SC shopping center bankruptcy adds to real estate legal thicket
The conversion of the former Pineland Station into Sea Turtle Marketplace began in 2015. The owner of the Hilton Head Island shopping center filed for bankruptcy protection Tuesday in Columbia. File rendering
The split between the owner of two dozen South Carolina shopping centers and its ousted founder is becoming more litigious — and more complicated.
The breakup took a fresh twist last week when Virginia-based developer Jon S. Wheeler placed one of his real estate ventures under bankruptcy protection, citing more than $33 million in debts from a budget-busting Hilton Head Island project.
The case was filed in Columbia on Tuesday.
Wheeler and some partners own WD-I Associates, which was formed to redevelop the aging Pineland Station shopping center along the bustling William Hilton Parkway.
The 147,000-square-foot property was rebranded as Sea Turtle Marketplace as the revival project got off the ground in 2015. Now mostly completed, its major tenants include Stein Mart and PetSmart. Interest in the remaining space has been strong, said leasing agent John Orr of the Charleston office of Lee & Associates.
“It’s s great project, a great property,” he said.
While the real estate is in tip-top shape, Sea Turtle’s landlord is underwater financially, its future uncertain. Wheeler’s group has estimated the value of the shopping center at about $22.8 million, exposing a nearly $10.8 million gap between its assets and liabilities, according to a filing with the U.S. Bankruptcy Court.
One of the biggest creditors is Wheeler’s former employer, which he’s suing in Virginia for defamation and for refusing to pay him about $500,000 in severance, among other allegations.
The Sea Turtle deal was hatched during a less acrimonious period. Wheeler, who started investing in small and off-the-beaten-path shopping centers in the early 1990s, snapped up Pineland Station in 2004 with a business partner for $13.25 million, property records show.
He later formed Wheeler Real Estate Investment Trust, which bought retail properties both from him and other sellers, and took it public in 2012. Two years later, he combined the Nasdaq-listed company with three of his other Virginia Beach businesses that had handled purchases, leasing and other services.
“It’s a wonderful exit strategy for a potential seller,” Wheeler told the Virginian-Pilot after the October 2014 merger.
By then, Wheeler Real Estate had expanded into South Carolina by purchasing supermarket-anchored centers in places like Clover, Little River and West Columbia. It added a dozen or so more as part of a $71 million acquisition in 2016. It also leased a $100,000-a-year office on King Street in downtown Charleston.
The Sea Turtle deal reared its head in 2015, when Wheeler Real Estate announced it to investors as a “related” transaction led by its founder and then-CEO. The company went on to sink $12 million in the project.
Wheeler Real Estate has has been writing down the value of the loans. Its role in the Sea Turtle deal as a “development services” provider was terminated after it abruptly fired its namesake founder in early 2018 for undisclosed reasons.
It’s not clear whether Wheeler Real Estate will recoup any of its money. It’s No. 2 in the line of creditors behind BOK Financial Corp. The Tulsa Ok.-based company’s Bank of Arkansas unit provided WD-I with $20 million in construction financing.
BOK Financial said in a lawsuit it filed last month in Beaufort that it hasn’t received a payment in eight months, adding that it learned last summer the project was about $8 million over budget. The bank recently asked a judge to appoint a receiver to take over Sea Turtle Marketplace, which brought in $1.25 million in rental income last year.
Tuesday’s bankruptcy adds a fresh layer of complexity and costs to the thickening legal thicket.
Whether the shopping center will be auctioned off to repay some of its developer’s debts remains to be seen. The lead legal counsel for WD-I Associates did not respond to a request for comment last week. Details will likely come out at the first court hearing set for later this month in Charleston.