After a year of litigation and negotiation most of the 492 preconstruction purchasers in the insolvent Clover on Yonge condominium project have agreed to a reorganization plan that will allow the Concord Group of Companies to finally finish the 44-storey building in downtown Toronto.
“It took longer than we expected,” said David Gruber, a lawyer with Bennett Jones LLP, who represented Concord. “Our original thinking was we’d get where we are now around September. There were bumps along the way, but our original thinking turned out to be right that everybody’s interests were aligned in that you’re going to get a better outcome than if [Clover] were just sold in receivership.”
The Clover, on Yonge Street near Wellesley Street West, was the most advanced of three high-rise projects being developed by Cresford Group that were thrown into insolvency proceedings in April, 2020, when serious financial concerns were raised by the company’s lenders. Vancouver-based developer Concord was allowed to purchase the project from Cresford in June, 2020, and then proposed a restructuring plan through the Companies’ Creditors Arrangement Act (CCAA) that required a majority of the secured and unsecured creditors (everyone from mortgage lenders and real estate brokers to construction firms and condo apartment investors) to vote in favour.
In the late summer and fall, a group of buyers represented by law firm Lax O’Sullivan Lisus Gottlieb raised objections to the plan, which included a proposal that all the preconstruction contracts be effectively cancelled. Justice Glenn Hainey, head of the Commercial List of the Ontario Superior Court of Justice, ruled that those contracts could not be cancelled until after a successful restructuring plan was agreed to, which set up a new round of negotiations.
“Ultimately we did end up amending the offer to purchasers slightly,” Mr. Gruber said. Buyers who wanted their deposits back saw the interest on that money raised from 5 per cent to 8 per cent, and some buyers will get their legal fees repaid. In addition, all the buyers who want to stay in the project at new pricing – which will rise from an average of $875 a square foot to $1,338 a square foot – will also be entered into a profit-sharing formula that Concord devised that will kick in if the average price per square foot in the building reaches certain threshold. Real estate brokers connected to the project also saw the amount of the sales commissions owed by Cresford rise from 5 per cent repayment to 55 per cent.
The vote was delayed several times, but was held in December and went 98 per cent in favour of Concord’s plan.
One of the last hurdles was an objection from Maria Athanasoulis, a former Cresford executive and sales and marketing leader, who played a pivotal role in bringing about the receivership and restructuring process owing to a wrongful dismissal lawsuit she filed on Jan. 21, 2020, that alleged her former employer was in the middle of a “cash crisis.”
Once Cresford’s lenders were able to review the books they pushed the projects into receivership and filed affidavits alleging “inappropriate project contracting and accounting” methods such as keeping secret ledgers and borrowing from one project’s budget to pay cost overruns on another. Dean Atkins, QuadReal executive vice-president and head of mortgage investments, said accountants from PricewaterhouseCoopers found about $3-million in cost overruns for another of Cresford’s high-rise projects, 33 Yorkville, hidden in part by requests from Cresford for contractors to file two separate invoices: one that had the budgeted amounts, and a second to allegedly obscure any cost overruns. Ms. Athansoulis described some of the projects running tens of millions of dollars over budget, and reports from court-appointed monitors verified that the projects had no prospect of becoming profitable.
Part of Ms. Athanasoulis’s wrongful dismissal suit is a claim to a profit sharing agreement on several Cresford projects including Clover, which the suit alleges to be worth $48-million. In a ruling on Jan. 8, Justice Hainey said Ms. Athanasoulis had intended to vote her financial interest against the restructuring plan. But this he disallowed, saying that she couldn’t claim that stake for the purposes of the vote as her position was too “speculative and remote,” given that the project she claimed a share of profits in was in the red by about $61-million in March, 2020, when it was put into receivership. Also, Justice Hainey suggested her position was undermined by her assertion, on the one hand, that she was entitled to profits of a restructured project, and on the other hand, voting against that restructuring.
“Just so you understand, it’s a narrow ruling: She’s not precluded from continuing on to try and prove that claim, or to prove that it should be valued at $48-million,” said Mr. Gruber, who also warned with the building yet to be completed and with any unclaimed units still unsold, a profit is not yet guaranteed. “There will only be profit at some future date – if the economic stars align.”
The next step is a Feb. 5 deadline for preconstruction buyers to decide whether they want to buy back in or get their deposits-plus-interest back. Only once that process plays out will Concord know how many apartments it can try to resell in a dramatically different market than first anticipated.
Condo resale prices have been falling since the fall in downtown Toronto for the first time in a decade, but that doesn’t worry Concord.
“The softness in the condo market or downtown, I think it’s more short-term,” said Isaac Chan, vice-president of sales and marketing at Concord.
“Among our developer peers, there are other projects coming out. … When [buyers] look at Toronto, they see it having all the prerequisites of a good, strong, stable market. It’s just a matter of vaccines and for things to calm down and people will continue with their purchasing appetite.”
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