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After several delays, Elaine and Howard Quinn are still waiting to move into their Urbancorp townhouse. (Fred Lum/The Globe and Mail)

More than three years after buying into Urbancorp’s planned new townhouse project in Toronto’s Leslieville neighbourhood, Elaine and Howard Quinn sold their home last January, expecting to get the keys to their new place in April.

Two weeks later, they got a notice that pushed their closing into July.

Ms. Quinn put the family’s belongings in storage and searched for a short-term furnished rental. Another delay notice arrived pushing their closing to August.

Just before the owners of the Quinns’ rental were due to return home, the couple got yet another delay notice, this time until October.

Ms. Quinn found another short-term rental, but the home wouldn’t be ready until a day after the family needed to move. So the couple and their three-year-old son spent a night in yet another rental they found on Airbnb.

“We were living like nomads because all of our stuff was in storage,” Ms. Quinn said.

In the past year, the Quinns have moved four times. They have received 13 delay notices from Urbancorp since November, 2012. The family has since signed a year-long lease, finally allowing them to take their furniture out of storage.

In the meantime, the couple’s townhouse, which is almost finished, continues to sit empty. They have spent tens of thousands on storage fees and rent and are unsure what will happen when their son is set to start kindergarten nearby this fall, since they don’t yet live in the neighbourhood.

“We really just want to close and move into our homes,” said Ms. Quinn, who is among a group of 35 homeowners that have hired a lawyer and gone to court to appoint an investigative receiver to examine the project’s finances.

The Quinns are among potentially hundreds of home buyers left in limbo after Urbancorp’s chief executive officer, Alan Saskin, and eight Urbancorp subsidiaries filed for court protection from creditors last month, owing nearly $150-million.

Since March, Tarion Warranty Corp., the agency that backstops Ontario’s new home warranty program, has taken the unprecedented step of threatening to revoke the registration of 17 Urbancorp projects. Without Tarion’s support, the company would not be able to develop new projects. Tarion has also launched a separate lawsuit against the developer and Mr. Saskin over Urbancorp’s alleged failure to honour its financial commitments.

The case is one of dozens of lawsuits and liens the company now faces from contractors, employees, home buyers, the City of Toronto and fellow developer Brad Lamb, who is suing Urbancorp for $750,000 over allegations of unpaid commissions and referral fees. (Filing for bankruptcy protection generally causes lawsuits to be frozen.)

The financial problems have forced Urbancorp to lay off employees, scale back development plans and potentially sell off some of its lucrative development sites.

They have also harmed the developer’s relationships with the community groups it has long supported. In April, Mr. Saskin resigned from the chairmanship of the Artscape Foundation, the fundraising arm of the non-profit urban development organization. Toronto’s Theatre Centre removed Urbancorp from its list of corporate sponsors after the developer failed to pay $100,000 it had pledged to the arts group in 2012. Urbancorp has touted itself as the lead fundraiser on the organization’s $6.2-million renovation project. On May 6, David Mandell, a Theatre Centre board member, resigned as vice-president of Urbancorp.

Yet at the heart of the brewing battles over Urbancorp’s sudden fall from grace is a looming question: How could a developer with dozens of housing projects in some of Toronto’s most desirable neighbourhoods stumble so badly in the city’s red-hot housing market?

“I’ve been through four or five recessions in my life and this is the weirdest one,” says Gary Caplan, a lawyer hired by a group of Urbancorp buyers to help them get title to their homes after years of delays. “This is the first time where interest rates are so low and money is so cheap and the real estate market is rising. It’s just hard to understand how this could come about.”

Urbancorp developments throughout the Greater Toronto Area. Click the upper-left icon for more information on the status of each project.

Juggling multiple projects

Within a decade of muscling its way into Toronto’s burgeoning condo scene in the early 1990s, Urbancorp had grown into one of the city’s largest developers.

