Almost a decade has passed since Osceola County’s largest condemnation case forced residents to evacuate their apartments in Celebration. But the South Florida company that had purchased the then-newly built Sola at Celebration community is still waiting to collect more than $26 million in court-awarded damages.
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Affiliates of Palm Beach-based Southstar Capital Group paid $67 million in October 2016 for the 306-unit luxury apartment complex now called Astoria at Celebration at 1688 Celebration Blvd. But construction failures including leaning balconies and cracks in walls and floors displaced tenants less than a year later, and Southstar sold the property for just $43 million, a sharp loss.
It later secured a court-recognized claim for $26.1 million against the builder, Urban Oaks Builders LLC, an affiliate of Houston-based Hines, a global real estate developer and investment manager operating in 30 countries.
Urban Oaks filed for bankruptcy in 2018, leaving Southstar seeking payment from a builder with limited resources.
Now, more than six years later, following a recent ruling in Texas, Southstar’s path to collection has narrowed, according to a report in GrowthSpotter.
Urban Oaks and affiliated developer Hines had sought insurance coverage for the builder’s liability. In a separate lawsuit against insurers Gemini, Ironshore and Navigators, the companies argued that their policies required the insurers to pay. To prevail, Urban Oaks and Hines needed to show how much of the $26.1 million claim was attributable to property damage covered by their insurance policies.
Because Southstar sold the complex before undertaking repairs, repair estimates became the basis for its repair claim, and it was up to Urban Oaks’ and Hines’ attorneys to show which portions of the estimates qualified for insurance coverage.
That’s where things fell apart.
In a 106-page opinion issued Aug. 19, U.S. District Judge Andrew Hanen noted that because Urban Oaks and Hines failed to clearly separate covered and uncovered repair costs, it was impossible to determine what the insurers actually owed.
“Plaintiffs presented no allocation evidence at trial despite clear notice of their burden under Texas law,” he wrote, adding that the developer’s repair estimates “included estimates for both covered and uncovered damages.”
So, now what?
Scott Shuker, a business bankruptcy attorney with Orlando-based Shuker & Dorris, P.A. who has guided companies including Planet Hollywood and Celebrity Resorts through Chapter 11, said his best guess is that the long-running bankruptcy will be dismissed, leaving Southstar to “write off its debt in full.”
Shuker reached that assessment after reviewing recent bankruptcy filings, including a request by the U.S. trustee, whose role is to oversee bankruptcy administration, to dismiss the case or convert it to Chapter 7 liquidation.
Converting it to Chapter 7 would put a trustee in charge of collecting and selling available assets to pay creditors. But Shuker questioned what that would accomplish here.
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“If there are no assets left, then there’s unlikely to be any benefit to a Chapter 7 unless there are potential lawsuits to be pursued by a Chapter 7 trustee,” he said.
Given how long the bankruptcy has been pending, Shuker said the deadlines for bringing those lawsuits may already have passed.
Still, an appeal on Hanen’s ruling could further delay bankruptcy proceedings.
“You have to wonder, who pays for that appeal,” Shuker said.
Justin Luna, a bankruptcy attorney with Orlando-based Latham Luna who is not involved in the case, said prolonged insurance disputes can put financially strained companies at a disadvantage.
“Insurance companies have deeper pockets than most debtors, who must disclose all their financial records,” Luna told GrowthSpotter.
Luna said insurers can “play the long game as a strategy” to improve their position.
Southstar’s prospects on recouping what’s owed to them also depend on whether Urban Oaks has any assets or ability to pay. In an operating report filed Sept. 4, the builder listed no full-time employees, no accounts receivable, and $94,494 in cash, a fraction of the $26.1 million claim.
Hines’ financial strength does not automatically make those resources available to Southstar. The claim is against Urban Oaks, and Southstar’s separate failed lawsuit against Hines left Hines with no obligation to pay Southstar under that case.
Attorneys for Urban Oaks and Southstar did not respond to inquiries. Whether Southstar expects any further recovery remains unclear.
The apartment complex has followed a different trajectory. The complex was renovated and resumed leasing in late 2019. California firm Versity Investments acquired it for $74.5 million in 2021.
But nearly seven years after that reopening, the financial reckoning continues.
Have a tip about Central Florida development? Contact me at [email protected] or (407) 420-5246. Follow GrowthSpotter on Facebook and LinkedIn.
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