Silver Star subsidiary defaults on $259M, transferred to special servicing

Securitized against 39 Texas properties totaling 5.8 million square feet

Silver Star Subsidiary’s $259M CMBS Loan to Special Servicing
Silver Star Properties' David Wheeler (Illustration by The Real Deal with Getty, Silver Star Properties)

The $217 million balance on a portfolio belonging to a subsidiary of Silver Star Properties has been transferred to special servicing. 

Hartman SPE, the subsidiary, is working out the debt with its servicer, and it is selling off properties in an attempt to pay down the defaulted debt.

The subsidiary initially took out the $259 million CMBS loan, tied to 39 properties, from Goldman Sachs Mortgage Company in 2018. Hartman failed to pay it off before the initial maturity date in October 2020. 

The company has since exhausted its three extensions. No more extensions are available on the six-note loan, servicer commentary from Sept. 15 states. Due to an insurance default, the loan has been in a “hard lockbox” since May, which is an arrangement that forces cash flow directly into a lender-controlled account. 

The debt was transferred to special servicing in September, ahead of its Oct. 9 maturity date. As of October 25, the debt remains in special servicing. Hartman SPE said it would continue efforts to sell off properties to pay down the loan. Silver Star pivoted to self-storage earlier this year, and Hartman SPE filed for bankruptcy in September.

There are no plans for a lender-forced sale on the portfolio, said David Wheeler, president of Silver Star.

“We’re past the maturity date, but we’re working with the special servicer while in bankruptcy,” Wheeler said. “That’s a very cooperative relationship in large part because we have substantial equity in the portfolio. We’ll continue paying the loan down, and we have a replacement lender that we’ve been working with for months now that will take us out at the appropriate time.”

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Hartman SPE cited issues with repayment and a desire to maximize Silver Star’s available capital, in its bankruptcy filing last month. The company had hoped to pay down the debt to $200 million and refinance it before the maturity date, according to a court filing. 

Hartman SPE has been under contract to sell $133 million worth of properties, the filing states.

Two of those deals closed on Tuesday for a combined $25 million, Wheeler said. That was for shopping centers: One Mason Plaza, at 811 South Mason Road in Katy, and Fondren Road Plaza, at 7042 to 7098 Bissonnet Street in Houston.

Walzem Plaza Shopping Center, at 5486 to 5496 Walzem Road in San Antonio, is expected to close next week, Wheeler said. Four other properties are under contract, and a fifth is in negotiations, with transactions likely to close by December, he said. 

The 5.8 million-square-foot Hartman Portfolio includes commercial properties in Houston, Dallas, San Antonio and Fort Worth. The portfolio is 73 percent office and 25 percent retail, with the remaining 2 percent being industrial. The Hartman Portfolio has an approximate taxable value of $518 million. 

Silver Star had sold off eight properties by the end of September, netting $108 million in its plan to shift its 6 million-square-foot office and retail portfolio to self-storage. However, the process has been relatively turbulent as the Houston-based company has struggled to sell off enough of its portfolio in time and wrestled with intercompany ownership. 

“The goal is still to pivot over the course of the next year or so. Market conditions will dictate at some level as we do want to make sure we optimize these exit values,” Wheeler said. 

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