities arbitration or legal action.
Silver Star Chapter 11 Bankruptcy
Chapter 11 of the U.S. Bankruptcy Code allows companies to reorganize their debts and assets. Contrary to popular belief, it’s not necessarily an admission of failure but can serve as a strategic tool for restructuring. In Silver Star’s case, the filing comes in the wake of the sale of its Prestonwood property, which netted $25 million. The company has stated that the bankruptcy filing aims to facilitate an orderly sale of its remaining legacy assets.
Objectives and Financial Reconfiguration
Silver Star has outlined multiple objectives for the bankruptcy filing. First, it intends to pay its undisputed creditors in full. Second, it aims to refinance its maturing senior indebtedness, thereby providing the company with more financial flexibility. Lastly, the filing will enable the company to maximize capital available for redeployment into the self-storage asset class, a sector that has shown resilience and growth potential.
Navigating Internal and External Challenges
The bankruptcy filing also serves to mitigate challenges both internal and external to the company. Silver Star has been embroiled in a complex negotiation process concerning intercompany ownership matters with Hartman vREIT XXI Inc., controlled by Allen Hartman. The company has described these efforts as “failed” and has accused Hartman of employing “controversial legal tactics” to secure more favorable terms. The Chapter 11 filing provides Silver Star with a legal framework to resolve these issues and safeguard shareholder value.
Moreover, the filing allows Silver Star to complete property sales without external interference from a “dissident minority holder.” This is particularly important as the company looks to close on the refinancing of its SASB Loan, which has a current remaining balance of approximately $217 million.
Leadership and Future Strategy
Amid these developments, Silver Star has undergone leadership changes. The company hired Steve Treadwell as its new CEO in August, following the resignation of Mark Torok in May. Treadwell brings significant expertise in the self-storage sector, aligning well with the company’s future strategy. Gerald Haddock, the executive chairman, has expressed confidence that Treadwell’s leadership will expedite the company’s transition into self-storage and facilitate its listing on an established national exchange for trading.
Other Silver Star Properties Problems
This week Silver Star Properties REIT has cast doubt on its future viability in its most recent quarterly report submitted to the Securities and Exchange Commission.
The report disclosed a $259 million loan on the company’s books, originally due to mature on October 9, 2020. The loan agreement allowed for three sequential one-year extensions, all of which have been fully exercised.
In the report, the company raises serious questions about its ability to secure enough financing to meet its existing SASB Loan obligations. As per guidance from ASU 2014-15, “there is a substantial doubt about the Company’s ability to continue as a going concern within one year of the issuance date of these Consolidated Financial Statements.”
On October 19, 2022, Silver Star was alerted to a default event by the SASB loan servicer. This default was triggered by a failure to meet the insurance requirements of the loan agreement concerning a single property. According to the filing, this default event was previously overlooked in order to effect the last one-year extension of the SASB loan. A revised SASB Loan Agreement, which took effect in November 2022, includes cash management conditions activated by the default.
Silver Star maintains that the enforcement of these cash management provisions has decreased the cash resources available to meet their operational costs and limited their access to revenues from tenants.
Adding to their woes, Silver Star announced in May that their newly-installed CEO, Mark Torok, had resigned from his position.
Understanding Silver Star Properties REIT Inc
Silver Star Properties REIT Inc. is a non-traded REIT that owns 44 commercial properties in Texas. It is also known as Hartman Short Term Income Properties XX, Inc. The company focuses on two primary investment strategies: the Warehouse Properties Investment Strategy and the Office REIT Approach. These strategies aim to maximize returns through well-managed investments in warehouse and office properties, despite the inherent risks and potential for substantial doubt.
The company offers a variety of resources to assist with commercial leasing, including leasing education videos and guides, to ensure that investors are well-informed when it comes to leasing properties managed by Hartman REIT. Office, retail, and industrial spaces are available for lease, and in case of investment losses, investors may seek legal assistance to recover their losses.
Warehouse Properties Investment Strategy
The Warehouse Properties Investment Strategy focuses on investing in warehouse properties that provide reliable tenant income and generate approximately 8-10% per annum returns. Commercial real estate, including warehouses, typically offers higher returns than residential real estate, especially in growing markets like San Antonio.
However, investors should be aware of the risks associated with tenant default, market fluctuations, and the potential for substantial doubt when investing in warehouse properties. To reduce these risks, investors can diversify their portfolios, conduct thorough market research, and consult a financial advisor.
It’s also crucial for investors to understand their rights and legal recourse in case of investment loss.
Office REIT Approach
The Office REIT Approach is an investment strategy that focuses primarily on office properties. Investing in office properties leased to tenants can generate income from rent payments. To help investors determine the optimal amount of office space for their investment, Silver Star Properties REIT is an investment trust. Inc offers a tool called the Space Calculator, which takes into account factors such as the size of the office space, the number of tenants, and the type of tenants.
Some of the company’s office properties include 400 North Belt in Houston, TX, and 616 FM 1960, offering on-site surveillance, reserved parking, on-site banking, garage parking, and on-site maintenance. These properties demonstrate the company’s commitment to providing quality office spaces for potential tenants.
