Inside the struggle to finance Toronto's tallest condo tower
Sam Mizrahi says he has the millions lined up from an unnamed Chinese state-owned enterprise to build his audacious tower at the coveted corner of Yonge and Bloor. But no shovels are in the ground – yet
It is perhaps the most desirable development site in Canada: the southwest corner of Yonge and Bloor streets, a gateway to Toronto's so-called Mink Mile shopping strip. It is supposed to become the home of the tallest residential building in the country, a glimmering tower of luxury condos that will soar 82 storeys above a high-end retail complex.
But, on a recent weekday, behind the hoarding on that corner, there was just an open field of dirt and puddles, with a pile of metal bars off to one side. Not a single construction worker was in sight.
Little has happened on the site since early 2015, when upstart developer Sam Mizrahi quickly and controversially demolished the 114-year-old Stollery's clothing store on the well-known corner just before the city could impose heritage status on the building. Two-and-a-half years later, despite winning zoning approvals from the city's planners and city council last July, Mr. Mizrahi has yet to set up a condo sales office.
The delay has led to speculation in Toronto's development industry that Mr. Mizrahi, who has been ensnared in a legal battle with some former business associates who allege he misappropriated money from two previous condo projects, has had trouble securing the hundreds of millions in financing he needs to begin construction on what is expected to be the city's most audacious condo tower.
In interviews and legal documents he has filed in court, he acknowledges it has been an intense struggle, blaming his problems on a "smear" based on allegations he denies. But Mr. Mizrahi – who is marketing the building as The One, named for its marquee address, 1 Bloor West – says everything is on track, with a groundbreaking now set for August or September.
Go big or go home
Some say the project has been a gamble from the beginning, and not just because it is the tallest condo in Canadian history on an unusually small site. Estimated to cost more than a $1-billion, its design features a never-before-seen-in-Toronto exoskeleton structure drawn up by British architects Foster + Partners, the same firm behind London's famous Gherkin skyscraper and Berlin's remade Reichstag. A seven-floor high-end retail complex forms the building's base, a concept common in Asia but still an oddity in Canada. And at 306.3 metres, it would be second in height in Toronto only to the CN Tower – a fitting monument to the exuberance of this city's current building boom.
It certainly dwarfs anything that Mr. Mizrahi, an upstart developer and entrepreneur who exited the dry-cleaning business after his Dove Cleaners went into bankruptcy protection in 2007, has ever attempted before. Until The One, he was involved in just a handful of luxury mid-rise projects – including one still sitting incomplete and behind schedule in Yorkville.
Despite the litigation he is facing, Mr. Mizrahi tells The Globe and Mail he has landed the construction financing he needs from a Chinese state-owned enterprise, which he will not name, and whose deep pockets are set to soon make his dream tower a reality.
All will be revealed at a future groundbreaking ceremony, Mr. Mizrahi says, including the identity of his flagship retail tenant, long rumoured to be Apple. (Neither Apple nor Mr. Mizrahi would confirm or deny the rumour.) He says he has 3,500 names on a waiting list for The One's roughly 400 luxury condo units, and sales will start in September, too.
Prominent Toronto condo developer Brad Lamb, who is not involved in the project and was unfamiliar with the lawsuit, says One Bloor West can't help but succeed, based on its location alone: "I think it will sell out in a heartbeat."
He said he wasn't surprised that such a big building was hard to finance, or that the site has sat idle for 2 1/2 years, adding that big developments often face similar delays for all kinds of reasons. But he acknowledged that Mr. Mizrahi has taken on a project at 1 Bloor West that is orders-of-magnitude more complex than anything else on Mr. Mizrahi's résumé.
"Generally, developers don't go from $30-million, or $50-million or $60-million projects … right into $500-million projects," Mr. Lamb said. "It is a big leap."
