AHK
Senior Member
News on 263 Adelaide Street West from an article by Shane Dingman in today's Globe and Mail Real Estate section. The property is being acquired by Lanterra, enabling partial reimbursement for the investors, and hopefully providing a path forward for redevelopment of the site:
Deal cut to repay some Hi-Rise syndicated mortgages
A deal has been struck to partially repay 654 investors in a mortgage registered to a failed downtown Toronto condominium.
The deal, which comes as the province struggles to set right its syndicated loan industry, impacts only one group of investors who placed their trust in construction development mortgages fashioned by Toronto-based Hi-Rise Capital Ltd., led by developer and mortgage broker Dimitrios (Jim) Neilas. A second group connected to a Hi-Rise project in Oakville faces more dire financial losses.
Hi-Rise’s problems, while smaller in size, mirror those of Fortress Investment Group and the Tier 1 group of companies, both of which had their mortgage licenses revoked in 2018. Together, the three companies raised more than $1.1-billion from small investors. How much of that will eventually be repaid remains to be seen.
The Hi-Rise project that was slated for 263 Adelaide St. W. in Toronto (site of a heritage factory built in 1915) dates back to a 2012 rezoning application by Mr. Neilas, a lawyer and now chief executive officer of Storey Living Inc. In 2014, Hi-Rise (a company controlled by Mr. Neilas) registered a $40-million loan on the Adelaide property (also controlled by Mr. Neilas), the money was raised from small investors and bundled into a syndicated mortgage. In syndication, each investor owns a small amount of the total loan that is secured against the value of the property. In the case of the Hi-Rise loans, lenders were promised 10 per cent interest and were promised that developable land was worth multiples of what the loan totals were.
Instead, by 2017 the money seems to have been spent, interest stopped being paid (eventually $12.9-million owing would accrue), construction hadn’t begun and Mr. Neilas began looking for buyers for the land.
On Oct. 23, 2019, Mr. Neilas proposed a deal to settle the outstanding loans with investors that would have seen him and his companies retain a 25 per cent stake in a renewed joint venture project with Toronto’s Lanterra Developments. But 70 per cent of the investors (representing $24-million in value) rejected the plan; only 29 per cent (representing $10-million) voted in favour.
“In rejecting the deal put forward by the company in October, investors took a leap of faith that we would eventually be able to come to them with something better,” said Gregory Azeff, partner with Miller Thomson LLP, which was appointed to represent the investors in 2019. Miller Thompson urged investors not to support the original deal, not least because it proposed no repayment until the building was completed. “Investors are no longer looking at a five- or six-year timeline for recovery, or bearing any further project risk. Instead, we now expect investors will receive the full amount of their distributions early next summer.”
After the failed vote, the first secured creditor, Meridian Credit Union, brought an application to appoint a receiver on the property. Miller Thompson then worked to secure a transaction that would avoid an insolvency (which can result in steep price discounts and poor repayment to investors).
Lanterra has now agreed to pay $69-million for 100 per cent of the property. After commissions and other priority claims are repaid, Miller Thompson says there will be $45,495,298 left over to distribute among investors. Those with registered loans – the one-third of the lenders who used RRSPs or likewise regulated savings vehicles to invest – will receive 100 per cent of what they are owed, which adds up to $22,810,717 ($17,133,872 in principal and $5,676,844 in interest).
The larger group of non-registered investors, often smaller-dollar investors, will receive less: They will share $22,684,580, which adds up to 64.86 per cent of the amount of their principal investments, but virtually none of the interest accrued, which drops their total repayment down to 47 per cent of what they are owed.
Mr. Neilas will be repaid $3,784,000. Lanterra, the investors and Mr. Neilas are sharing the cost of the $649,000 property sales commission owed to BMO Capital Markets Real Estate Inc. in a three-way split.
“We believe that the proposed Lanterra transaction represents the best outcome that can reasonably be hoped for in the circumstances and we are strongly encouraging all investors to vote in favour of it,” said Mr. Azeff, who said investors will have until the end of January to vote on the deal. “We are grateful to Lanterra for its approach to this deal, including its flexibility and willingness to work with us toward a transaction structure that addresses the needs of the investors.”
Meanwhile, another group of investors in the other failed Neilas project appear to be in far worse straits. What was to be the OpArts condos in Oakville, Ont., has gone from being merely an open pit to a dangerous hazard. In November, 2019 the city ordered the excavated basement partially filled back in as the shoring work that was done has been judged to be on the brink of collapse. The land is up for sale for $1, compared to the millions investors claim Mr. Neilas promised it would be worth.
