StoryBuilt Receiver Details “Inexplicable” Accounting

When Mike Bergthold took the stand in a Travis County courtroom this week, he made no secret about the challenges he faced last month as StoryBuilt’s receiver.

“Frankly, a lot of the things we’re uncovering are inexplicable,” he said, referring to the forensic accounting he and his team have been executing on the failed builder’s books.

Bergthold took over StoryBuilt’s estate last summer after the Austin-based developer suddenly crumbled, running out of cash and leaving a massive development pipeline in the lurch.

As Bergthold, managing director of Stapleton Group, continues to work through StoryBuilt’s scattered, incomplete books, he is also dealing with pissed-off partners, an uncertain market and a raft of regulators looking into the company.

Lenders are getting antsy and starting to foreclose. The document requests from eight state and federal regulators, including the SEC, the FBI and the IRS, are “in the terabyte range,” Bergthold said. All the while, he is trying to salvage as much money as possible from StoryBuilt’s once-mighty development empire.

In order to get there, the receiver has decided to change course. At the start of StoryBuilt’s receivership, the developer’s principals and investors assured Bergthold that the business still had tremendous value as a going concern. Its operations and portfolio were worth selling as a unit, rather than piece-by-piece, they told him.

After careful scrutiny by the receiver and would-be buyers, though, that first impression appears incorrect.

After several months of marketing the company, it became clear it would not sell as a going concern. The offers the company received included significant discounts the receiver couldn’t accept.

The receiver spent months trying to protect StoryBuilt’s properties from foreclosure. Several investors have decided not to work with the receiver; instead they will sue over their investments in certain projects. As it turns out, most of StoryBuilt’s developments are worth less than their secured debt, Bergthold wrote in his latest report.

The receiver accuses StoryBuilt’s former principals of egregious mismanagement, including borrowing more than $3 million from hard-money lenders, sometimes at interest rates above 280 percent. The receiver is preparing to sue several of the principals.

The company also allegedly kept incomplete documentation for its transactions and commingled funds for various development projects that were supposed to be kept separate. In one instance, the company received $5.65 million specifically for one project, but allegedly distributed it to other projects’ investors.

The receivership is in cost-cutting mode, aiming to quickly sell off the company’s remaining assets and cut down the receivership administration. It fired about a third of its Austin-based employees in the first week of January.

Due to the long-term profit horizon for ongoing developments, the receiver is focusing on work that will provide “fairly certain and immediate return,” like completing single-family homes StoryBuilt had already started and found buyers for.

StoryBuilt has letters of intent from buyers for three developments, called Charley, Ruby and Ozzie.

Stillwater Capital and D.R. Horton subsidiary Forestar Group recently paid $10.7 million for a fully entitled 4.5-acre development site in Dallas’ Lake Highlands neighborhood, which StoryBuilt had branded as Goose.

As the process winds its way to completion, the receivership is beyond busy.

“There has been a frenetic amount of activity,” Bergthold said on the stand.