Company that built condemned Celebration apartments files for Chapter 11

The construction company that built a luxury apartment complex in Celebration that was condemned a year after completion has now filed for Chapter 11 bankruptcy protection in the Southern District of Texas.

Urban Oaks Builders, a wholly-owned subsidiary of Texas-based Hines, announced the filing last week, noting that it was precipitated by litigation over the Sola at Celebration apartments. 

Palm Beach-based Southstar Capital Group paid $67 million in the fall of 2016 for the newly built, 306-unit apartment complex, which it renamed Sola at Celebration. Less than a year after the closing, the Osceola County Building Department condemned all six buildings and gave tenants 30 days to move. 

Southstar sued Urban Oaks and Hines in mid-February, accusing the company and its affiliates of knowingly withholding, concealing and misrepresenting defective conditions at the complex. 

Subsequently, Hines and Urban Oaks sued its insurers for denying claims related to the project and refusing to pay for the legal defense in the Southstar lawsuit, as reported by GrowthSpotter in July.

The project carried a Contriolled Insurance Plan that consisted of a $4 million general liability policy from Gemini Insurance Co. and excess policies for $10 million and $25 million, respectively. The excess policies only become effective when the Gemini policy coverage is exhausted.

Gemini has yet to file a response to the lawsuit.

"The continued litigation of both the insurance coverage dispute and the Southstar claims poses a risk that the lawsuits, if not appropriately restrained by the Court, could interfere with the operation of Urban Oaks’ business," the company said in a release.

Hines has been in business for 60 years and is known primarily as a developer of office towers. The company has developed 15,186 multifamily units across 37 communities, representing a small fraction of the corporation's $111 billion portfolio. Urban Oaks was formed in 2011 to specifically to serve as general contractor for the expanding multifamily division.

"The Chapter 11 filing will allow Urban Oaks to assure the funding of its current operations through debtor in possession financing and will ensure the cash flow needed to perform and complete the projects where Urban Oaks is currently the general contractor are not interrupted or impaired," the statement continued.

Hines has estimated the cost of repairs and damages at $45 million -- a figure that is escalating every month by $451,000 due to the lost rent claim alone. 

Hearings that were scheduled last week on Hines/Urban Oaks' motion to dismiss the Southstar lawsuit were cancelled because of the pending bankruptcy.

"We regret that this situation has forced our hand in this matter," the company added. "But we believe that the Chapter 11 filing is the best way to avoid any disruption or interference with Urban Oaks’ work resulting from the Southstar and coverage lawsuits or their ultimate outcome."

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