Following its grand re-opening in October, The Statler Hotel and Residences, redeveloped for $255 million by Farmers Branch-based Centurion American Development Group, began grappling early this year with water leaks in its apartment units. In an exclusive interview with D CEO Real Estate, Mehrdad Moayedi, Centurion’s president and CEO, contends there were “no shortcuts for any of the people during any of the process”—referring to the contractors in charge of the renovations—and confirms that the water-seepage problems were caused by faulty caulking (or sealant). The latter was also reported in this article in The Dallas Morning News, which detailed how the historic, 19-story building has been dealing with fire-sprinkler repairs since February.
Water Leaks
During the first quarter of 2018, Moayedi recalled, the multifamily portion of the project began leaking water on the 12th floor. The project, which was also the source of an IRS investigation last year, includes 219 apartment units on the upper floors and 159 hotel rooms below. At the time, Moayedi said, Centurion believed the leak was an isolated incident. “We didn’t know what the problem was. We were just fixing leaks as they came to our attention,” he said. “No one had the right answer. … We brought all the professionals back in … and tested all the pipes. With all the testing, we learned that the caulking material that comes together isn’t compatible with PVC.”
Polyvinyl chloride, or PVC, is the material used in the piping throughout the residences and hotel (though not in the restaurants, lobby, or other public spaces at The Statler). The caulking agent that was used, which was selected by the general contractor, is believed to disintegrate PVC over time. In this instance, it caused leaks from the fire sprinklers. Moayedi estimates leaks in the plastic sprinkler piping occurred in four to six units.
Ethan Minshull was a resident in one of those units. Minshull, who lived with his girlfriend on the 12th floor, calls himself “Patient Zero.” On January 20, Minshull said, he got a phone call from the Statler’s concierges alerting him to “something bad going on in [his] unit.” He came home to find about three inches of standing water throughout most of his two-bedroom apartment, he said. Minshull thinks his apartment was the first leak to have occurred in the building.
Initially, Minshull and his girlfriend were put up in the Curio Collection by Hilton—the hotel within the building. “We bounced around for about a month while they did not fix our place,” he recalled. The couple was instructed they could re-inhabit the apartment on February 13. “We walked in and there was another huge puddle of water coming from next to the refrigerator,” Minshull said. “One of our towels was stuffed in the source of the leak, so they clearly knew about it.”
But, Centurion, which also owns the building, contends it has been as transparent as possible with residents. “I met with all the apartment [residents] and told them we regret the situation that was completely out of our control,” Moayedi said. “We made some concessions. Some agreed. Some didn’t want to hear it. Some wanted to break their lease.”
Centurion estimates 20 residents—out of a total of about 120 or 130—chose to leave their units. Said Moayedi: “We said, ‘OK, anyone who wants out of their lease, we’ll let you out, give you one month free [rent], we will compensate food and lodging, you can eat at our restaurants, whatever we have to do to accommodate you.’” The News article said that some tenants have signed, or planned to sign, non-disclosure agreements preventing them from discussing the situation.
Minshull said he’d been frustrated with Pinnacle, The Statler’s property management firm, for months—long before the fire-sprinkler leaks. “We were early adopters, and we knew there would be frustrations there, but they completely misrepresented how far along the project was,” he said. “We’ve dealt with more problems than we could have imagined.”
Fire Safety
Since February, Centurion says it has replaced every sprinkler within the multifamily units—nearly 4,000. Final sheet-rock and paint work is being completed now. The team working on the repairs, which Centurion says is the same team that worked on the original project, is now going floor by floor to replace the faulty caulking within the hotel floors.
Work on the hotel was a “proactive and preemptive measure,” Moayedi said. “The hotel didn’t have any leaks. But now that we know what the issue is and the same caulking was used on the hotel [as in the apartments], we’re not taking any chances.”
In the interview, Moayedi took issue with the the headline of The News’ article about the situation: “Dallas’ Statler Hotel is on round-the-clock fire watch. Why aren’t guests being warned?” The hotel didn’t inform guests of the leaks in the apartments because—although residents were being relocated during repairs—the city allowed the hotel to stay open, he said. “There was no point that we took a chance on anybody’s safety,” Moayedi said. Each floor can be shut down independently, he added, and the sprinkler system in the hotel was never shut down.
The Dallas Fire-Rescue Department has stationed a firefighter on each of the building’s floors where fire sprinklers that were not working are being repaired. Moayedi estimated he’s paid $150,000 to $160,000 for 24/7 monitoring since he first learned of the fire safety malfunctions.
Pending Litigation
Only after determining the source of the leaks did Centurion become aware of similar problems in other parts of the country, Moayedi said: “We thought this situation was unique to us. But, as we investigated it, we found out there are class-action lawsuits against the insurance company, piping company, and caulking company that had happened in different cities and different states. We were never told that.”
The developer and general contractor declined to share the name of the caulking agent in question, citing forthcoming legal action. “I’m in the middle of litigation with insurance,” Moayedi said. “I didn’t want to get into the details because I have to protect our case.”
In the meantime, Minshull and his girlfriend have since moved out of The Statler and are planning to sue Centurion. The couple, who are both attorneys, have been in touch with Centurion’s legal team regarding what Minshull claims is an anticipatory breach of his lease.
