Silver Star sues Hartman for $50M

Silver Star’s executive committee is taking its dispute with the firm’s former CEO Allen Hartman to the next level.

Trustees for the Houston-based developer sued Hartman last week, accusing him of fraud, self-dealing and manipulation, among other misdeeds. Hartman’s wife, Lisa, and daughter Margaret are also named as defendants in the suit, along with affiliated companies Hartman vREIT XXI and Hartman XX Holdings. 

The claims largely echo those made in a presentation to shareholders earlier this month. But the filing reveals some new allegations and puts more than $50 million in damages on the line. 

“Hartman’s fraud and breaches of fiduciary duty, along with those of his co-conspirators and agents, have caused, and continue to cause, significant harm to Silver Star,” the executive committee claims in its lawsuit.

Hartman has not yet responded to the lawsuit, but denied earlier accusations of wrongdoing and fiduciary neglect. An email address and contact form on his website bounced back requests for comment. 

The Silver Star executives, led by Gerald Haddock, are seeking a jury trial in Harris County, requesting more than $50 million in damages plus interest calculated at the highest possible rate.

One of the most substantial claims levied in the complaint is that Hartman’s alleged mismanagement jeopardized a $259 million loan, thwarting several attempts to refinance it before maturity and eventually pushing the lender to declare an event of default. 

After several extensions, the loan was set to mature in October 2023. It was transferred to special servicing that month. As of September, it had an outstanding balance of $217 million, according to the suit. 

Elsewhere in the suit, the committee lays out further claims of mismanagement in a 17-item bullet point list. More consequential claims include:

• Hartman allegedly focused much of his time on personal political and faith-based pursuits, including traveling to the Capitol for the Jan. 6, 2021 “Save America” rally
• Hartman ran up $322 million in debts on Silver Star’s behalf, including around $17 million from an affiliated company that was not approved by the Board, according to the suit
• Hartman is accused of failing to remedy high turnover of executives and tenants 
• He allegedly gave dividends that exceeded funds from operations, with his affiliates and himself some of the largest recipients
• He is accused of paying his daughter, Margaret, about $2 million a year to raise equity, even when her fundraising proved “minimal.”

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The executive committee also claims Hartman spent time developing succession plans for “young, inexperienced family members,” which hurt morale and increased turnover among the company’s other executives. He is also accused of requiring staff to do his personal business, such as protesting the property tax valuation on his residence.

Earlier this year, Silver Star began transitioning its portfolio away from offices and retail toward self-storage.