Deal cut to repay some Hi-Rise syndicated mortgages
A deal has been struck to partially repay 654 investors in a mortgage registered to a failed downtown Toronto condominium.
The deal, which comes as the province struggles to set right its syndicated loan industry, impacts only one group of investors who placed their trust in construction development mortgages fashioned by Toronto-based Hi-Rise Capital Ltd., led by developer and mortgage broker Dimitrios (Jim) Neilas. A second group connected to a Hi-Rise project in Oakville faces more dire financial losses.
Hi-Rise’s problems, while smaller in size, mirror those of Fortress Investment Group and the Tier 1 group of companies, both of which had their mortgage licenses revoked in 2018. Together, the three companies raised more than $1.1-billion from small investors. How much of that will eventually be repaid remains to be seen.
The Hi-Rise project that was slated for 263 Adelaide St. W. in Toronto (site of a heritage factory built in 1915) dates back to a 2012 rezoning application by Mr. Neilas, a lawyer and now chief executive officer of Storey Living Inc. In 2014, Hi-Rise (a company controlled by Mr. Neilas) registered a $40-million loan on the Adelaide property (also controlled by Mr. Neilas), the money was raised from small investors and bundled into a syndicated mortgage. In syndication, each investor owns a small amount of the total loan that is secured against the value of the property. In the case of the Hi-Rise loans, lenders were promised 10 per cent interest and were promised that developable land was worth multiples of what the loan totals were.
Instead, by 2017 the money seems to have been spent, interest stopped being paid (eventually $12.9-million owing would accrue), construction hadn’t begun and Mr. Neilas began looking for buyers for the land.
On Oct. 23, 2019, Mr. Neilas proposed a deal to settle the outstanding loans with investors that would have seen him and his companies retain a 25 per cent stake in a renewed joint venture project with Toronto’s Lanterra Developments. But 70 per cent of the investors (representing $24-million in value) rejected the plan; only 29 per cent (representing $10-million) voted in favour.
“In rejecting the deal put forward by the company in October, investors took a leap of faith that we would eventually be able to come to them with something better,” said Gregory Azeff, partner with Miller Thomson LLP, which was appointed to represent the investors in 2019. Miller Thompson urged investors not to support the original deal, not least because it proposed no repayment until the building was completed. “Investors are no longer looking at a five- or six-year timeline for recovery, or bearing any further project risk. Instead, we now expect investors will receive the full amount of their distributions early next summer.”
After the failed vote, the first secured creditor, Meridian Credit Union, brought an application to appoint a receiver on the property. Miller Thompson then worked to secure a transaction that would avoid an insolvency (which can result in steep price discounts and poor repayment to investors).
Lanterra has now agreed to pay $69-million for 100 per cent of the property. After commissions and other priority claims are repaid, Miller Thompson says there will be $45,495,298 left over to distribute among investors. Those with registered loans – the one-third of the lenders who used RRSPs or likewise regulated savings vehicles to invest – will receive 100 per cent of what they are owed, which adds up to $22,810,717 ($17,133,872 in principal and $5,676,844 in interest).
The larger group of non-registered investors, often smaller-dollar investors, will receive less: They will share $22,684,580, which adds up to 64.86 per cent of the amount of their principal investments, but virtually none of the interest accrued, which drops their total repayment down to 47 per cent of what they are owed.
Mr. Neilas will be repaid $3,784,000. Lanterra, the investors and Mr. Neilas are sharing the cost of the $649,000 property sales commission owed to BMO Capital Markets Real Estate Inc. in a three-way split.
“We believe that the proposed Lanterra transaction represents the best outcome that can reasonably be hoped for in the circumstances and we are strongly encouraging all investors to vote in favour of it,” said Mr. Azeff, who said investors will have until the end of January to vote on the deal. “We are grateful to Lanterra for its approach to this deal, including its flexibility and willingness to work with us toward a transaction structure that addresses the needs of the investors.”
Meanwhile, another group of investors in the other failed Neilas project appear to be in far worse straits. What was to be the OpArts condos in Oakville, Ont., has gone from being merely an open pit to a dangerous hazard. In November, 2019 the city ordered the excavated basement partially filled back in as the shoring work that was done has been judged to be on the brink of collapse. The land is up for sale for $1, compared to the millions investors claim Mr. Neilas promised it would be worth.
