Correspondence 0001446687-24-000013 from SILVER STAR PROPERTIES REIT, INC (CIK 0001446687)
SILVER STAR PROPERTIES REIT, INC (CIK 0001446687)
Date: Jan. 10, 2024 · CIK: 0001446687 · Accession: 0001446687-24-000013
AI Filing Summary & Sentiment
File numbers found in text: 001-41786
Referenced dates: August 17, 2023, December 18, 2023
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CORRESP 1 filename1.htm silverstarcommletterresp PRIVILEGED & CONFIDENTIAL AmericasActive:19469504.4 SILVER STAR PROPERTIES REIT, INC. 2909 Hillcroft, Suite 420 Houston, Texas 77057 January 9, 2024 BY EDGAR Perry Hindin and Blake Grady Office of Mergers & Acquisitions Division of Corporation Finance U.S. Securities and Exchange Commission 100 F Street, NE Washington, D.C. 20549 Re: Silver Star Properties REIT, Inc. DEFA14A, Filed January 5, 2023 (0001446687-24-000004) DEFA14A, Filed January 5, 2023 (0001446687-24-000006) File No. 001-41786 Dear Messrs. Hindin and Grady: This letter is in response to (i) the letter (the “Comment Letter”) dated January 5, 2024, from the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (“SEC”) addressed to Silver Star Properties REIT, Inc. (the “Company”) and (ii) a subsequent call from the Staff on January 5, 2024 to our counsel, Don McDermett of Winston & Strawn LLP, following the issuance of the Comment Letter. For ease of reference, the text of the Staff’s comments is included below in bold- faced type, followed by the Company’s responses to each. DEFA14A filed January 5, 2024 (0001446687-24-000004) 1. The following statement in your letter appears to impugn the character, integrity and personal reputation of Allen Hartman and his daughter without adequate factual foundation (emphasis added): • You will be with us as we forge ahead, committed to digging out of the hole that Hartman created and creating future profits for all stockholders. • [Allen Hartman] is even using his inexperienced daughter, never having made a dime for any stockholder, to contact you and is still grooming her to take over your company if he regains control. Please do not make such statements without providing a proper factual foundation for the statements. In addition, as to matters for which you do have a proper factual foundation, please avoid making statements about those matters that go beyond the scope of what is reasonably supported by the factual foundation. Please note that characterizing a statement as one’s opinion or belief does not eliminate the need to provide a proper factual foundation for the statement; there must be a reasonable basis for each opinion or belief that the filing persons express. Please refer to Note (b) to Rule 14a-9. To the AmericasActive:19469504.4 extent you are unable to provide adequate support, please revise these disclosures and refrain from including such statements in future soliciting materials. Response: The Company respectfully acknowledges the Staff’s comment. However, the Company believes that it has a proper factual foundation for the statements made in the above-referenced filings. Set forth on Exhibit A to this letter is a summary of the Company’s factual support for the subject assertions, which exhibit cites relevant portions of the original petition (the “Petition”) that the Company filed against Allen R. Hartman and certain of his affiliates on December 14, 2023 in the District Court of Harris County, Texas, 334th Judicial District (Case no. 2023-85765). In order to place a concise description of these factual matters in a convenient place for access by the Company’s stockholders, a copy of the Petition was filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K dated December 18, 2023. The Company subsequently referenced the Petition in its press release, set forth on Exhibit 99.1 to a second Current Report on Form 8-K, also filed on December 18, 2023. The Company and its litigation counsel investigated the facts set forth in the Petition to obtain comfort as to their accuracy prior to filing the Petition. The Company also respectfully notes that some of the factual bases referenced in Exhibit A to this letter were made in certain of the Company’s DEFA14A and Form 8-K filings containing additional solicitation materials, including the following: (i) Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed November 27, 2023 and (ii) Exhibits 99.1, 99.2 and 99.3 to the Company’s Current Report on Form 8-K, filed November 29, 2023. The Company likewise took care to ensure the veracity of these statements prior to making the respective filings. 