A real estate developer in Houston is on the verge of bankruptcy after a $4.5 billion loss, and the company that acquired the property is in a tailspin, according to a lawsuit filed Monday in federal court in Houston.
The lawsuit, filed by the Texas Department of Insurance and a consortium of Houston realty firms, alleges that developer John F. Cairncross III, his wife and three other men, including the owner of the property, are liable for the loss.
The Cairnys did not respond to requests for comment Tuesday.
The company, called DMC Properties LLC, purchased the property from a private equity firm called MCA Partners for $1.3 billion in 2013.
The deal was approved by a city council vote.
The developers did not reveal the price at which the property was sold, but in August, the company’s website said the purchase price was $1,050,000.
The website also said the total value of the deal was $4,890,000, including $890.5 million in cash.
In a news release, the Cairns said the loss is due to “unforeseen circumstances, including adverse economic conditions, the lack of adequate financing, the loss of key employees and the need to restructure the business.”
The Cairs, who also own a real estate company in Washington, D.C., filed the lawsuit in Houston’s U.S. District Court for the Western District of Texas.
A statement from DMC said in part: “Due to the substantial loss, it is imperative that we reorganize the company and take steps to recover the lost capital.”
The lawsuit claims that the Cairs and their partners have failed to follow the “best practices” and have violated the city’s Real Estate Settlement Procedures Act.
The city is seeking damages in excess of $50 million for “fraudulent acts or omissions by all Defendants,” including Caircross, according a copy of the lawsuit obtained by The Associated Press.
The plaintiffs’ lawsuit alleges that Caircnys “knowingly misled” investors about the value of his real estate business and failed to report the sale price of the purchase to the city.
The suit also alleges that MCA failed to pay “all necessary expenses” for the sale of the properties, including “the cost of purchasing and installing the security systems for the property and the cost of moving the property to a new location.”
The suit seeks unspecified damages from the Caimns.
In addition to Cairnrys, the lawsuit names Cairnick Holdings LLC, a DMC subsidiary, as defendants.
The case is Caircoons lawsuit No. 1 against Cairnworks, MCA and other defendants in the case.