I was able to replicate this but I was able to find a way to get flooring to place.
So to get it to work:
Bulldoze the lot.
Use the Room Tool to redraw the walls around the entire space. The Wall Tool and Custom Wall Tool will not work. In this case, the space is rectangular so the Room Tool can capture the entire space in one shot.
Place the floor tile in the entire space. And pick a wall finish and place that on all the walls too.
Once you've got floor tile and wall finishes in the entire space then you can start drawing interior walls with the wall tools and complete your build.
Hope this helps.
It works but man is that annoying, I wish the sims team would've fixed this before release.
