The billboard that adorns the front of Toronto Life Square this week couldn't be more appropriate.
The Ugly Truth , a soon-to-open film starring Katherine Heigl, is exactly what lies beneath this year-old development that was supposed to herald the final piece in the never-ending reconstruction of the Yonge-Dundas area.
Toronto Life Square, home to the massive 24-screen AMC movie theatre, Future Shop and an Adidas flagship store, has been placed in receivership, making it the city's first major casualty of the commercial-real-estate crunch and a sign of things to come.
Adding insult to injury, the magazine Toronto Life has been locked in a months-long legal dispute to remove its name from the project.
The Globe and Mail has learned that creditors foreclosed on the property in April after its debts reached nearly $280-million. More than $120-million is owed to the Royal Bank, more than $130-million to the Missouri-based Entertainment Properties Trust, $9.3-million to the City of Toronto, and $16-million to two pension funds.
James Robinson, executive director of the Downtown-Yonge Business Improvement Area, said the developer was brought down by loans it took out to complete construction of the project.
"There's lenders who help the building get built and operate for a couple of years, but given the state of the economy - with lending markets tightening up - some of the investors have called in their loans. They want them repaid.
"That has meant the current owners don't have their financing in place," Mr. Robinson said.
The building was owned by a subsidiary of PenEquity, an established real-estate developer that also owns Appleby Mall in Burlington and Iroquois Ridge Shopping Centre in Mississauga. No one at PenEquity was available to comment for this story.
What surprised observers about the stunning foreclosure is that the tenants who have established themselves in the building are doing reasonably well, despite the economic slowdown.
The Future Shop is one of the chain's top performing outlets across the country, Mr. Robinson said. Restaurants such as Milestones and Jack Astor's have a steady clientele, as do the movie theatre and food court, he added.
"The building is 90-per-cent leased as far as I understand," Mr. Robinson said.
Michael Smith, managing director for real estate at Macquarie Securities, said this may be the first sign of the credit crunch taking hold in Toronto's commercial-real-estate sector.
"There's going to be more coming," he said. "There's no question there's going to be some distress and there will be properties foreclosed on and sold.
"In a boom market, when everything is going well, there's lots of lenders willing to lend. In a market where they're cutting back, this is the first kind of thing they cut."
Although the building is now up for sale, it's not expected to affect business for the current occupants.
Financial information filed with the courts shows that Toronto Life Square has 46 tenants paying about $2-million a month in rent. It also has substantial revenue from the enormous video, electronic and print billboards which light up the Yonge-Dundas area, an effect intended to evoke New York's Times Square.
The 13-floor building has four levels dedicated to shopping, food and the AMC cinema, which transforms during the day into classroom space for Ryerson University students. Above is a 75,000-square-foot office tower whose tenants include Google, PenEquity and the Ontario Tourism Marketing Partnership Corp., although not all floors appear fully occupied. As one person who works in the building put it, there's no need to fight for space on the elevator.
The redevelopment of the Yonge-Dundas area began in the late 1990s and involved the expropriation and demolition of eight buildings by the city. The development, which was then known as Metropolis, was stalled for nine years as the developer tried to find the right mix of tenants for the space. It finally opened in 2008, six years behind schedule, as a complement to the Yonge-Dundas public square, which opened in 2003. City councillor Kyle Rae, the project's principal champion, was unavailable for comment.
The building's architecture - cold and industrial, with exposed pipes and exterior fans - was criticized for its lack of context, and its blaring signage was derided for its imposing commercialism.
But its supporters say the development serves its purpose.
"It was a project that was a long time coming, but once they got going, it's been substantially leased," said Ron Soskolne, a real-estate consultant who was involved in the Yonge Street redevelopment project. "Are there issues around timing and the impact of the current recession? Yes... But my impression is that the businesses that are in Toronto Life Square seem to be doing very well. I expect that to improve as the location becomes more established."
It's not known whether the property, once it has been sold, will continue to bear the name Toronto Life Square. Toronto Life has been involved in an arbitration process with the developers for several months and a decision was expected last week. No one was available to comment at St. Joseph Communications, Toronto Life's parent company, yesterday.
Joe Friesen