StoryBuilt receiver accuses principals of “egregious mismanagement”
Austin-based developer imploded, entering receivership in August
The sudden collapse of Austin-based developer StoryBuilt last summer left many wondering how such a promising company could unravel so quickly. Now, as a receiver works to salvage what remains of the company’s assets, some of the errors that led to StoryBuilt’s downfall — and who could be held responsible for them — are coming to light.
In its latest receivership report, Los Angeles-based Stapleton Group said it has discovered a pattern of sloppy bookkeeping and minimal documentation. The receiver also disclosed that it is working with even more regulators, and that one development project sold at foreclosure auction for a third of its loan value. It provided the clearest picture yet of just how perilous some lenders’ positions have become.
While the receiver’s forensic accounting is ongoing, it detailed for the first time just how muddled some of the company’s books had become as it fell apart.
The receiver described the documentation for one representative project, Willa, as a mess of incomplete, unreliable ledgers.
“There is not a single, current, accurate set of historical financial records for Willa,” the report reads.
The mixed-use development at 1600 South First Street included 23,000 square feet of commercial space, with a tenant-in-common arrangement set up to accommodate three investors who needed a 1031 exchange.
Transactions relating to the project’s commercial portion were recorded on different ledgers without clear documentation, creating a scattered, confusing set of books. In other cases, expenses like utilities and taxes were paid but not recorded, and there was sparse documentation for how the project’s transactions were approved.
The sloppy bookkeeping makes it hard to calculate accurate ownership percentages in the project, complicating the receivership’s efforts to pay out the company’s lenders.
As the receiver creates basic balance sheets for each StoryBuilt entity, “a pattern is emerging,” according to the report. Time after time, lender and investor funds were deposited “randomly,” with project-specific bank accounts sometimes not opened until after investor funds had been received, if at all. Sometimes those funds were deposited in StoryBuilt’s main account.
The company paid for project expenses from its main account, or other bank accounts, with the transactions recorded as simple intercompany activity. The company’s accounting department was not privy to decisions about cash transfers and payments, the receiver writes.
Behind all this was poor documentation, without clear lines of approval and descriptions of the transfers.
“The Receiver expects to file claims against principals and has documented a number of instances of egregious mismanagement which caused [StoryBuilt] serious financial damage and ongoing liabilities,” the receiver writes. It did not specify what those claims would be or which principals it meant.
In the background, the raft of regulators scrutinizing StoryBuilt grew in November, as the receiver reported cooperating with the Department of Labor and the State of Washington Department of Labor and Industries.
The receiver previously reported that it was cooperating with the Federal Bureau of Investigations, Internal Revenue Service, Securities and Exchange Commission, Texas State Securities Board and Texas Comptroller of Public Accounts.
Well, they can’t all be winners.
The receivership reported that it has allowed one of StoryBuilt’s developments to go to foreclosure auction without protest. The situation highlights just how far the values of some StoryBuilt projects have fallen, with lenders on the hook.
The development, called Bruno, was planned as a 42-unit rental project at 2001 South First Street. Moody’s Bank lent StoryBuilt $9.5 million for the project in 2022, but the developer imploded before building it.
The receiver has persuaded two lenders on other projects to resume funding them so construction can be completed. Theoretically, that should increase the value of the banks’ collateral, and make it easier to recover their money.
Moody’s declined to put up construction financing to finish Bruno, though. As StoryBuilt’s investment banking team tried to sell the project, it didn’t receive any offers sufficiently large to justify blocking the foreclosure, according to the new report.
The property went to auction, where Moody’s was the highest bidder. The winning bid: just $3.2 million, according to property records, about a third of the loan value.