Trend increasing across residential projects
Residential development projects across Canada, ranging from towering condo buildings to undeveloped lands, are increasingly facing financial distress, with receivership becoming a common recourse.
According to a CTV News report, experts attribute this trend to a combination of factors including elevated interest rates, construction expenses, delays, and a sluggish real estate market.
Mike Czestochowski, vice-chair of CBRE’s land services group, noted a stark increase in distress calls regarding such projects, indicating a growing frequency of financial strain in the industry.
Receivership is a legal mechanism to secure lenders through appointing a representative to manage distressed properties. This option, which is often thought of as a last resort, has become more prevalent as larger construction projects with multiple mortgages encounter financial troubles.
“These projects that are under construction, they've seen such a rise in prices that they just, they run out of money,” Lauren White, executive vice-president of CBRE’s land services group, told CTV.
High-rise building projects facing tougher challenges
One such example is the Elevate Condominiums project in Kitchener, Ontario, wherein creditors filed for receivership against the project owners. As of the time of filing in October, construction crews had walked off the site.
In December, a report revealed the owners had merely $300 in the bank when the receiver order went through on the side of a debt of over $100 million. Other instances include the receivership filing for a planned 55-story condo tower in downtown Vancouver and the legal action against a Mizrahi (128 Hazelton) Inc. condo project in Toronto.
While major developers still manage to secure funding, smaller ones struggle to access additional capital, according to Czestochowski.
Receiverships, predominantly seen in Ontario in recent times but also evident across various provinces, reflect the challenges posed by high-rise developments, which are prone to complexities and delays. The One, an 84-story building in Toronto, stands out as a high-profile case grappling with substantial debt and construction setbacks.
The overarching objective of receiverships is to salvage value for secured creditors, either by completing projects or selling assets to recoup losses. However, the process is intricate, often involving negotiations and legal hurdles. Notably, not all receivership applications are approved, as in the case of Cormandel Properties’ application in British Columbia.
The repercussions of receiverships extend beyond financial realms, impacting buyers and developers alike. Buyers may face uncertainties regarding their investments, while developers grapple with market dynamics and the challenge of offloading distressed properties.
“A lot of people are looking for a deal. They’re trying to time the bottom of the market, which no one can,” noted White.
Despite the current downturn, industry experts remain cautiously optimistic, anticipating a gradual recovery in the real estate market albeit over a seemingly protracted period.
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