F-Star Socorro, L.P. and its affiliated debtors filed emergency motions on January 18, 2026, seeking $32 million in replacement debtor-in-possession financing from B.H. Capital Ventures, LLC while simultaneously requesting authority to use $4.2 million in cash collateral to complete construction of Ritz-Carlton branded villas in Arizona. The motions, filed in the U.S. Bankruptcy Court for the Southern District of Texas, seek to replace previously approved interim financing from Sandton Capital Solutions Master Fund VI, LP. The debtors state that without sufficient liquidity, they would jeopardize approximately $56.7 million in future villa sale proceeds.
The Sandton interim financing required priming liens on the Ritz-Carlton properties. Under the proposed replacement structure, B.H. Capital Ventures will receive junior liens on certain commercial warehouse properties in Texas. The debtors state the replacement facility avoids a priming fight with prepetition lender Madison Realty Capital.
Company Background and Business Operations
F-Star Socorro operates a diversified commercial real estate portfolio including hotel, retail, office, and industrial properties. The company's flagship asset is a 122-acre ultra-luxury mixed-use development located at the border of Paradise Valley and Scottsdale, Arizona.
The Project integrates three components: a 215-room Ritz-Carlton resort to be managed by a subsidiary of Marriott International upon completion; private residences consisting of 80 Ritz-Carlton-branded villas and 32 estate homes; and a 29-acre site planned for luxury retail and mixed-use development.
The debtors also own and operate multiple commercial and industrial properties in El Paso and Socorro, Texas, including the Joe Battle Property with over 775,000 square feet of net rentable area on over 40 acres, and the 11751 Alameda Property totaling over 1,445,000 square feet on over 66 acres. The commercial portfolio is fully leased to multiple tenants under long-term leases expiring between 2026 and 2036, with average in-place rents approximately 30 percent below market rates.
Events Leading to Bankruptcy Filing
The debtors filed voluntary Chapter 11 petitions on November 4, 2025. On May 11, 2023, certain debtors entered into a Construction Loan Agreement with Madison Realty Capital providing funding up to $585 million for the Project. The total amount owed to Madison is disputed. Madison claims the loan has been fully funded.
On December 27, 2023, certain debtors obtained loans from AIG Asset Management (now serviced by Corebridge Financial) totaling $77 million secured by the 11751 Alameda Property and $41.8 million secured by the Joe Battle Property.
On November 7, 2025, the court entered an interim order authorizing the debtors to incur $6 million in junior secured superpriority financing from Sandton Capital. On November 18, 2025, the U.S. Trustee appointed a statutory committee of unsecured creditors.
The Villa Pre-Sale Program and Current Status
In 2016, all 80 villas were pre-sold, generating approximately $250 million in purchase commitments. Construction commenced in 2018. Buyers entered into Condominium Purchase Contract and Joint Escrow Instructions agreements with initial deposits typically equal to 10 percent of the purchase price.
Prior to the petition date, 44 villas were completed and delivered to buyers, generating $132,281,531 in net proceeds that were used to pay down Madison's loan. Following court authorization on December 1, 2025, five additional villas were completed and delivered postpetition, generating approximately $20,312,504 in net proceeds held in a segregated account.
Thirty-one villas remain pending delivery, with 21 under contract with buyers and 10 either not yet under contract or subject to negotiations. Expected closings include 11 villas in January 2026 generating approximately $33,052,800, five in February generating approximately $15,052,400, two in March generating approximately $8,967,200, one in April generating approximately $4,043,600, and two in June generating approximately $9,671,200. The remaining 10 villas are projected to generate approximately $33,994,400 in net proceeds.
The Financing Challenge and Sandton Replacement
The debtors' available cash as of January 11, 2026 totaled approximately $4,280,267, which the debtors state is insufficient to fund case administration while paying operating expenses. The Sandton interim DIP facility required priming liens on the Ritz-Related Properties on a final basis. The debtors state in the motion that a priming fight with Madison would be costly, time-consuming, and uncertain.
