Toronto's Urbancorp Files For Bankruptcy

The Canary In Canada's Real Estate Mine Just Died: Toronto's Urbancorp Files For Bankruptcy

Submitted by Tyler Durden on 04/23/2016 12:47 -0400

Less than two weeks ago we documented that Toronto based Urbancorp, one of Canada's largest residential developers, was having significant issues. Its attorney's had taken the highly unusual step of terminating their contract, it hadn't released 2015 financials due to the audit committee having "open issues and questions", and most intriguing, a board member quit just two weeks after being appointed specifically to provide expertise in accounting.

For those unfamiliar with the company, Urbancorp was launched in 1993 by Alan Saskin, a former Cadillac Fairview executive, and has built dozens of condos and other housing developments in the Greater Toronto Area. This is how it describes itself on its website:

Urbancorp is proud to have created some of the most visionary home and condominium communities in the GTA.

 

As the premiere developer of the King West neighbourhood, Urbancorp transformed the old industrial lands of King Street West into the vibrant residential community of King West Village, including Bridge, Fuzion and ,the latest, Kingsclub Condominium. In the West Queen West neighbourhood, Urbancorp built Westside Gallery Lofts, Curve and, most recently, Edge and Epic on Triangle Park.

 

Urbancorp has built thriving new communities in other up-and-coming Toronto neighbourhoods. The Neighbourhoods of Queen Street East is comprised of three stunning new home communities along the Queen Street East corridor. With locations in Riverdale, Leslieville and The Beach, The Neighbourhoods of Queen Street East bring a fresh, modern vibe to the urban renaissance currently underway in Toronto’s east end.

And while the Greater Toronto Area may not be exactly Vancouver (where the real estate situation is getting more outlanding by the day), the local housing market has been consistently portrayed as sufficiently resilient and an indication of Canada's economic stability.

But perhaps it isn't, because late last night we learned that Urbancorp has filed for bankruptcy.

The filing which is seeking court approval to sell assets "to maximize real estate values for the benefit of creditors and other stakeholders," came just four months after the company issued roughly $48 million in debt traded on the Tel Aviv Stock Exchange, and eight months after reportedly taking out at $225 million loan. To the best of our knowledge, the company failed to pay interest on its new debt even once (also known as a NCAA or No Coupon At All). As The Globe and Mail reports, several contractors have registered construction liens against a project in Toronto's Leslieville neighborhood, and there are many lawsuits pending against the corporation as a result of contractors and brokers not being paid.

"We determined, after much consideration and consultation, that a court-supervised process is the best way to deal with current cash flow issues. This will allow us to reduce debt in an efficient manner while continuing to focus on our core business." CEO Alan Saskin said in a statement.

Ironically, in filings with the Tel Aviv securities commission late last year, Urbancorp presented itself as a top ten developer with a "AAA credit rating." Come to think of it, that's Canada's credit rating too...

Urbancorp has more than 1,000 homes under construction in the Toronto area, and the restructuring is meant to ensure the successful completion of those homes.

However, new projects may be a different story. As Bloomberg points out, government regulator Tarion Warranty Corporation has proposed to revoke Urbancorp's registration. If the registration is ultimately revoked, it would mean that the company wouldn't be able to build properties. An appeal has been filed.

From Tarion

Tarion has issued a Notice of Proposal (NOP) to revoke the registration of 17 Urbancorp related companies.  As the Registrar, Tarion has a duty to protect new home buyers by requiring builders to adhere to certain requirements in order to obtain registration, and ensure they continue to abide by ongoing obligations under the Act in order to maintain their licence.  The decision to issue this NOP was made due to the builder's failure to meet Tarion's ongoing registration requirements.

 

As with all builders who are issued an NOP by Tarion, Urbancorp companies have the right to appeal this proposal to the Licence Appeal Tribunal (LAT), which they have done.  This appeal is currently in process.  During this time, Urbancorp remains registered under Tarion until the LAT appeal process is concluded. 

 

Despite the NOP, Urbancorp remains obligated to fulfill its commitments to its customers.  This includes addressing warranty claims, seeking registration for any current condominium projects and completing any existing sales.

 

It is important for home buyers and homeowners to know that they remain protected under the warranty, and Tarion will step in to fulfill the warranty obligations if Urbancorp fails to do so.  This includes deposit protection, delay compensation and construction warranties that can last up to seven years on a new home.

The bankruptcy filing of Urbancorp is the second major bankruptcy we have reported in the luxury residential space. Recall two weeks ago Manhattan's Bauhouse Group filed for bankruptcy after defaulting on $147 million in debt.

The sudden and very rapid deterioration in the high-end real estate segment has received little attention so far. With everyone focusing on energy companies and their cash flow issues, few are paying attention to the fact that luxury real estate is collapsing, and not just in the US but as of last night, in Canada - at least in those cities where Chinese money laundering isn't encouraged by the authorities - as well.

With the Urbancorp bankruptcy filing, and the first official canary death in Canada's real estate "coal mine", we anticipate that the near future for Canada's real estate sector will be a far more volatile one. Excluding Vancouver of course: that particular Chinese money laundering hub will continue humming until the locals finally decide they have had enough of having their city sold to criminal Chinese oligarchs.

Average:

http://subterrnews.blogspot.com/2016/04/torontos-urbancorp-files-for-bankruptcy.html