Southstar Capital Group is suing one of the world's largest real estate developers over claims of shoddy construction work on a Celebration apartment complex that was condemned by Osceola County last summer.
Palm Beach-based Southstar paid $67 million in the fall of 2016 for the newly built Aviva luxury apartment complex, which it renamed Sola at Celebration.
The Art Deco-inspired community on Celebration Boulevard featured a clubhouse, zero-entry saltwater swimming pool, fitness center, indoor dog spa and outdoor dog park. It fit perfectly in Southstar's luxury rental portfolio, and it was projected to generate about $300,000 per month in rental income.
But the property has been vacant since August, since the Osceola County Building Department condemned all six buildings and gave tenants 30 days to move.
Southstar sued the original developer and seller, Hines, in mid-February, accusing the company and its affiliates of knowingly withholding, concealing and misrepresenting defective conditions at the 306-unit apartment complex.
The Texas-based developer was also the licensed general contractor for Aviva through its affiliate, Urban Oaks Builders, which is also named in the lawsuit. The Southstar lawsuit attempts to "pierce the corporate veil" by holding the $111 billion parent corporation liable for its affiliates, claiming they are alter egos.
“Southstar has a proven track record of buying and operating quality apartment communities and certainly would not have purchased Sola at Celebration for the market price listed had the defects been disclosed,’’ President and CFO Gina Williams said in a statement. “The fact that Hines knew about the issues and hid them from us is appalling and fraudulent.’’
In a statement to GrowthSpotter Hines said Urban Oaks has offered to make all of the repairs necessary to bring the property up to code, but that Southstar "has in essence demanded a new building."
Hines has been in business for 60 years and developed more than 13,000 multifamily units across 39 communities.
According to the complaint, the Celebration property was riddled with defects that were not detectable during the normal inspection process and only became apparent months later when walls, breezeways, floors and balconies started showing cracks and other signs of damage.
Attorney Ramon A. Rasco, with Podhurst Orseck, said that Southstar officials inspected about 75 percent of the apartment units during the due diligence phase, but they also relied on Hines' reputation for quality work.
"This was brand new construction, so you wouldn’t be doing the same inspection -- where you're opening up walls -- as you would for a 20- or 30-year-old building," he said.
Subsequent examinations exposed significant construction defects that violated Florida Building Codes, including framing that wasn't constructed according to the building plan and lack of proper weatherproofing on the roofs and windows, according to the complaint.
Rasco said the improper construction has caused water and mold damage to the units and common areas, which now must be repaired and restored to market-ready condition.
"My client is looking to be made whole," he said. "We're looking for Hines to do the right thing. They bungled the construction of this brand new project, and they’ve refused to repair these buildings so they are safe for occupancy."
Urban Oaks acknowledged there had been water intrusion, but has denied most of the allegations in the lawsuit. The builder and parent company have filed separate motions to dismiss the case after a failed mediation session in April.
Hines said the company and its affiliates "vigorously disagree" with Southstar's allegations and will defend themselves in court.
The buyer accepted the building "as is" following a comprehensive inspection and due diligence period and Hines has no obligation to address the faulty construction.
"There was no evidence of these alleged issues before then and the building’s construction had passed all required code and other inspections," the company said.
In its response to the complaint, Urban Oaks said it received passing inspections from Osceola County throughout the construction process. Urban Oaks' attorney asserts that they were in the process of repairing the balconies when the county issued the evacuation order, even though a forensic engineer issued two reports finding that the apartments were safe to occupy.
Jason Perkins with Carlton Fields wrote that Southstar is responsible for lost rental income because it didn't challenge the county's evacuation order.