Terravista accuses financier of fraud

N.Y. company says the claims over apartment loan are ‘without merit’

Four San Antonio partnerships sought refuge in bankruptcy two years ago to stop foreclosure actions on their apartment complexes.

The partnerships, Terravista Corp. affiliates, weren’t able to hang on to the properties through the bankruptcy process. They ended up selling them to a Los Angeles nonprofit for what Terravista says was a “fire sale” price — almost $42 million combined in a deal the court approved last year.

Now, Terravista and the partnerships are accusing a New York finance company of fraud over its alleged failure to secure a Housing and Urban Development loan that the partnerships were counting on in a refinancing so they could retain ownership.

Dwight Capital’s actions were part of a “loan to own” scheme to cause the partnerships to default on their loans and allow Dwight to wrest control of the apartment complexes in foreclosure “at a steep discount,” Terravista alleges in recently filed lawsuit.

“When you start connecting the dots, it doesn’t pass the smell test,” said Kyle Watson, a San Antonio attorney representing Terravista in the litigation. Dwight principals had made comments about wanting to own the properties, he added.

Michael Hofer, Dwight’s general counsel, denied the allegations. “The claims alleged by Terravista are without merit, and we anticipate the legal system will resolve them accordingly,” Hofer said Tuesday.

Losses to Terravista’s business due to the acts of Dwight and others may exceed $50 million, the suit says. That’s largely the future earnings of the apartments had they not been sold, Watson said.

Terravista says it has owned apartment complexes in Bexar County for more than 20 years. It’s owned by San Antonio attorney and developer Philip Stewart and William Gregory. The four Terravista apartment complexes — totaling 652 units — that landed in bankruptcy in May 2019 were:

• Westwood Plaza Apartments, 2600 Westward Drive, 308 units.

• Spanish Spur Apartments, 6835 Pecan Valley Drive, 160 units.

• The Villas of Pecan Manor, 6840 Pecan Valley Drive, 96 units.

• Roselawn Apartments, 3346 Roselawn Road, 88 units.

Another property that Terravista sought to refinance — but did not put in bankruptcy — was the

120-unit Winston Square Apartments at 2506 S. General Mcmullen Drive. The Terravista partnership that owned Winston also is a plaintiff.

Dwight calls itself one of the largest Federal Housing Administration/housing and Urban Development lenders for multifamily and health care properties in the country.

Terravista hired Dwight to line up a low-interest HUD loan for the five properties in 2017.

Dwight “delayed and mishandled” the HUD application process, causing the partnerships’ existing loans to mature, Watson said.

“Dwight Capital took advantage of their control over the HUD process to coerce Terravista into accepting bridge financing” from an affiliate, Dwight Bridge Fund, “on terms it knew Terravista would not be able to meet,” the lawsuit alleges.

A bridge loan is short-term financing used until permanent financing can be secured.

The loan terms required Terravista to turn over management of the five complexes to San Antonio’s United Apartment Group Management Inc., the suit says.

Terravista alleges United mismanaged and neglected the properties, causing them to “rapidly deteriorate.” Among the problems that allegedly arose: rising vacancies (as much as 40 percent at some properties), overflowing trash bins and “unsanitary” swimming pools.

Dwight worked in “collusion” with United, Terravista adds. Stewart and Gregory were “completely frozen out of the operations,” Watson said.

“That’s a bunch of bull,” United President Carrie Girgus said. “The only colluding I did with Dwight was to keep the utilities on, the water on, because when we took over the property, all the utilities were set for disconnect because he (Stewart) was so far behind on payment.

“I managed that deal because he needed me in order to get that HUD loan,” she added. United also is a defendant in the lawsuit.

Girgus described Stewart as a “really smart lawyer,” but she thought some of the documents he signed with Dwight “were crazy.”

“He didn’t want to sell them, and he had plenty of offers,” Girgus said of the apartments. “His big deal was he had to dilute his percentage of ownership in order to not have to pay the IRS — he had so much equity built up in those deals he was going to pay taxes. I tried to help the guy out at every turn.”

A loan on Westwood went into default in April 2019, triggering a default on the other loans. The properties were posted for foreclosure for the following month.

On May 6, the day before the scheduled foreclosure sales, the Terravista partnerships filed for bankruptcy protection, putting a halt to the sales.

“Ultimately, we decided to place these properties into Chapter 11 bankruptcy in order to protect them … and then go forward with” obtaining permanent financing, Gregory said at the time.

That never happened. Nor did Dwight end up gaining control of the apartments.

Terravista sold the four apartment complexes to Pico Union Housing Corp. in a deal arranged in bankruptcy court. The Los Angeles nonprofit bought the apartments as part of its mission to develop and preserve affordable housing.

Pico also bought the Winston Square Apartments for $6.3 million.

Terravista’s claims in its lawsuit include civil conspiracy to commit fraud and breach of contract. The complaint was filed last month in state District Court in San Antonio.