Before workers began hacking away at the now completely vanished Art Deco façade of the old Stollerys clothiers in January of 2015, Mr. Mizrahi says he had worked hard to persuade the Stollery family, and other adjacent landowners, to sell their properties, spending $227-million to assemble the land in October, 2014.
But buying the land may have been the easy part.
To finance the deal, his single-largest lender was the Canadian Real Estate Investment Trust (CREIT), which initially put up $110-million and was expected to exercise an option and come in as an equity partner alongside Mr. Mizrahi and his other backer, the Windsor-based family behind Coco Paving Inc., which initially put in $30-million but has now lent $75-million to the project, according to land-registry documents. He also has two mortgages on the property, for a total of $85-million, with Montreal-headquartered Fiera Capital Corp., a Toronto Stock Exchange-listed firm with $122-billion in assets under management and offices in the United States and Europe.
Through a spokesperson, Jenny Coco, CEO of the Coco Group, declined to comment. Her company, founded by her parents William and Nina Coco in 1964 and now run by her and her brother Rocky, has grown through acquisitions in the past decade into one of the province's largest road-paving and heavy construction firms, paving 400-series highways and doing hundreds of millions of dollars worth of work for municipalities and the Ministry of Transportation of Ontario. And the Cocos have branched out into development and building homes in southwestern Ontario.
"You should be getting a call from CREIT," Mr. Mizrahi said in an e-mail to Ms. Coco, sent a month before the CREIT deal closed in 2014 and filed with the Ontario Superior Court. "They want to do this deal 100 per cent … . They will fund 100 per cent of all the equity and they have no issues with any of the fees, costs etc. They love the deal."
But things did not go quite according to plan. In the third quarter of 2015, CREIT appeared to change its mind about participating in the actual construction. It announced that the project had changed in scope and had become more dependent on condo sales instead of a rental component, so it no longer fit with CREIT's more conservative business model. So the trust decided against taking its own stake in the project, and said instead that it wanted its mortgages paid off by September of 2016, although it has subsequently granted Mr. Mizrahi extensions.
The project now has a single $108-million mortgage with CREIT, with an 8-per-cent interest rate, pricier than the original 6 per cent charged when CREIT first extended the loan. It comes due at the end of this month, although it may be extended again. CREIT has repeatedly said it is confident it will be repaid.
Even before CREIT backed away from taking an equity stake, Mr. Mizrahi had hired brokers to scour the globe for other investors, approaching sovereign wealth funds in the Middle East and sources of capital in Europe and Asia. Meanwhile, his relationship with his partners on two of his previous condo projects – luxury mid-rise buildings near Davenport and Avenue roads – had deteriorated in dramatic fashion and ended up in court.
The legal woes begin
In a lawsuit filed in November, 2015, Mr. Mizrahi's former business partners, Khashayar (Khash) Khavari and Mr. Khavari's brother-in-law, Mohammad Mahdi Tajbakhsh, alleged that Mr. Mizrahi misappropriated funds from two Yorkville condo projects and used them to pay for a private Embraer jet, a "luxurious cottage" and private school fees for his children.
The allegations have not been proven in court. But the legal woes would start to create headaches for Mr. Mizrahi's business.
Mr. Mizrahi denies all of the allegations, and argues in court documents that the payments in question came from his own company, a notion his opponents deride as "nonsense." Mr. Mizrahi has launched a counterclaim, alleging Mr. Khavari and his associates "conspired together" to cause Mr. Mizrahi "economic injury."
According to Mr. Khavari's court filings, he and Mr. Mizrahi were once close. He says he hired Mr. Mizrahi to build some homes in Forest Hill around 2009. Then, Mr. Khavari provided what he says was $17-million in seed money for two mid-rise Yorkville condo projects, according to court documents, agreeing to split profits with Mr. Mizrahi 50-50.
Now, Mr. Khavari also alleges he also has a similar stake in any profits that come out of 1 Bloor West.
"For the purposes of our partnership with Sam, One Bloor is no different than any of the other projects," Mr. Khavari said in an e-mail, calling the delays to the site's development "very concerning."
