|By Nancy Sarnoff, Houston
ChronicleMcClatchy-Tribune Regional News
July 24, 2009--The court-appointed receiver for R. Allen Stanford's group of companies has asked a judge to approve the sale of an investment interest in a hotel project under construction at the site of the old Town & Country Mall.
Stanford Venture Capital Holdings, the main investor in a company developing Hotel Sorella at the CityCentre mixed-use development near Interstate 10 and the Beltway, is facing a call from the developer for more money or have its interest diluted.
Midway CC Hotel Partners LP was formed to develop, own and operate the 245-room hotel, which will have 22 residential condominiums and 21,800 square feet of adjoining retail space, according to documents filed with the court this week.
The hotel is part of a $500 million project that ultimately will include more than 800,000 square feet of retail and office space, hundreds of apartments, a conference center and luxury town homes. The hotel is scheduled to open in August.
Stanford Venture and other Midway affiliates invested $21.3 million and obtained a $50 million construction loan to develop the project, documents said.
The company contracted with Valencia Hotels to manage hotel operations.
After the Securities and Exchange Commission filed its lawsuit in February against Stanford Financial alleging massive financial fraud, the developer of City- Centre sent a letter to the receiver informing him that it would be issuing a $24 million capital call and Stanford Venture would be responsible for $17.2 million.
The developer, an affiliate of Houston-based Midway Cos., said the cash would be required to move forward with certain aspects of the hotel.
Midway agreed to segregate the capital call into four separate calls, with the first to be issued in May for $4.5 million. Stanford Venture's share was $3.2 million.
If the receivership didn't fund the capital calls, interest in the partnership would be diluted to 34 percent.
Midway delayed the call. Now the receiver wants to sell Stanford's 72 percent interest, which was initially $15.3 million, for $2.7 million. The buyer is another limited partner, Midway T&C Land Investors LLC.
If the sale is not concluded by July 31, Midway may exercise the terms of the default provisions and try to dilute Stanford Venture's interest.
An alternative to selling it, "would be for the receiver to properly manage all of Stanford's many investments to fruition so as to realize the profits that they would bring, rather than cremating the many good projects that were in many stages of development and would have greatly increased the value of Stanford holdings," Stanford's attorney Dick DeGuerin said in an e-mail.
Midway said the project likely has negative equity in today's market. Therefore it would not be in the best interest of the receivership to inject more capital into the partnership, according to the receiver's motion.
Because the project is under construction and not generating any income, it would be "unrealistic" to find another buyer in short order.
The receiver sought a recommendation from private equity adviser Park Hill Group. The parties said the offer was equitable.
"While the offer does not rise to the level of the initial investment, it represents a fair market cash price when accounting for liquidity discounts and economic uncertainties inherent in today's market," said Kevin Sadler, a lawyer for the receiver.
But the change in ownership could lead to new challenges. The lender has the right to modify the terms of the loan if there is a transfer of ownership in the project, a letter from Midway said. That could include an increase in the interest rate and an increase in equity requirements -- either of which would further dilute the value in the project.
To see more of the Houston Chronicle, or to subscribe to the newspaper, go to http://www.HoustonChronicle.com.
Copyright (c) 2009, Houston Chronicle
Distributed by McClatchy-Tribune Information Services. For reprints, email email@example.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.