2. We note your statement that “[e]nclosed is a previously circulated mailing summarizing the problems associated with Allen Hartman.” Please revise to include such mailing or confirm such mailing has been previously filed as soliciting material under the cover of Schedule 14A. Response: The Company confirms to the Staff that the above-referenced mailing was filed with the SEC as soliciting material under the cover of Schedule 14A on December 29, 2023. DEFA14A filed January 5, 2024 (0001446687-24-000006) 3. “Please consider the two comments included in the [Comment Letter] to be extended to the last slide of the DEFA14A materials filed on January 5, 2024.” Response: The Company respectfully acknowledges the Staff’s comment and references its response to the comment set forth in item 1 above and related Exhibit A attached hereto, which also sets for the factual bases supporting the subject statements. The Company also wishes to call the Staff’s attention to the fact that the Company has filed claims related to violations of the federal proxy rules against Mr. Hartman, his wife, and Hartman vREIT XXI, Inc. in that certain Complaint for Injunctive and Other Relief that the Company filed against those parties on October 6, 2023 in the United States District Court of Maryland (Case no. 1:23-cv-02720-ELH) (the “Maryland Petition”). Among other things, the Maryland Petition alleges that Mr. Hartman (through his counsel) hired a proxy solicitation firm and had contacted at least ten shareholders without filing a proxy statement, and that the communications included false and misleading statements. See, e.g., paragraphs 37- 56 of the Maryland Petition, a copy of which is attached as Exhibit B to this letter. If you have any questions, please feel free to contact our counsel, Don McDermett or Ben Chrisman of Winston & Strawn LLP, at 214-453-6388 and 214-453-6438, respectively. AmericasActive:19469504.4 Very truly yours, /s/ Gerald Haddock Gerald Haddock Co-Chief Executive Officer and Chairman of the Executive Committee cc: Don McDermett, Partner, Winston & Strawn LLP Exhibit A-1 AmericasActive:19469504.4 Exhibit A Silver Star Properties REIT, Inc. Summary Response to SEC Comment Letter, dated Jan. 5, 2024, and Additional Comments in SEC Voicemail of Jan. 5, 2024 Statements in DEFA14 Supplemental Materials, as filed Jan. 5, 2024 Factual Bases “You will be with us as we forge ahead, committed to digging out of the hole that Hartman created and creating future profits for all stockholders.” (emphasis added in SEC comment letter) -As CEO and Chairman of Silver Star (at the time, Hartman Short Term Income Properties XX, Inc.), Allen Hartman diverted his energy, attention, and company resources to his personal right- wing political and religious endeavors. See Silver Star Properties REIT, Inc. v. Allen R. Hartman, et al., No. 2023-85765 pending in the 334th Dist. Crt. of Harris Cnty., Tex., Pet., attached as Exhibit A-1, at ¶ 23. -Silver Star experienced significant employee and executive turnover and instability under Mr. Hartman’s leadership. See, e.g., id. ¶¶ 25, 26, 44. -Mr. Hartman repeatedly claimed to investors that he chose to forego his salaries from Silver Star in an attempt to show his interests were aligned with theirs, yet he approved monthly distributions that outpaced Silver Star’s abilities (amounting to $105.66 million from the company’s inception until independent directors halted distributions in July 2022), while he and his family and affiliated companies owned significant equity stakes in Silver Star. See id. ¶¶ 27, 44. As of November 2023, Mr. Hartman and his family and affiliated companies owned approximately 15.08% of Silver Star’s shares. See id. ¶¶ 16-21; see also Silver Star Schedule 13D/A, dated Nov. 22, 2023, attached as Exhibit A-2; Initial Statement of Beneficial Ownership of Securities, dated Nov. 29, 2023, attached as Exhibit A-3. -At the same time Mr. Hartman was CEO and Chairman of Silver Star, Mr. Hartman was President, CEO, and/or Executive Chairman of companies that received compensation from Silver Star to manage its properties and day-to-day affairs and/or with which Silver Star entered significant transactions. See Exhibit A- 1, ¶¶ 28-31, 44. By way of one example, Mr. Hartman was on both sides of a $10 million unsecured promissory note payable from Silver Star to Hartman vREIT XXI (“XXI”) (a company where he was, and still is, CEO and Executive Chairman, inter alia), a note under which the amount owed by Silver Star purportedly ballooned to over $17 million by the time Mr. Hartman was ousted as CEO of Silver Star. See id. ¶¶ 31, 44. -Mr. Hartman also jeopardized the refinancing of a $259 million loan secured by Silver Star’s assets, and did so on several occasions, despite recommendations from outside advisors. See id. ¶¶ 35-41, 44, 46, 55-57. -Mr. Hartman also failed to remedy excessive tenant turnover. See id. ¶ 44. Exhibit A-2 AmericasActive:19469504.4 -Mr. Hartman also failed to pay vendors, with delinquent accounts payable rapidly increasing through the time of his removal as CEO. See id. ¶ 44. -Additionally, in or about October 2022, Silver Star’s bankers told it that it would not be able to raise capital so long as Mr. Hartman was at the helm of Silver Star. See id. ¶ 47. “[Allen Hartman] is even using his inexperienced daughter, never having made a dime for any stockholder, to contact you and is still grooming her to take over your company if he regains control.” -Margaret Hartman received her B.B.A. in 2017 from Texas A&M University. See Margaret Hartman LinkedIn Profile, attached as Exhibit A-4. -She does not have an M.B.A. See id. -Prior to joining Silver Star in May 2021, when her father was still CEO, Margaret Hartman worked for real estate firm Hines for 4 years. She initially worked with Hines as an analyst intern, joined Hines post-graduation as an Analyst, and was a Senior Analyst for a little over her final year-and-a-half at the company. See id. -She joined Silver Star and