Trouble in Toronto as developer struggles in city's booming market
In a parking lot in midtown Toronto, a portable office advertising homes for Urbancorp sits empty, a stark symbol of what can go wrong for even one of Canada's largest property developers in the city's feverish real estate market.
The sales centre, fronted by weed-covered planters and dotted with litter, was where Urbancorp marketed 41 townhouses.
The project, called The Manors of St Clair West, sold out, according to the company's website. Neighbours and realtors say the office hasn't been open for more than a year.
Now Urbancorp has filed for bankruptcy protection on the project, along with seven other of its related companies comprising about 720 residential units across the city as it seeks to restructure and reduce debt. It's also facing at least 20 lawsuits from builders, real estate agents, and the city claiming a total of about C$5m (€3m). Meanwhile, the agency that administers new home warranty protection has moved to deregister the company, and its Israeli creditors are seeking settlement after trading in its bonds was halted.
It's the first major developer to run into trouble in the current boom which has added about 157,230 condo units to Toronto's skyline in the past decade and sent prices up by about a third between 2010 and 2016. Fuelled by immigration, foreign money and a trend toward downtown living, Toronto is one of the world's frothiest housing markets.
"We have such a hot market that you can just build bad product and someone will buy it," said Carl Langschmidt, a realtor and founder of data website condos.ca. He says he no longer promotes units in Urbancorp buildings, after one of his buyers couldn't open a refrigerator in one of their Lofts because it was blocked by a pillar and he heard poor reviews about customer care, quality, and delays on projects.
Urbancorp initiated restructuring proposals for eight of its companies under Canada's bankruptcy and insolvency act, claiming they're insolvent. It plans to sell assets "to maximize real-estate values" for the benefit of creditors and other stakeholders, the company said.
"This will allow us to reduce debt in an efficient manner while continuing to focus on our core business," and ensure the 1,058 homes the company has under construction are delivered, chief executive Alan Saskin said. The company has filed defences and intentions to defend for several of the lawsuits in court.
In a statement, the company said it has laid off a number of employees and Saskin apologised for the delay in further communication.
"Given the international complexities and the number of stakeholders involved (home buyers and home owners, creditors, shareholders, suppliers, construction trades and regulators), we were unable to keep everyone apprised of all developments at all times," Saskin said. "We are committed to a transparent process that will stabilize operations, preserve and protect asset values for stakeholders, and pursue the orderly sale process we have begun."
Urbancorp was founded by Saskin, a Harvard-educated former employee of Cadillac Fairview, now the real estate arm of Ontario Teachers' Pension Plan Board. Urbancorp has built or planned at least two dozen condominium and townhouse projects in Toronto in the last 25 years. It has partnered with companies including Canadian Apartment Properties REIT, First Capital Realty., and Mattamy Homes. It's also one of Canada's only privately owned developers to tap the public market, issuing a 180m shekel (€41m) bond in Tel Aviv in December.
Homebuyer Alex Oren put down about C$75,000, or 10 percent of the purchase price, for a townhouse in Urbancorp's Ravines of Lawrence project in February 2014. Despite efforts to find out how the project was progressing, he says he heard nothing until last week, when reading in the media that Urbancorp claimed the project was insolvent.
"I'm afraid I'll be kicked to the side," the 47-year-old IT worker said. "We'll have to go to Tarion to beg for peanuts. Where is the money? How can you go bankrupt with the price appreciation in Toronto in the past few years?"
Tarion, which provides warranty protection for deposits and construction on new homes, said it's moving to revoke the registration of 17 Urbancorp subsidiaries, preventing the builder from starting on new projects, after they failed to meet its financial and customer service requirements.
Tarion "has been involved and highly engaged since last year when we identified a higher level of claims activity on Urbancorp's projects and began receiving customer comments and concerns," a spokeswoman for Tarion said.
Urbancorp has appealed and said in regulatory notices filed in Israel that its lawyers have said they believe the dispute can be resolved by consensus in a "short period of time."
"On one level, it's a real buyer beware story," Mark Davies, a partner specialising in insolvency at Richards Buell Sutton, said from Vancouver. "Not only does it look like they sold substandard property, breached warranty obligations, but they also went to Israel to borrow money when Canada has lots of cheap money. There are some red flags."
The company owes at least C$5m to contractors, agents, the City of Toronto, and a condo corporation, according to Ontario court documents.
Developer Brad Lamb, the head of brokerage Brad J Lamb Realty, sued Urbancorp companies this year for C$750,000 for what he said were missing commission and referral fees, according to the court documents. In the filing, Lamb said his firm helped sell about 70 units across several Urbancorp projects from 2010 to 2013. Urbancorp denied the allegations in court documents, saying it paid Lamb all due referral fees as per their agreement and the amount claimed by Lamb was "excessive".
Another brokerage, Re/Max Platinum, also filed a lawsuit alleging missed payment. The company says it's owed C$556,000, with C$110,671 of it overdue, according to a lawsuit filed last year. In a statement of defence, Urbancorp denied that it had entered into a contract with the brokerage.
Four months after Urbancorp sold debt in Israel, the price of the bonds more than halved, its Israeli directors and legal advisers resigned, and trading in the securities was halted.
A Tel Aviv court on April 25 appointed an attorney with the power to seize the company's assets and seek all information about its operations and controlling shareholder Saskin, according to a court filing. The court authorized the attorney to formulate a first draft for creditors' settlement, to be presented May 8 with a hearing scheduled for May 22.
"We have no objection at this stage to leave the court's decision as is," Gad Ticho, a partner at the law firm Caspi & Co representing Urbancorp in Israel, said at the Tel Aviv court hearing. But Urbancorp is "absolutely opposed" to allowing the appointed trustee in Israel to "take over the company" and will recommend Urbancorp provide information and cooperate with the trustee.
At least 16 North American-based property companies have borrowed more than 9.6bn shekels from investors in Israel since 2008. Urbancorp is the first to file for bankruptcy protection.
As the restructuring begins, buyer Oren in Toronto is hoping a large developer steps in to purchase his project and that the Ontario government prevents this from happening again.
"I caught the last wagon in the last train I can afford in the Toronto real estate market," Oren said. "Someone needs to help us." (Bloomberg)