The company is headed by Mr. Saskin, a 62-year-old Harvard-educated architect and seasoned real estate executive. Since launching Urbancorp in Toronto in 1991, Mr. Saskin has built more than 5,000 housing units, most of them in the city.

Urbancorp projects stretch from the waterfront to midtown. The company was once heralded as a pioneer of affordable housing, a supporter of the arts and an early visionary in the movement to transform derelict industrial lands into trendy residential neighbourhoods. The geothermal technology Urbancorp was installing in several of its developments won support among environmentalists.

But its success also masked a growing array of problems. Interviews with more than a dozen buyers, realtors, lawyers, developers, city officials and Urbancorp itself paint a picture of a company whose aggressive development plans and fast-moving deals saddled it with a steadily worsening reputation for long delays, significant construction problems and poor customer service. Such issues, however, did little to hamper demand for the company’s projects in the frenzy of Toronto’s housing market.

In recent years, Urbancorp has won bids to purchase at least eight former public and Catholic school sites at a cost of more than $80-million. It was negotiating with the federal government for a $52-million deal to build more than 1,000 homes on a 16-acre parcel in Downsview Park, although it has since partnered with Mattamy Homes. By the start of this year, it had more than 1,000 homes under construction in Toronto.

“Find a developer that has that many properties under construction or under rezoning at the same time,” says Toronto city councillor Paula Fletcher. “You won’t.”

Urbancorp itself admits it was the victim of its own ambitions. Enticed by what it called the “buoyant market” for Toronto real estate, the company said in an e-mail to The Globe and Mail that it had aggressively started buying up development locations around the city and quickly became stretched by the requirements of juggling multiple projects.

“We likely acquired too many building sites and initiated more projects [than] in hindsight we were able to hold and cost-effectively develop,” wrote Urbancorp spokesman Riyaz Lalani. “The number of projects we had under development exceeded the bandwidth required to manage them carefully, which led to cost overruns, eating into profits, in some cases creating net losses. We gradually began to owe money to a broad group of business partners and creditors.”

A planned Urbancorp development at 2425 and 2427 Bayview Ave. (Fred Lum/The Globe and Mail)

As it scrambled to stay on top of its expanding list of projects in Toronto, the company turned to the Israeli capital markets in December to raise fresh cash to cover its debts.

Mr. Lalani said the developer was “advised by business partners about opportunities to raise debt capital from investors in Israel who were interested in exposure to Canadian real estate development.”

The firm was following on the heels of more than a dozen U.S. property developers that have raised money in the debt markets Israel, where they can get access to lower interest rates than at home.

Its $60-million bond issuance on the Tel Aviv stock market last fall attracted the interest of several large Israeli mutual funds. All proceeds went to pay off existing Urbancorp debts, through what the firm described in bankruptcy documents as an “unsecured intercompany loan.” In filings in Israel, Urbancorp said the money was used partly to pay off a high-interest $50-million loan to a mezzanine lender.

But within five months, its Israeli adventure had unravelled. When news of Tarion’s concerns reached Israel, the company’s bonds plunged more than 40 per cent in one day. Its Israeli legal advisers resigned, citing a series of unresolved disputes, as did three board members who had been appointed only weeks earlier.

The company’s bonds have since ceased trading on the Tel Aviv Stock Exchange, sparking court proceedings and an examination by the Israel Securities Authority.

Urbancorp acknowledged that it had quickly found itself “overwhelmed” by the reporting requirements of securities regulators in Israel.

“Ultimately, we did not appreciate the extent of the burdens of being a reporting issuer, borrowing money in a foreign jurisdiction, working in a foreign language and public issuer reporting requirements,” Mr. Lalani wrote. “We also did not appreciate how the need to segment and separately report income from various projects would affect our cash flow.”

However, while the company appears to have run into major cash flow problems only within the past year, sources in the development industry and with the City of Toronto who have dealt with Urbancorp and Mr. Saskin say the firm has long had a reputation in the industry as an aggressive deal maker that tries to squeeze as much as it can out of every transaction.

