Silver Star Properties Pivots to Self-Storage as Distress Looms
Silver Star Properties is making significant changes to its investment strategy, repositioning its portfolio of office, retail and industrial holdings into self-storage, according to a May 26 SEC filing.
Silver Star is repositioning its entire 6.8 million-square-foot portfolio to self-storage, a plan its board of directors’ executive committee outlined on April 6. The Houston-based REIT completed a $3 million acquisition of Southern Star Self-Storage Investment Company in early May to operate alongside its existing operations.
The company saw a $24 million loss in the recoverable value of eight properties by the end of 2022. It had suspended the payment of distributions in July 2022 to preserve capital and ensure its financial stability. The company also divested from certain properties that faced a decline in value and diminished demand in light of uncertainties in the commercial real estate market.
“The negative impact of the tightening of the credit markets may have a material adverse effect on us resulting from, but not limited to, an inability to finance the acquisition of real estate assets on favorable terms, if at all, increased financing costs or financing with increasingly restrictive covenants,” the filing stated.
Perhaps most worrying is a looming maturity date on a $259 million SASB Loan. The loan, backing 39 properties, is set to mature Oct. 9, after the company exhausted three one-year extensions. The loan servicer declared an event of default due to noncompliance with insurance requirements in November, restricting the company’s ability to meet operating obligations. The company’s ability to continue as it currently exists is “dependent upon ability to refinance the SASB Loan prior to the maturity date,” it said.
Adding to the uncertainty, CEO Mark Torok resigned on April 28, citing personal reasons. CIO David Wheeler has been appointed interim president as the company mounts a search for a CEO with experience in the self-storage industry to lead the company’s new direction.
The REIT, formerly known as Hartman Short Term Income Properties XX, has a history of investing in assets primarily located in Texas, using a value-add strategy to drive growth and generate cash flow for its stockholders. It currently holds 44 properties across the Lone Star State, comprising 29 office buildings, 12 retail properties and three industrial developments — more than half of which are located in Greater Houston.
