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The Clover on 593 Yonge St. in Toronto.

Cresford Developments

The legal process to restructure the insolvent Clover condominium project in downtown Toronto is “in a ditch” according to court-appointed monitor overseeing the attempt by Concord Pacific Developments Inc. to complete the half-constructed tower, which could be worth $500-million when finished.

Clover was a project started by Cresford Developments, the furthest along of three developments that were sent into receivership in April. Clover’s debts were purchased by Concord, which was granted court approval on June 15 to attempt a restructuring through the Companies' Creditors Arrangement Act.

What appears to have driven that process off the road is the existence of 492 contracts to purchase apartments that give the buyers the opportunity to vote on the reorganization plan. Counsel for the buyers has framed this as a transfer of wealth that preserves profits for Concord at the expense of the buyers. Concord needs a majority of those buyers to vote in favour of its restructuring plans, perhaps as early as Oct. 21, while at the same time it must argue before the court that their contracts should be cancelled as soon as possible.

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A sometimes tense hearing on Sept. 30 saw the participants put their case before the Justice Glenn Hainey, head of the Commercial List of the Ontario Superior Court of Justice. The parties involved would not provide further comment to the Globe, beyond what they said in the virtual hearing.

“Can this project be built and can a restructuring occur with the current contracts in place?," asked Geoff Hall of McCarthy Tetrault LLP, counsel for the court-appointed monitor PriceWaterhouseCoopers. “The clear answer to that is no; it’s simple economics.” PWC has endorsed the Concord restructuring plan. Without the cancellation of the buyer contracts, Mr. Hall contended, either a mothballing of the project or a liquidation sale of the building will occur, in which case the contracts will be cancelled anyway.

Matthew Gottlieb, partner in the law firm Lax O’Sullivan Lisus Gottlieb, argued against immediate cancellation for the more than 200 buyers he represents on the grounds that the current plan is unfair; in part because it preserves the possibility of Concord making profits of between $30-million and close to $80-million.

“Concord has bought into this project, with eyes wide open, with the intention of making a profit," Mr. Gottlieb said. He said the plan takes too much from the buyers he represents.

Concord is offering buyers who paid an average of $875 a square foot for their condos in 2016 the opportunity to buy back their same units at about $1,338 a square foot, which it says is below a calculated current market value of $1,500 a square foot. It also offers the opportunity to have their deposits returned, with three per cent in interest, and walk away. “Costs cannot be changed, the revenue is the only variable that can make a viable project,” Mr. Hall said.

“The plan we have offered would allow purchasers to buy homes below market or expedite their deposit back with a premium,” Cliff McCracken, Senior Vice-President of Concord Pacific Developments Inc. said in a statement to The Globe. “It is also supported by a sizeable group of purchasers, who have signed a restructuring support agreement.... If the market remains strong, we will share the upside with the purchasers who sign that agreement.”

Concord is offering another sweetener: a return of deposits with a 5 per cent bonus and a limited revenue sharing agreement, if those buyers agree to support the restructuring plan and also buy back in to the building at the new higher price. The scheme would potentially give buyers a piece of a pool of 40 per cent of the “excess revenue” if the building’s final gross sales price per square foot goes above $1,446. The company says more than 140 buyers have already signed on.

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Mr. Gottlieb said many of his buyers can’t afford the Concord plan, and wouldn’t be able to share in those profits. He provided affidavits from buyers such as a Ms. Yi, who is a 38 year old immigrant being asked to pay double what she originally agreed, who wrote “this situation has left me feeling like the sky is falling.”

Jeremy Nemers, lawyer with Aird & Berlis, representing Concord’s application, argued during the hearing that what was unusual was for buyers – who are not secured creditors like mortgage lenders – to expect to be offered anything at all, let alone their money back plus a premium.

“While we have sympathy for the purchasers for the situation they are in now, they took a risk several years ago... to provide funds on the hope that the building would be completed on schedule and that the economic risk they took would payoff for them,” he said. “I understand that’s not the desired, ideal outcome for unit purchasers ... the plan is sufficiently fair to allow this vote to proceed.”

The Concord application would also set aside $300,000 to be shared among a group of real estate agents owed commissions on the sale of dozens of preconstruction contracts for the Clover project. The application would erase about $10-million in other unsecured debt.

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