Real Estate Receiverships Rise in Canada as Projects Stagnate


Whether it’s one of Canada’s tallest condo towers or bare land, residential development projects across the country are increasingly being put into receivership.

High interest rates, construction costs and delays and a slowing real estate market are all contributing to the increasing frequency of projects facing financial difficulties, experts say.

“A year ago it was maybe one call a month, one call every two months, and now it’s one call a week,” said Mike Czestochowski, vice president of the Land Services Group. the real estate company CBRE.

Receiverships are a way for secured lenders to ask the court to appoint someone to take control of the property and either liquidate it or maximize the value of the assets.

Although often considered a last resort, CBRE has seen an increase in escrows as larger construction projects with multiple mortgages and involved parties begin to encounter difficulties.

“These projects under construction have seen such a surge in prices that they’re simply running out of money,” said Lauren White, executive vice president of the company’s land services group.

This was the case in Kitchener, Ontario, where creditors filed for receivership against the owners of the four-tower Elevate Condominiums project.

By the time the filing was filed in October, construction crews had already vacated the site, leaving it 80 percent complete but not watertight. A December report found that the owners had only $300 in the bank when the sequestration order was executed and owed more than $100 million.

Other projects don’t go as far.

A condo tower under construction.
The One is located on the corner of Yonge and Bloor Streets in Toronto. (Cole Burston/CBC)

Creditors on a planned 55-story condo tower of downtown Vancouver filed for receivership in mid-January, including BMO, which is seeking repayment of more than $82 million in loans.

Some projects encounter difficulties even after construction is largely complete. Duca Financial Services Credit Union Ltd. filed a motion Jan. 19 against a Mizrahi Inc. condominium project at 128 Hazelton Ave. in Toronto, demanding repayment of his $16 million loan.

While larger developers can generally still get financing, smaller ones are struggling to get more money as the second-lien lenders they often rely on become more cautious, Czestochowski said.

“So as the debt matures, it’s a little more difficult.”

Ontario has seen the majority of receiverships in recent months, but over the past year the process has been applied to everything from a historic bank building in Saint John, New Brunswick, to an apartment destroyed by fire in Winnipeg.

Skyscrapers are particularly seeing an increase, White said, given all the challenges these projects present and the potential for delays.

“A lot of this is due to poor management, not realizing the length and complexity of the development process,” she said.

A large crane towers over a condominium building under construction.
Experts say high-rise buildings particularly face financing problems given the risks of delays. (Cole Burston/CBC)

The One, an 84-story building under construction in Toronto that Mizrahi Inc. is also developing, is probably the most high-profile project recently placed in receivership.

Filed in October, court documents show the developer is $1.7 billion in debt and expects construction to be completed more than two years late and more than $600 million over budget. dollars.

Other notable developments include creditors pushing in November to place receiverships on at least five Vandyke Properties projects covering more than 1,700 units in the Greater Toronto Area, some already under construction, with Claimed debts exceeding $200 million.

“Extreme legal relief”

Receivership is an option available to secured creditors as a way to potentially get their money back when borrowers begin to default.

The goal of the process is to maximize value, said Dan Wootton, a partner in Grant Thornton’s restructuring practice. So this could involve completing the project with the existing developer, as is the case with The One, or simply trying to sell as-is.

Lenders will typically try to work with borrowers, and there will often be more than one missed payment before the path is taken, Wootton said.

“Receivership is considered a pretty extreme legal remedy.”

Not all applications are approved.

The skeleton of a building under construction showing its wooden frame.
Coromandel has 16 active real estate projects in Vancouver, British Columbia, including a townhouse project on Oak Street at West 52nd Avenue. His request for judicial recovery was refused. (Jon Azpiri/CBC)

In December, a British Columbia judge threw out Coromandel Group bid request, with about $700 million in debt secured on 16 properties, was placed in receivership. The decision to refuse was based in part on the fact that some properties were already in escrow.

Once approved, a receiver will estimate what it would cost to complete the project and compare that amount with what a developer can expect to bring in with the sale of units. When this proves insufficient due to higher than expected costs, drastic measures are sometimes necessary.

“What unfortunately can happen is all of these pre-sale condo purchase contracts get terminated. So it’s almost like a reset,” Wootton said.

“Maybe you even have to modify the project itself… instead of a condo, maybe it will become a retirement home, right, or a student residence,” he said. he declares.

Buyers sometimes have the option of paying more for homes, although projects also struggle because buyers can no longer qualify for a mortgage at a higher price, forcing developers to try to resell them in a cheaper market. calm.

Trying to resell entire projects is also difficult in this market because many focus on their own projects, Wootton said.

“We’re hearing that the bigger developers aren’t taking on a lot of new projects at the moment. They’re focused on finishing what they have.”

There are still buyers, but they aren’t rushing into deals, CBRE’s White said.

“A lot of people are looking for a deal. They’re trying to anticipate the bottom of the market, which no one can do,” she said.

The last time receiverships were this bad was probably in the early 1990s, she said, but the overall market is at least still more active than then and interest continues to grow for potential escrow sales.

The market still has a way to go before a recovery, however, White said.

“I think we have at least another six months, you know, where the calls will pick up again, without slowing down.”

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