“The word in the industry is, that if you’re going to do business with him … you’d better go in with your eyes wide open,” one senior development industry source said on condition of anonymity.

Such concerns flew under the radar of Urbancorp’s buyers, many of whom say they were attracted to the company’s designer showrooms, unique features and coveted locations.

Realtor David Fleming has received dozens of calls from prospective Urbancorp buyers in the 11 years since he bought into one of the developer’s west-side projects that turned out to be rife with construction problems, which he chronicled on his popular Toronto Realty Blog.

Many callers thanked him for his opinion, but made it clear they still planned to buy.

“The unfortunate part of the real estate boom of the last 10 years is that a lot of people are willfully ignorant when it comes to developers,” Mr. Fleming said. “There is only so much you can do to protect the consumer from themselves.”

An Urbancorp development sits idle on Curzon Street in Toronto's east end. (Fred Lum/The Globe and Mail)

Two buyers’ tales

Carlo Ang was among those who had concerns about Urbancorp’s reputation from reading Mr. Fleming’s blog and from a cousin who lived near the developer’s King West headquarters.

But he and his wife liked the style of Urbancorp’s Riverdale townhouse project and Mr. Ang was particularly interested in the project’s geothermal heating and cooling system. Plus, he reasoned, the company’s problems appeared to stem from its large-scale condo developments and the Angs were looking to purchase a townhouse. “We said how hard can it be? I’m sure any builder can do it.”

After purchasing his unit in the summer of 2011, Mr. Ang said the company pressured him and other neighbours to continuously update their mortgage preapproval for the full purchase price of their homes throughout years of construction delays, even if they were intending to pay cash or take on only a small mortgage.

Only hours before Urbancorp’s subsidiaries filed for bankruptcy restructuring in April, Mr. Ang and other Riverdale buyers succeeded in getting the developer and its lenders to give them legal title to their homes – more than two years after they had moved in.

Other buyers say they had to battle to prevent the developer from cancelling their contracts to purchase their homes.

Nearly three years after paying a 10-per-cent deposit and spending $30,000 on upgrades on their $690,000 townhouse in Urbancorp’s Leslieville development, Jelena and Norman Leung got a notice from the developer saying their home couldn’t be built because of an issue with the city and offering the couple a refund on their deposit. “They wouldn’t give me an exact reason why,” Ms. Leung says.

Ms. Leung went to City Hall and pored over the plans that Urbancorp had filed with the municipality for approval. Her townhouse was nowhere, not even in initial drafts of the company’s site plans. “Our unit was never part of the plans with the city,” she says. “It was just a sketch someone put together.”

After Ms. Leung threatened to hire a lawyer and go public with her story, the company contacted her to say another unit had become available after a purchaser backed out of a deal.

Since buying their unit, which was supposed to be completed in February, 2013, the Leungs have gotten engaged, married and had two children. They’re now renting a cramped two-bedroom townhouse in the neighbourhood while they wait for the home to be completed.

Another view of the stalled Curzon Street development. (Fred Lum/The Globe and Mail)

Problems with lenders

In an e-mail to The Globe in late April, Mr. Saskin defended his company’s customer service reputation and said that despite its financial issues, Urbancorp expects to complete many of the projects it has under development.

“We have always cared about customer service,” he wrote. “We have built homes and provided service to our customers for as long as we have been in business.”

One reason for the delays plaguing Urbancorp’s east-side townhouse projects appears to be its agreements with lenders. The company owes more than $83.5-million to Canadian Imperial Bank of Commerce and Terra Firma Capital Corp. as part of mortgages that were secured by three separate developments: the Leung and Quinn families’ Leslieville project, Mr. Ang’s Riverdale townhome complex and a development in the Beaches. Lawyers for some purchasers say they believe that the lenders’ reluctance to discharge mortgages on the properties amid mounting bills and construction liens may be among the reasons why the company has struggled to finish construction and transfer title to buyers.