Mr. Mizrahi vehemently denies any link between his current project and the court battle, which has so far been limited to the two mid-rise condos.
Last August, Ontario Superior Court Justice Laurence Pattillo denied a motion from Mr. Khavari seeking a court-appointed "investigator" to oversee Mr. Mizrahi's finances in advance of a trial, ruling that the plaintiffs had failed to establish the required prima facie case they had faced oppression at the hands of Mr. Mizrahi.
The legal battle features a long list of sensational allegations made by both sides. In December, 2015, Mr. Mizrahi alleges, the Khavari family or its agents "delivered anonymous sealed brown envelopes" to his lenders containing some of those allegations. One-sided accounts of the allegations started appearing on anonymous websites. In court filings and in an e-mail to The Globe, the plaintiffs deny involvement.
But the "smear," Mr. Mizrahi alleges in court documents, did "serious damage" to his efforts to finance his other condo projects, costing him at least two lenders with whom he was in talks seeking construction financing. It even prompted his own bank to sever its ties with him, he says.
"Among other things, various Tier 1 financial institutions and other capital/equity lenders have advised Mr. Mizrahi that they are not in a position to advance financing or to invest in any projects or developments owned and operated by Mr. Mizrahi as a result of the vicious allegations made by the Khavaris publicly, and in this litigation," his statement of defence and counterclaim reads.
In the past year, he has sold his $8-million Embraer Phenom 300 private jet, which Mr. Mizrahi, a long-time pilot who describes flying as his passion, said was a choice that did not end up making business sense. But he denies he is in any financial distress.
In an interview, Mr. Mizrahi says the controversy has failed to derail his plans for Yonge and Bloor, and that his unnamed Chinese lender, who he says also received a brown envelope, is still on board.
"What this did was, it basically had me revetted by everybody, by the world, right? And I got revetted and I got relooked at and examined and I came out with flying colours," Mr. Mizrahi said. "If I didn't, I wouldn't be here today and I wouldn't have had my approvals and I wouldn't have my zoning. My name wouldn't be on the building still."
Just who this Chinese backer is, Mr. Mizrahi won't say. But last May, he brought representatives of a company called China-East Resources Import & Export Co. (CERIECO) in to City Hall to meet Mayor John Tory. In a tweet about the meeting, Mr. Tory described the company as "partnering" with Mizrahi Developments "on The One tower at Yonge & Bloor."
The deal was apparently not finalized. And Mr. Mizrahi's schedule for launching condo sales and beginning construction has been pushed back repeatedly. Last November, he told The Globe that a deal with his mystery backer would be signed and public in December, with condo sales launching in April. On Jan. 25, he said the deal still had to be finalized, blaming the delay on the holidays and the Chinese New Year.
Now, he says the deal is done, with the Ontario Municipal Board approval last month his lender's final precondition. Some of the delay came as condo documents needed to be revised, he said, because of the addition of a luxury hotel component in the project's retail base. Sales are set to launch by September, and the whole project, Mr. Mizrahi says, should be completed by 2023.
According to its website, Beijing-based CERIECO does arrange loans and engage in "building construction," but it also is involved in a wide range of other businesses, including importing and exporting parts for household appliances, electrical devices, construction equipment and medical instruments.
It recently incorporated a Canadian company, CERIECO Canada Corp., using an Ottawa lawyer. In an e-mail, Bosco Chan, a Toronto-based real estate business adviser who says he is CERIECO's Canadian representative, would not say whether the company was involved with The One.
Since he acquired 1 Bloor West, Mr. Mizrahi says he has had "every name in the city" in the development industry call him and ask to buy it. But he says it's not for sale.
"My grandfather and my father weren't part of the establishment or the club of real estate developers," he said. "I did this ground up, right? From scratch. And everybody thought, you know, that I was going to fail. And at the end of the day, not only did I not fail, I actually triumphed."