There appears to be no end in sight to the state of distress making its way through the Ontario real estate world, with yet another high-rise tower being placed under receivership, according to court filings in Ontario Superior Court.
This time, the property is 98 James Street South in Hamilton, about two blocks east of Hamilton City Hall, where a 30-storey tower named The Connolly has been in the works for some time, with 315 condominiums planned along with some commercial space. The site was formerly occupied by a historic James Street Baptist, which was intended to be partially retained and incorporated into the new development.
The registered owner of the property is 98 James Inc, whose sole listed officer is Michael Budovitch, according to court documents.
The property was acquired in 2022 from Hue Developments via a vendor take-back mortgage, where the buyer borrows funds from the seller, who itself acquired the property through a receivership sale. Then, the property was owned by 2203284 Ontario Inc, a company controlled by Luigi "Louie" Santaguida that was placed under receivership in June 2017 at the request of Duca Financial Services Credit Union Ltd.
Along with the vendor take-back mortgage, the acquisition was also in-part funded via a loan from MarshallZehr, a real estate capital firm based in Waterloo who is the lender that initiated the receivership proceedings against 98 James this time around.
The Receivership
In an application asking the court to appoint a Receiver over 98 James, MarshallZehr said the two parties entered into a loan agreement on August 19, 2022 for the principal amount of $12 million, "for the purpose of, among other things, acquiring the Real Property and to provide pre-construction financing."
According to MarshallZehr, the project has been at a standstill since it was acquired.
"98 James Inc. does not currently have the means to advance construction on the Real Property and the Real Property has remained at the site plan approval stage since it was sold to 98 James Inc. in 2022," the lender said. As part of the loan agreement, the borrower was obligated to pay interest on the first day of each month, but failed to do so on both November 1, 2023 and December 1, 2023
MarshallZehr then delivered a notice of intention to enforce security on December 4, when the outstanding debt was at $12,265,947.24. After the borrower still failed to make payments, MarshallZehr exercised its right under the loan agreement to seek out a court-appointed Receiver.
Although the receivership application by MarshallZehr was filed in March, it did not come into effect until August 14, as the two parties were working towards a settlement agreement, which ultimately fell through.
According to an affidavit sworn on August 13 by Laura Culleton of Chaitons LLP, counsel for MarshallZehr, the two parties entered into a settlement agreement back in April that would have seen Toronto-based real estate investment company Terracap Investments purchase 85% of the property and close on the transaction by June 14, the forbearance termination date.
On June 11, the owner and Terracap agreed to extended the forbearance termination date from June 14 to June 30, with the due diligence deadline also extended from May 30 to June 14. Terracap did not waive its due diligence condition by June 14, however, instead requesting another extension to August 21 that MarshallZehr agreed to, but again Terracap did not waive its due diligence condition in time, and Culleton says MarshallZehr is no longer willing to grant any further extensions.
With the receivership order now in effect, The Connolly is now likely headed towards a court-ordered sales process, which entails the Receiver retaining a brokerage to market and sell the property, after which a selected offer will be presented to the court for final approval.
Reached for comment by STOREYS, Michael Budovitch said that "The real estate sector is in the midst of an unprecedented recalibration, and the speed and severity of a market in flux is challenging even the most experienced, most sophisticated, most well-capitalized developers," and also pointed to the numerous challenges in the market.
