Hines affiliate files for Chapter 11

Construction firm hit with lawsuit over Florida apartments

Urban Oaks Builders, a multifamily construction company affiliated with the Houston real estate firm Hines, has filed for bankruptcy protection amid a lawsuit alleging that both companies failed to disclose construction defects to the buyer of a luxury apartment complex in Florida.

Urban Oaks, which operates independently of Hines, said the voluntary Chapter 11 filing was precipitated by the lawsuit and exacerbated by a dispute with the builder's insurance carriers over covering for the potential cost of the lawsuit’s claims.

The bankruptcy filing was made on Aug. 31 in U.S. Bankruptcy Court in Houston. Urban Oaks' estimated its assets are valued at between $10 million and $50 million and its liabilities are between $50 million and $100 million.

The disputes stem from a relatively new apartment complex developed by Hines and constructed by Urban Oaks in Celebration, an upscale master-planned community near Walt Disney World.

Hines sold the 306-unit property, then called Aviva at Celebration, to Southstar Capital Group of Palm Beach, Fla. in September 2016. Southstar paid $67 million and renamed the complex Sola at Celebration.

Earlier this year, Southstar sued Hines, Urban Oaks and other affiliates, claiming they knowingly failed to disclose building defects when it sold the apartments. The lawsuit, filed in the Ninth Judicial Circuit Court of Osceola County, accuses Hines and its affiliates of knowingly withholding, concealing and misrepresenting defective conditions at the multi-building complex designed in an Art Deco style.

Southstar said the defects were not detectable during the inspection process and only became apparent in February 2017 when walls, breezeways, floors and bal-

conies started showing cracks and other signs of damage.

On Aug. 14, 2017, the Osceola County Building Department issued notices of evacuation to all residents.

“Hines knowingly sold us a property that was riddled with problems and structural issues that routine inspections could not detect,” Gina Williams, president and chief financial officer of Southstar Capital Group, said in a recent statement. “Their deception and now lack of willingness to remedy these problems is wrong and must be resolved before the property falls further into disrepair. On behalf of our investors, the Town of Celebration and the uprooted residents forced to find a new place to live, we urge Hines to do the right thing.’’

Southstar is seeking monetary damages for the repair work, loss of rental revenue and attorneys’ fees.

Urban Oaks said it was made aware of the alleged defects about eight months after selling the complex.

“Unfortunately, despite Urban Oaks’ diligent efforts to address the issues and its commitment to perform the corrective work, litigation has ensued,” the company said in a statement. Hines declined to comment further.

Hines began expanding its multifamily development business in 2011 when it announced plans to build a luxury complex, WaterWall Place, in the shadow of the Williams Tower. Hines formed Urban Oaks to work for the company’s multifamily division on a national basis.

Urban Oaks said it will continue to fund operations and projects during bankruptcy proceedings.

“We regret that this situation has forced our hand in this matter,” Urban Oaks said in the statement. “But we believe that the Chapter 11 filing is the best way to avoid any disruption or interference with Urban Oaks' work.”