In late February, downtown Denver’s 17th Street Plaza was sold to an affiliate of Lone Star Funds, a Dallas-based private equity firm.
Now, in a pair of dueling lawsuits, a Florida-based real estate giant says it was cut out of the deal. And Lone Star says it’s being extorted.
The tale begins in September, when the 33-story tower at 1225 17th St., home to tenants JLL and Salesforce, hit the market.
While no list price was included in marketing materials, Lone Star Funds said in a recent lawsuit the CBRE and Newmark brokers marketing it were originally targeting $225 million. The company initially passed, believing that to be too high.
About a month later, according to Lone Star, the company heard from CP Group about doing a deal together for the building. The Florida-based firm says it’s the largest office landlord in that state and one of the 25 largest in the nation. It and Lone Star — which has raised $95 billion worth of funds since 1995 — had not previously worked together.
CP Group had come to the conclusion that it could buy 17th Street Plaza for well under the “whisper price,” which its own recent lawsuit pegged at $220 million. The company shared its underwriting with the private equity firm.
Lone Star said some parts of the proposal were “wildly out of line with industry norms,” including that CP Group expected a partner to put up 100% of the equity while giving CP Group a 33% cut of the profits.
But CP Group did have some advantages — notably it already had staff in Denver, where the company owns the nearby Granite Tower at 1099 18th St. Lone Star had no local holdings.
Lone Star said it told CP Group the firms could potentially work together under different terms and if CP Group were to “meaningfully contribute” to due diligence before a buy and/or manage the property after the purchase.
On Nov. 12, according to Lone Star, CBRE reached back out to the private equity firm and said four offers had been received for 17th Street Plaza. All were well below $225 million. CBRE encouraged Lone Star to consider the price “flexible,” according to the company.
Both sides agree that CP Group submitted an offer Nov. 18 for $145 million. A day later, according to CP Group, Lone Star executive Tessa Truex emailed a CBRE broker to request a tour of the property, saying the firm was working with CP Group.
In the thinking of CP Group, the parties agreed to a joint venture Nov. 22. The company’s lawsuit said Truex emailed CP Group executive Brett Reese “with a final proposal about the last outstanding deal term, and posing the question to him, ‘Good?’”
“Yes we are good,” Reese replied.
Under the terms of the deal that CP Group thought had been reached, the company would contribute up to $2 million for a 3% equity stake, with Lone Star putting up the rest of the cash. CP would get a $400,000 “acquisition fee” and be hired to manage the property.
“As is customary in their industry, the Parties moved forward under the Joint Venture Agreement expecting to draft the mutually accepted terms into a formal document after the conclusion of the due diligence period,” CP Group wrote in its lawsuit.
Lone Star acknowledged the Nov. 22 discussion but said in its suit that “these terms were clearly tentative.”
“The November 22 email expressly contemplated additional negotiations following the completion of due diligence on the Property, and after construction budgets and other items were addressed,” the company wrote.
Two days later, Lone Star submitted its own letter of intent at the $145 million price. Both sides agree that CP Group was not mentioned. When Reese questioned that, Truex said Lone Star did not “add operating partners to LOIs generally,” according to the company.
Chicago-based Equity Commonwealth, which owned 17th Street Plaza, subsequently accepted Lone Star’s offer.
Communications between Truex and Reese continued through Feb. 5, when CP Group said it received a “shocking” update from Truex: Lone Star had posted a nonrefundable deposit, and CP Group was not part of the deal.
“You’ll be hearing from us,” CP responded.
In a Feb. 9 email, which was included in court records, CP Managing Partner Angelo Bianco said he’d offered to drop the $400,000 acquisition fee over the due diligence matter but was rebuffed.
“In addition to the reputation harm you have caused us within the commercial marketplace related to our ability to acquire assets, we have lost millions of dollars on this deal,” Bianco wrote.
The tower deal closed Feb. 25. Lone Star ultimately paid $132.5 million. CP Group’s lawsuit indicates price concessions were secured after “previously unknown required repairs” were discovered during due diligence.
On April 7, CP Group sued Lone Star in its home base of Palm Beach County, Florida. The firm said Lone Star “circumvented and excluded” CP Group from a transaction that it had sourced, alleging breach of contract and unjust enrichment.
On April 10, Lone Star responded with its own lawsuit in Denver District Court, saying CP Group was “trying to extort a settlement payment.”
In its filing, Lone Star acknowledged talks about a possible joint venture but said nothing was ever formally agreed to.
The firm said CP Group “was not up to the task” of due diligence, missing meetings and failing to provide feedback on budgets, and could not be trusted with confidential information because it mistakenly sent Lone Star a document pertaining to a competing firm.
CP Group’s Florida lawsuit was filed by attorney Steve I. Silverman of Kluger, Kaplan, Silverman, Katzen & Levine in Miami. Lone Star’s Colorado lawsuit was filed by James G. Sawtelle, Tara Bailes, Kostas D. Katsiris, Michael A. Guerra and Anna G. Dimon of the Denver and New York offices of Venable.
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