Denver real estate business associates feud about use of investor money
The two companions atop a Denver-centered actual estate company have had a slipping out — and it is finished up in court docket.
Adam Hazlett filed a lawsuit towards Ben Hrouda in late Oct. Hrouda shaped Flywheel Cash in July 2017, and Hazlett arrived on as a 50 per cent husband or wife in January 2018, in accordance to the lawsuit.
In the lawsuit, Hazlett accuses Hrouda of misappropriating trader cash and filing fraudulent tax returns, between other items.
Hazlett says he desires Hrouda to buy out his stake in Flywheel and its relevant firms mainly because of Hrouda’s “compromised ethics.” But he suggests Hrouda has unsuccessful to abide by the system outlined in the functioning agreement for this kind of a circumstance.
Hrouda deferred remark to his lawyer, who reported the allegations in the lawsuit “are categorically bogus.”
“This is a partnership dispute exactly where just one facet is improperly working with the courts to extract a bigger settlement,” reported Steven Woodrow of Woodrow & Peluso, declining to remark even more.
An lawyer for Hazlett declined to comment.
Organization equally develops and acquires
Flywheel Funds equally develops assignments and buys existing properties.
The company’s improvement activity features converting a former assisted residing facility at 4550 W. Colfax Ave. in Denver into condominiums, and creating an condominium complex on about 5.5 acres by the I-25/Evans Avenue interchange.
In Oct, Flywheel purchased the 4-creating Gateway Centre office environment campus at the edge of Aurora and Denver for $66.85 million. In March, the organization paid out $21.07 million for 127,297 sq. ft of place of work room in Lakewood.
When Hazlett joined Flywheel in January 2018, he was created a 50 percent member in many Flywheel-similar entities, in accordance to the lawsuit. People entities integrated Flywheel Funds LLC, the most important entity through which the corporation raised dollars from traders, and Park Hamilton Management LLC, which presents assets management and brokerage companies for Flywheel-owned homes.
In accordance to the lawsuit, the operating arrangement for just about every of all those entities supplied an selection for Hrouda to obtain out Hazlett’s stake up until February 2023.
At the time Hazlett joined Flywheel, the company was invested in two discounts with a blended acquire price of $7.35 million. By late 2019, the organization had about $100 million in assets less than administration, the lawsuit promises.
Elevating cash raises concerns
Hazlett says in his lawsuit that he very first turned involved about Hrouda’s actions in late 2018, when Flywheel was buying many heaps for the eventual apartment project at I-25 and Evans Avenue.
Hazlett claims he and Hrouda had been commonly doing the job distinctive elements of the offer, each and every running with autonomy.
Hazlett claims that Hrouda unsuccessful to elevate sufficient dollars from traders to close on just one of the needed parcels, so he “instead illicitly withdrew investor resources from a bank account Flywheel managed as a fiduciary for a diverse investment … and utilized those cash without having investor understanding or consent to close on the parcel for the Evans Expenditure.”
Just after closing on the order, Hrouda then lifted additional income for the Evans expenditure, and utilized that to replenish the independent pool of investor dollars, according to the lawsuit.
“When Mr. Hrouda knowledgeable Mr. Hazlett about what he experienced carried out, Mr. Hrouda expressed extreme remorse, acknowledged that his carry out experienced been inappropriate, and assured Mr. Hazlett he would never do nearly anything like that yet again,” Hazlett promises.
Hazlett explained investors ended up never ever advised.
It would not be the past hiccup with funding. In 2019, according to the lawsuit, a lender referred to as Bear Creek declined to fund Flywheel’s acquisition of a Colorado Springs place of work complex upon realizing Flywheel had failed to elevate $2 million by closing for a reserve account that was intended to collateralize Bear Creek versus achievable surprising losses like tenant defaults, in accordance to the lawsuit.