Evaluating Risks and Potential Returns of REIT Investments
Like any other type of investment, REIT investments come with a certain degree of risk. Factors such as market fluctuations, lack of liquidity, distributions, fees, and leverage risk, among others, can impact the performance of a REIT and its ability to generate sustainable income. However, properly managed REITs can offer potential returns that are higher than those of other investments, such as stocks and bonds.
The company’s ability to generate sustainable income is contingent upon the performance of its real estate assets, the management of the REIT, and general market conditions. Market fluctuations can affect both the company’s income generation capacity and the value of the REIT’s shares. It’s essential for investors to evaluate these factors when considering a REIT investment carefully.
Company’s Ability to Generate Sustainable Income
Sustainable income refers to income that is consistent and steady over time. As of December 31, 2021, the estimated Net Asset Value per share of Hartman Short Term Income Properties XX, Inc. is $12.08. To bolster its balance sheet and conserve cash, the company temporarily suspended distributions to common stockholders, with plans to exchange certain floating-rate debts for fixed-rate debts.
By focusing on improving its financial position, the company aims to enhance its ability to generate sustainable income for investors. This includes managing its real estate assets effectively and adapting to prevailing market conditions to minimize the impact of market fluctuations and other risks.
Substantial Doubt and Market Fluctuations
Substantial doubt arises when relevant conditions and events indicate that a company may not be able to meet its current liabilities when due. Market fluctuations can contribute to substantial doubt by causing a decrease in a company’s stock price, leading to a decrease in the company’s value and an increase in risk.
To mitigate the risk of substantial doubt, investors can diversify their investments, conduct thorough due diligence on the company they are investing in, and track the company’s financial performance. By following these measures, investors can better protect themselves from potential investment losses and enhance their chances of achieving their financial goals.
Navigating Investment Loss Recovery
Investment loss recovery is the process of recovering losses suffered by investors due to a company’s or its representatives’ fraudulent or unlawful activities. This involves submitting an arbitration claim to the Financial Industry Regulatory Authority (FINRA). Those who are successful in recovering money may receive an amount that is significantly lower than their losses, and the procedure for distributing the money may take some time.
By understanding the process of investment loss recovery and knowing when to pursue legal action, investors can better protect themselves from potential losses and hold those responsible for any fraudulent or unlawful activities accountable.
Identifying Potential Securities Fraud
FINRA is closely monitoring the sale of REITs, particularly the methods by which brokers and dealers promoted and distributed the products to investors. REITs typically pay a commission of up to 15%, and broker-dealers often presented REIT investments to investors as a safe and secure option, despite the associated risk.
Haselkorn & Thibaut is currently examining potential securities fraud allegations related to broker-dealers recommending that investors invest in high-risk non-traded REITs, such as Hartman Short Term Income Properties XX. By staying informed about potential securities fraud and monitoring the actions of broker-dealers, investors can better protect themselves from potential investment losses.
Pursuing Legal Action
Suppose investors have experienced investment losses in Hartman Short Term Income Properties XX. In that case, they may seek assistance from securities attorneys at Haselkorn & Thaibut by filing a FINRA Dispute Resolution Claim against the brokerage firm that sold them the investment. The process of pursuing legal action can be lengthy, and those who recover money may receive a substantially lower sum than their losses.
By understanding the process of pursuing legal action and knowing when to file an arbitration claim, investors can hold those responsible for their losses accountable and potentially recover a portion of their lost funds.
Understanding Securities Arbitration
Securities arbitration is a legal process for resolving disputes between investors and their brokers or brokerage firms, administered by the Financial Industry Regulatory Authority (FINRA). The process begins with the investor filing a claim, which is then reviewed by a panel of arbitrators who assess the case and render a decision. This decision is binding and cannot be appealed.
Securities arbitration offers several advantages, such as a faster resolution of disputes, lower costs, and a less formal process than litigation. However, it also has drawbacks, such as restricted access to discovery, limited remedies, and the inability to appeal the arbitrators’ decision.
Understanding the securities arbitration process is essential for investors to protect their investments and ensure they receive the most suitable advice.
Summary
In conclusion, investing in Silver Star Properties REIT is worth it. Inc presents both potential rewards and risks. By understanding the company’s warehouse and office REIT investment strategies, evaluating the risks and potential returns of REIT investments, and seeking advice from a financial advisor, investors can make more informed decisions and protect their investments.
Navigating the complexities of REIT investments can be challenging, but with the right knowledge, guidance, and support, investors can successfully manage their portfolios and achieve their financial goals. So take the initiative to learn more about REIT investments, seek the help of a trusted financial advisor, and stay vigilant in protecting your hard-earned investments.
Frequently Asked Questions
Who is Al Hartman?
Al Hartman is a recognized industry leader in the commercial real estate sector. He has built and led the HARTMAN INCOME REIT since 1983 and has been named a Texas CRE Influencer by REDnews.
His expertise has been featured in various prestigious publications, such as BISNOW.
How does a REIT work?
REITs provide investors with access to professionally managed real estate portfolios, offering a reliable income stream from regular dividend payments. By investing in a REIT, an investor is able to benefit from diversified real estate investments without the high costs associated with buying or managing them on their own.