worked in an equity raising position for a department that had an approximately $2 million annual budget. This equity-raising campaign was a failure and did not bring in any additional equity into the company. See Exhibit A-1, ¶ 4. -Despite many long-term executives with more institutional history, superior educational backgrounds, and work experience, Margaret Hartman began attending executive-level meetings that outpaced her seniority and experience level and was invited to join high-level decision-making at Silver Star under her father’s leadership. See Exhibit A-1, ¶¶ 4, 26, 44. -With her father’s departure from Silver Star, Margaret Hartman has now joined another company led by Mr. Hartman, XXI. -Margaret Hartman has been heavily involved in meetings between Silver Star and Allen Hartman regarding Hartman’s proposed separation from Silver Star, as well as the separation of XXI. See Exhibit A-1, ¶ 52. -Margaret Hartman (separate from any interest in shares owned by the Hartman Family Protection Trust or her other family members or corporate affiliates) owns approximately 1.26% of the shares of Silver Star. See Exhibit A-1, ¶ 19; see also Silver Star Schedule 13D/A, dated Nov. 22, 2023, attached as Exhibit A-2; Initial Statement of Beneficial Ownership of Securities, dated Nov. 29, 2023, attached as Exhibit A-3. “Hartman knowingly and intentionally caused significant [damages] to the Company with the help of third parties.” -Dissatisfied with his removal as Executive Chairman and the failure to negotiate an overly-favorable separation from Silver Star, on March 20, 2023, Mr. Hartman and companies in his control (including XXI) filed an Original Petition in the District Court of Harris County, Texas in Cause No. 2023-17944, accusing Silver Star of breaching its contractual obligations to him and his companies inter alia. See Exhibit A-1, ¶ 54. - Mr. Hartman amended his petition on July 7, 2023, and then again on July 18, 2023, to bring additional claims against Silver Star. The second amended petition brought frivolous claims that Mr. Hartman (and his controlled entities) owned an interest in property owned by a Silver Star subsidiary, and filed baseless lis Exhibit A-3 AmericasActive:19469504.4 pendens under Section 12.007 of the Texas Property Code against eight properties, knowing that Silver Star was attempting to sell these properties to refinance a $259 million secured loan that was coming due in October 2023. Silver Star informed Mr. Hartman and his attorney that Mr. Hartman and XXI had no interest in the properties as a matter of law via filings in the litigation and a letter dated August 17, 2023. See Letter to Lightsey, dated Aug. 17, 2023, attached as Exhibit A-5. Nevertheless, neither Mr. Hartman nor his attorney removed the lis pendens or dropped his baseless claims of interest, knowing that these actions would cause significant harm to Silver Star and its business. All the while, Mr. Hartman continued to attempt to negotiate to extract more money and property from Silver Star than he, his family, and/or his affiliates were entitled. Moreover, Silver Star’s subsidiary was forced to file a voluntary Chapter 11 Bankruptcy Petition in Delaware, Case Number 1:23-bk-11452. In a stipulated judgment entered in these bankruptcy proceedings, Mr. Hartman admitted that he “does not possess any interest in [Silver Star’s] real property. Nov. 27, 2023, Stipulated Final Judgment, Hartman SPE, LLC v. Hartman vReit XXI, Inc., Adv. No. 23-50588, in the United States Bankruptcy Court for the District of Delaware, attached as Exhibit A-6, at 3; see also Exhibit A-1, ¶¶ 54-57. “Hartman wants 5 prime properties of Silver Star for his family which constitutes a ‘greenmail transaction’ to the detriment of the shareholders.” -Silver Star has attempted to separate its interests from those of Mr. Hartman and his family and affiliated companies for over a year but has failed to do so because of Mr. Hartman’s repeatedly attempts to extract properties worth more than the fair value of his and his family’s stake in Silver Star in those negotiations. See Exhibit A-1, ¶¶ 50-52, 55-56; see also Jan. 9, 2023 Letter of Intent for Separation Agreement, attached as Exhibit A-7 (noting, in part, that the parties would “cooperate and negotiate in good faith to resolve any additional matters and to affect an orderly transition on a commercially reasonable basis to wholly separate companies”). -Mr. Hartman sought these properties in exchange for his, his family’s, and his affiliated-companies’ shares in Silver Star at various junctures over the past year, including negotiations in March/April 2023 and after inappropriately filing lis pendens against Silver Star’s subsidiary’s properties in summer 2023 in an effort to obstruct Silver Star’s ability to refinance a large secured loan. See Exhibit A-1, ¶¶ 50-52, 55-56. Exhibit A-1 [See Attached] Page 1 of 30 NO. _________ Silver Star Properties REIT, Inc., § IN THE DISTRICT COURT OF § Plaintiff, § § v. § § Allen R. Hartman, individually and § as Trustee for the Hartman Family § Protection Trust; Lisa Hartman, § HARRIS COUNTY, TEXAS individually and as Trustee for § the Hartman Family Protection § Trust; Margaret Hartman; § Hartman vREIT XXI, Inc.; and § Hartman XX Holdings, Inc. §