Bear Creek expressed “that it felt Mr. Hrouda was trying to trick Bear Creek into closing without the need of Flywheel’s pleasure of this content situation,” the lawsuit reads. Flywheel was nonetheless capable to locate an alternate way to purchase the advanced, but it arrived at “significant extra expense.”
Later in 2019, Flywheel borrowed $300,000 from Zach Frisch, a mutual get in touch with of the two adult men, for a prepared investment decision in Estes Park.
“While the personal loan files with Mr. Frisch made very clear that the financial loan was for the Estes Park Investment, unbeknownst to Mr. Hazlett or Mr. Frisch, just about as quickly as the financial loan was funded, Mr. Hrouda diverted at the very least $100,000 of that income to the Colorado Springs Investment,” the lawsuit reads.
The Estes Park offer fell aside months later mainly because a loan company on the venture asked for innovative structure offers for the task, and Flywheel didn’t have enough money, the lawsuit claims.
Frisch is an investor and entrepreneur whose tasks involve developing an Airstream glamping site in Empire and filling an RV park in Glenwood Springs with small households, in accordance to past BusinessDen coverage. Contacted relating to the lawsuit, he declined to comment.
Buyout ‘at a standstill’
By late 2019, Hrouda and Hazlett’s partnership “came to a head,” Hazlett’s lawsuit states.
Hrouda accused Hazlett of “distancing himself from the company.” And Hazlett was “reluctant to go on a partnership with an individual of compromised ethics.”
Close to early 2020, the pair agreed to work by way of the method of acquiring Hrouda buy out Hazlett’s stake, as the running agreements permitted.
But Hazlett accuses Hrouda of “misconduct throughout the separation course of action.”
The pair chosen two appraisers to price the different entities, and Hazlett says in the lawsuit he shared the exact same resources to both of those, as the functioning agreements necessary. But he claims Hrouda “illicitly manipulated the financial info he was furnishing to his appraiser for equally of Flywheel Cash and Park Hamilton in get to artificially cut down the worth of people entities.”
Hazlett promises that, around February 2020, Hrouda advised him to cease coming to the Flywheel office and by October 2020, he experienced ceased offering Hazlett with entry to Flywheel’s textbooks and records.
“The get-togethers found them selves at a standstill whereby Mr. Hazlett would not consent to move ahead with the appraisal system until Mr. Hrouda would concur to offer exact firm monetary info to the appraiser(s) nevertheless, Mr. Hrouda would not agree to do so,” the lawsuit reads.
Close to the identical time, Hrouda fashioned new variations of the different Flywheel entities, this sort of as Flywheel Capital II LLC and Park Hamilton Management II LLC.
“Upon facts and perception, every single of the Flywheel II entities is wholly owned by Mr. Hrouda and just about every engages in the very same small business as its unique Flywheel counterpart,” the lawsuit reads.
Hazlett promises that, because early 2020, Hrouda has unsuccessful to spend him his fifty percent of distributions related to Flywheel offers. He says that Hrouda has filed fraudulent tax returns to the IRS that indicated Hazlett no lengthier owns the Flywheel entities.
In accordance to the lawsuit, in late September 2021, Hazlett sent Hrouda a detect trying to find to remove him as a manager of the Flywheel entities, citing a provision of the working agreements. Hrouda “has declined to step down,” the lawsuit reads.
Requested by BusinessDen if Hazlett nonetheless has an ownership stake in Flywheel Money, Hrouda’s lawyer claimed only that he hasn’t been included in the enterprise since early 2020. Hazlett is not described on the company’s web page.
Hazlett’s LinkedIn profile however lists his job at Flywheel, but also suggests he is taking care of associate of Victory Financial investment Companions. That firm’s holdings consist of two lodging qualities in Estes Park, according to the town’s newspaper.
Hazlett is trying to get an unspecified amount of money of damages. He is represented by attorneys Lauren Thompson, Theodore Rosen, Douglas Lambalot and Angela Barnett of Rosen Thompson Rosen.