In its quarterly filings last week, Terra Firma said it is owed $13.9-million by the insolvent Urbancorp subsidiaries and has started power of sale proceedings to recoup its investment.

In total, the publicly traded lender, which was started by members of the Reichmann family and former executives of the family’s real estate companies, gave $23-million to Urbancorp – more than 20 per cent of its total mortgage portfolio. “We believe investors will be surprised to learn of Terra Firma’s concentration to one developer,” Laurentian Bank of Canada analyst Marc Charbin wrote last week.

Neither CIBC nor Terra Firma responded to requests by The Globe to comment.

Beyond negotiations with lenders, the company was also facing a litany of lawsuits at the time it filed for court protection.

In a suit filed last September, the City of Toronto demanded Urbancorp reimburse it for nearly $370,000 worth of sewer repairs – including the installation of nearly 100 metres of new sewer pipe – after crews working on Urbancorp’s Leslieville project allegedly allowed so much concrete to go down the drain in 2013 that the sewer was completely blocked. The company has said it would defend the action.

By October, work on several projects had ground to a halt “as a result of disputes with various trades and third parties,” Urbancorp wrote in a statement of defence from January as part of a wrongful dismissal lawsuit launched by a 73-year-old construction foreman. “Construction was not expected to resume for a considerable period of time and/or at all.”

In yet another lawsuit filed against Urbancorp, Brampton, Ont.-based engineering firm Exp Services Inc. alleges the developer had offered the contractor a series of post-dated cheques and then urged Exp Services to hold off on cashing them. In November, Exp Services claimed it tried to cash nearly $270,000 worth of cheques anyway, but they bounced. (In a statement of defence, Urbancorp and Mr. Saskin deny the allegations and say the firm was paid what it was owed.)

At the same time, the company was engaged in a dispute with Tarion, the home warranty backer, over mounting claims that it had paid out to buyers in several Urbancorp projects. In a lawsuit filed earlier this year, Tarion demanded the company reimburse nearly $147,000, plus 18 per cent interest, for claims it had paid since the start of last year. It alleged that the claims had been personally guaranteed by Mr. Saskin.

“The unfortunate part of the real estate boom of the last 10 years is that a lot of people are willfully ignorant when it comes to developers.”
David Fleming, realtor

Tarion also alleges that Mr. Saskin “negligently misrepresented” his personal net worth to the warranty agency by claiming he jointly owned a multimillion-dollar Yorkville condo, when his wife is the only person registered on the title. (Mr. Saskin is not on the title of any property in Toronto, although according to lien searches, he does drive two high-end cars: a James Bond-style Aston Martin DB9 and a Tesla Model S.)

Urbancorp said the Tarion allegations “are being vigorously defended.” It has also appealed Tarion’s proposal to revoke its warranty registration.

Despite its bankruptcy filing, the company is still working to complete construction on more than 1,000 homes and said it expect “to either deliver completed homes to purchasers, or to return their deposits.”

Buyers say they have little choice but to wait it out and hope their homes will eventually be built, given that they have already lost ground in the city’s real estate market.

In the year since the Leungs paid a deposit on their townhouse, home prices in the Toronto region have surged nearly 60 per cent. “We could no longer afford to stay in the neighbourhood if we don’t get these homes,” Ms. Leung says.

For the broader real estate industry, however, Urbancorp’s troubles will likely prove to be a cautionary tale to those who thought it impossible that anyone could go wrong in Toronto’s seemingly unstoppable housing boom.

“Eventually time caught up with them,” says realtor Mr. Fleming. “You can only leave a trail of poor product and dissatisfied consumers for so long.”

Editor's note: An earlier online version of this article stated that former Urbancorp vice-president David Mandell had resigned from the Theatre Centre's board of directors. In fact, he resigned from Urbancorp. He remains on the Theatre Centre board.