The debtors, with assistance from restructuring professionals at Pivot Management Group, launched a marketing process beginning around October 20, 2025. The company contacted over 20 potential DIP lenders, with 13 executing non-disclosure agreements. The process yielded three term sheets from potential lenders.
The debtors state in the motion that the terms proposed by B.H. Capital Ventures were most favorable because the replacement facility provides financing secured by junior liens on certain Texas commercial properties, avoiding encumbrance of the Ritz-Related Properties and eliminating priming of prepetition lenders.
The Replacement DIP Facility Terms
The proposed replacement DIP facility provides a total commitment of up to $32 million. Upon entry of an interim order, the debtors may draw up to $8 million immediately to repay all amounts due to Sandton under the existing interim DIP order. Upon entry of a final order, the debtors seek an additional $24 million in financing secured by the same collateral.
The facility bears interest at 10.0 percent cash interest and 10.0 percent paid-in-kind interest per annum, which increases by 3.0 percent during any event of default. The debtors will pay a nonrefundable origination fee equal to 2.0 percent of the funded amount and an exit fee of 3.0 percent of the funded amount, both payable on the earlier of any repayment date or payment in full.
An unused fee of 2.0 percent per annum applies to the undrawn outstanding principal amount, excluding $2 million and any portion unavailable due to borrowing base limitations. If the loans are not repaid by the maturity date, the debtors may pay a 2.0 percent extension fee for one additional three-month extension period based on mutually agreed milestones.
The replacement DIP lender will receive fully perfected junior liens on the 11751 Alameda Property and the Joe Battle Property, subordinate to the carve-out for professional fees, valid mechanics' liens, existing liens held by Corebridge Financial, and adequate protection liens granted to Corebridge. The lender will also receive first priority liens on all unencumbered property, excluding any claims or causes of action against Madison or its affiliates.
The facility matures on the earliest of: the effective date of a plan of reorganization; closing on a sale of all or substantially all assets (excluding villa or estate lot sales); or 12 months from the interim order date.
Villa Completion and Cash Collateral Strategy
The debtors filed an emergency motion seeking authorization to use approximately $4.2 million from villa sale proceeds as cash collateral to fund interim villa completion expenses, with total projected completion expenses of $25,713,561.
The debtors and advisors conducted reviews of costs required to complete each remaining villa. The expense categories include amounts owed to Armstrong Residential Services, the general contractor, and subcontractors, as well as other construction-related vendors providing labor, materials, and services for window installation, cabinetry, flooring, landscaping, appliances, and interior design.
Representatives of the debtors, along with professionals from Pivot and construction consultant personnel, inspected each remaining villa. Prior to the bankruptcy filing, the debtors entered into contractual agreements with Armstrong and other vendors. The debtors negotiated new trade agreements with certain vendors, agreeing to pay certain accrued expenses as a condition to resuming work.
Villa completion expenses also include property-level carrying costs such as taxes, insurance premiums, security costs, and management fees. The debtors state in the motion that without sufficient liquidity, they would jeopardize approximately $56,676,400 in villa sale proceeds attributable to post-February closings.
The Surcharge Argument Under Section 506(c)
At a final hearing, the debtors intend to seek authority to surcharge collateral of Madison and other villa lienholders for villa completion expenses under Section 506(c) of the Bankruptcy Code, which permits recovery from property securing an allowed secured claim of reasonable, necessary costs and expenses of preserving or disposing of such property to the extent of any benefit to the secured claim holder.
The debtors argue the villa completion expenses satisfy a three-prong test: the expenditures are necessary because they are required to complete villas, increase values, and facilitate closings; the expenses are reasonable as they reflect pricing needed to complete villas; and Madison receives benefit through increased collateral value.
According to a declaration filed with the motion, villas in as-is unfinished state would likely realize sale proceeds approximately 15 to 20 percent less than the total projected postpetition villa sale proceeds of $125.1 million. The declaration states that if Madison were to foreclose on the villas, Madison would face the economic reality that unfinished residential properties sell at discounts.
