Silver Star shoots more accusations at former CEO Allen Hartman
Hartman accused of taking out millions in unauthorized debt, misleading board, nepotism
More accusations of mismanagement against former Silver Star Properties CEO Allen Hartman came to light in another bombshell Securities and Exchange Commission filing this week.
The company’s three-member executive committee laid out 16 accusations against Hartman in a presentation to shareholders filed with the SEC. The board accused Hartman of pursuing real estate development and acquisitions without access to capital, in the laundry list of alleged misdeeds.
Hartman mismanaged the company to the point that it defaulted on a $259 million SASB loan, prompting the board to hire wealth management group Raymond James as an outside strategic advisor, the presentation states.
The board also moved to pivot Houston-based Silver Star’s portfolio — previously about 7 million square feet of office, retail and industrial — to self-storage, in an effort to salvage the company, they said.
Their presentation, which also contained accusations of nepotism, came days after a video message to shareholders in which the board blamed Hartman for Silver Star’s financial woes.
“Hartman was always busy, but not always on company business. He spent his time and his focus regularly on his personal, religious and political endeavors,” a transcript of the video said.
The board accused Hartman of taking out millions of dollars in debt via an affiliate company, without their approval, while the company’s debt ballooned to $322 million.
Hartman is accused of misleading the board about the firm’s financial performance, consistently impeding shareholder liquidity and taking dividend advances to which he was not entitled. Hartman later returned the advances at the board’s request, according to the presentation.
The board is composed of real estate and finance veterans Gerald Haddock, Jack Tompkins and Jim Still. The company was delinquent in filing annual and quarterly SEC reports 11 times under Hartman’s watch, they said.
Besides that, they accused Hartman of detrimental nepotism.
“Allen Hartman’s nepotism tendencies became evident when the independent directors believed he positioned his daughter, who lacked sufficient experience, in a defacto executive role, as the successor CEO to Mr. Hartman,” the presentation states.
Hartman’s eldest daughter, Margaret Hartman, was an associate at a Silver Star-related company, Hartman Income REIT, according to LinkedIn. The presentation didn’t name her. Attempts to reach Allen Hartman and Margaret Hartman seeking comment were unsuccessful.
Allen Hartman’s daughter “partially managed” the firm’s equity capital raising team, the board said. The board described the team as excessively “expensive and ineffective” and moved to eliminate it, along with other roles in the company, after Hartman bloated its labor pool to 185 employees, the presentation states.
They also fired Allen Hartman as CEO, and after that, he misbehaved, the board said.
“He took an adversarial role, likely for personal benefit, in working to resolve conflicts with the company,” the presentation said.
Hartman indirectly brought a lawsuit against the company’s subsidiaries to hinder the sale of properties, forcing the company into bankruptcy, it said. And he “unilaterally severed an important advisory agreement between the company and an affiliate,” the presentation said.
Silver Star sued Hartman in the District Court of Maryland in October, accusing him of attempting to solicit stockholders to replace Haddock, Still and Tompkins as board members with a slate handpicked by Hartman. The suit also alleges that he misled stockholders by reporting the REIT’s net asset value per share was $10.39 despite the fiscal year report for 2022 stating its NAV was $6.25. Silver Star is seeking a permanent injunction preventing Hartman from soliciting stockholders via proxies and from making false statements about shares, as well as damages from the ousted CEO.
Hartman, his wife and another one of his companies, Hartman vREIT XXI, remain shareholders of Silver Star, according to the lawsuit.
Going forward, Silver Star plans to start acquiring self-storage properties by the end of next year. The board plans to expand its operations outside of Texas, singling out the Mid-Atlantic, Midwest and Mountain West as attractive regional markets.
It is currently paying off the $217 million remaining on its $259 million SASB loan, securitized against 39 commercial Texas properties. The board said Hartman’s failure to refinance the loan led to its eventual default, resulting in the firm incurring increased interest charges. Interim CEO David Wheeler expects the loan to be paid in full by the end of January.