Hines affiliate to pay $25M in bankruptcy claim over condemned Celebration apartments (Updated)

A company with ties to the Houston-based real estate investment firm Hines has been ordered to pay more than $25 million to entities that took over a previously condemned apartment project built by the developer in Disney’s Celebration community.

According to bankruptcy court records recently filed in the Southern District of Texas, a judgment was issued against Hines affiliate Urban Oaks Builders LLC to cover about $18.4 million in restoration costs, $8.2 million in lost profits and $732,000 in legal fees owed to Southstar Capital Group I, Durban Road TIC LLC and Cottington Road TIC LLC.

Bankruptcy judge David R. Jones dismissed claims that Urban Oaks participated in any fraud or made material misrepresentations.

The claimants bought and took over property management of the apartment community in 2016 after Hines affiliates developed and sold the project to Southstar Capital for $67 million.

Less than a year later, each building at the 306-unit luxury multifamily community, formerly known as Sola at Celebration, was condemned and evacuated by the Osceola County Building Department.

“When that much was done wrong in so many buildings, it makes one wonder how that could have happened,” Kim Strutt, an investor in the project, told GrowthSpotter.

“I don’t think we could have challenged the county… Balconies were leaning, there were all kinds of life and safety issues.”

Southstar sued Hines affiliated companies for defective work that allegedly resulted in damages totaling over $45 million and an additional $451,000 for each passing month without rent.

On top of that, insurers for Urban Oaks refused to pay for the legal defenses and denied claims related to the project.

In a declaration in support of the bankruptcy, Todd Hagood, vice president of construction for Urban Oaks, wrote it was the “potential liabilities, rising litigation cost and uncertainty caused by insurers” that ultimately led the company to file for Chapter 11.

Hines must now reorganize itself through a prepackaged plan. A hearing is scheduled next month.

Hines spokesman Mark Clegg said the company believes the judgment is the result of a construction defect claim that is fully covered by insurance.

“We expect that the judgment will be resolved accordingly and that Urban Oaks Builders will emerge from bankruptcy shortly," Clegg said in a statement.

Legal battles between Hines affiliates, Southstar Capital and insurers are ongoing.

Last year, Cohen Goldstein Investment Strategies paid $43 million to purchase the Celebration apartment project at 1688 Celebration Boulevard. The company renamed the complex Astoria at Celebration and reopened to residents in August after an extensive renovations.

Editor’s Note: This story has been updated to include a statement from Hines.

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