The debtors note that during first-day hearings, counsel for Madison stated the company was "desperate to ensure the Debtors have enough money to close all the Villa sales" and described being "fully aligned on passionately wanting the $100 million of villa sales to close."
The debtors propose villa surcharge notice procedures requiring the company to file periodic statements setting forth amounts and descriptions of villa completion expenses to be surcharged. Notice parties would have seven days to file objections. If no objection is filed by the deadline, the debtors would be authorized to surcharge the expenses against villa sale proceeds.
Alternative Argument Under Section 552(b)
In the alternative, the debtors seek a determination that Section 552(b)(1) of the Bankruptcy Code's "equities of the case" exception limits liens of Madison and other prepetition secured parties on villa sale proceeds.
Section 552(a) provides that property acquired by a debtor after bankruptcy commencement is not subject to any lien resulting from a prepetition security agreement. Section 552(b) creates an exception for proceeds, products, offspring, or profits of prepetition collateral, but that exception is subject to limitation based on "the equities of the case."
The debtors argue case equities favor limiting prepetition secured parties' security interests in villa sale proceeds to exclude value attributable to postpetition construction and completion costs. The debtors state that without expenditure of estate funds, the prepetition secured parties' collateral—the unfinished villas—has lower value. The motion states that by funding villa completion expenses, the debtors are transforming and enhancing collateral value.
The motion argues that permitting prepetition secured parties' liens to attach to the entirety of villa sale proceeds would allow secured parties to profit from value created by postpetition expenditure of estate assets. The debtors contend this would shift villa completion costs to unsecured creditors.
Adequate Protection for Secured Creditors
For use of cash collateral, the debtors propose to provide Madison with adequate protection consisting of allowed superpriority administrative expense claims subject to the carve-out; replacement security interests and liens upon the Corebridge-encumbered properties subordinate to existing senior liens; entitlement to interest payments at the contract rate if determined oversecured by final judgment; continued maintenance and insurance of collateral; and payment of rental income from specified property.
The debtors propose to provide Corebridge with adequate protection consisting of allowed superpriority administrative expense claims subject to the carve-out; replacement security interests and liens upon the Corebridge-encumbered collateral senior to all other liens except the carve-out, valid mechanics' liens, and existing Corebridge liens; replacement security interests in Ritz-Related Properties subordinate to Madison and villa lienholders; timely interest payments under existing loan agreements; continued maintenance and insurance of collateral; and payment of attorney's fees.
For villa lienholders, the debtors propose adequate protection consisting of replacement security interests and liens upon the Corebridge-encumbered properties subordinate to senior liens, and continued maintenance and insurance of collateral.
The debtors state in the motion that the proposed use of cash collateral is directed toward funding villa completion expenses. The motion states that finished villas have greater market value than unfinished villas. The debtors state that because proposed cash collateral use is expected to increase prepetition secured parties' collateral value, secured parties require adequate protection.
Case Milestones and Timeline
The motions request an emergency hearing on January 21, 2026 at 3:00 PM Central Time. The proposed replacement DIP facility includes case milestones: the court must enter a final DIP order by February 15, 2026; the debtors must file a motion seeking entry of a plan by May 1, 2026; the court must enter an order confirming a plan by June 30, 2026; and a plan must become effective by July 31, 2026. Failure to meet these milestones constitutes an event of default under the replacement facility.
The replacement DIP facility provides that if a termination event occurs and following delivery of termination notice, the replacement DIP lender must file a motion seeking emergency relief on not less than five business days' notice to the debtors, committee, and U.S. Trustee for a court order modifying the automatic stay to permit the lender to exercise remedies.
Professional Representation
The debtors are represented by O'Melveny & Myers LLP, with lead counsel based in Dallas, Texas. The motions were signed by counsel based in Dallas, Los Angeles, and New York offices.
The Chapter 11 cases are pending in the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division, under Case No. 25-90607 (ARP), assigned to Judge Pérez. The cash collateral motion was filed as Docket No. 260. The replacement DIP financing motion was filed as Docket No. 258.
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