Receiverships rise as projects stall
Developers have ‘seen such a rise in prices … they run out of money’
From one of Canada’s tallest condo towers to bare tracts of land, residential development projects across the country are increasingly being pushed into receivership.
Elevated interest rates, construction costs and delays, and a slower real estate market are all contributing to the rising frequency of projects coming under financial stress, say experts.
“A year ago it was maybe a call a month, a call every two months, and now it’s a call a week,” said Mike Czestochowski, vice-chair with CBRE’s land services group.
Receiverships are a way for secured lenders to have the court appoint someone to take control of the property and either liquidate it or otherwise maximize the value of the assets.
While often thought of as a last resort, CBRE has seen an increase in receiverships as bigger construction projects with multiple mortgages and parties involved start to run into trouble.
“These projects that are under construction, they’ve seen such a rise in prices that they just, they run out of money,” said Lauren White, executive vice-president of the firm’s land services group.
That was the case in Kitchener, Ont., where creditors filed for receivership against the owners of the Elevate Condominiums project, planned as four towers.
By the time the filing was made in October, construction crews had already walked off the site, leaving it 80 per cent done but not weather sealed. A December report found that the owners had a mere $300 in the bank when the receiver order went through, and owe over $100 million.
Other projects aren’t getting that far.
Creditors on a planned 55-story condo tower in downtown Vancouver filed for receivership in mid-January, including BMO, which is seeking repayment of more than $82 million in loans.
Some projects run into trouble even after construction is largely complete. Duca Financial Services Credit Union Ltd. filed an application on Jan. 19 against a Mizrahi Inc. condo project at 128 Hazelton Ave. in Toronto, seeking repayment of its $16-million loan.
While the largest developers can generally still secure funding, smaller ones are finding it hard to get more money as the second-tier lenders they often rely on become more cautious, Czestochowski said.
“So as debt comes due, it’s a little bit more difficult.”
Ontario has seen the bulk 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, N.B., to a fire-plagued apartment in Winnipeg.
Highrises are especially seeing an increase, White said, given all the challenges these projects present, and the potential for delays.
“A lot of it comes down to mismanagement, as to not realizing the length and complexities of the development process,” she said.
The One, an 84-story building under construction in Toronto that Mizrahi Inc. is also developing, is probably the most high-profile project to face receivership recently.
Filed in October, court documents showed the developer has $1.7 billion in debt and expects construction to be finished more than two years late and more than $600 million over budget.
Other notable developments include creditors pushing in November to have receiverships put in place on at least five projects by Vandyke Properties covering more than 1,700 units in the Greater Toronto Area, some already under construction, with claimed debts topping $200 million.
Receivership is something available to secured creditors as a way to potentially recoup their money when borrowers begin to default.
The focus of the process is to maximize the value, said Dan Wootton, a partner at Grant Thornton’s restructuring practice.
“Receivership is considered pretty extreme legal relief,” he said.