The developer behind the sky-scraping, embattled tower rising at the corner of Toronto's Yonge and Bloor streets, The One, is being forced off of the project in favour of another construction manager.
The tower, under construction since 2017 and set to be one of the tallest in Canada, was placed under receivership in October after its owners, real estate developer Sam Mizrahi and entrepreneur Jenny Coco, were found to have defaulted on $1.6B in loans. On Monday, the receiver, Alvarez & Marsal, released its first report, where it detailed ongoing issues with the project, ultimately recommending that SKYGRiD Construction take over as general contractor, effective March 13.
"It was just a difference in vision," Mizrahi tells STOREYS. "[The receiver] wanted to strip costs and make it cheaper, and that's fine, but that's not the type of building I would build. They brought in SKYGRiD, but SKYGRiD doesn't build high-end, luxury buildings. They've never built a high-end luxury building like the ones I built, and they do it for a cheaper cost, for cheaper fees than me."
A report released by Alvarez & Marsal on Monday confirmed that SKYGRiD was chosen, in part, because their costs were lower than current construction manager Mizrahi Inc., describing Mizrahi Inc.'s fees as "above comparable market rates." SKYGRiD's construction management fee came in at 3.2%, compared to Mizrahi Inc.'s 5%, which equates to roughly $200,000 per month in savings. Add this to the reduction in monthly labour costs, $800,000, and total monthly savings from the switch to SKYGRiD's overall management of the project from Mizrahi Inc.'s should result in approximately $1M per month.
"The improved controls, processes and efficiencies that Skygrid is anticipated to bring to the development and construction of the Project are expected to provide further incremental savings to the Budget and benefits to the Schedule," the report reads.
In a statement provided to STOREYS, SKYGRiD said it is "pleased to be taking on the construction management" of "one of the most prestigious addresses in Toronto."
"As an industry leader with over 200 complete projects delivered across the country and 40 currently active, SKYGRiD has the expertise to move the project forward by working collaboratively with all parties involved," the company said.
Under the new construction manager, no changes will be made to the outside of the building, Mizrahi says, noting that the skyscraper's hybrid exoskeleton is already more than halfway done, built up to the 53rd floor with 38 storeys left to go.
"It's the interior finishes that they're changing," Mizrahi said. "That, to me, is as fundamental as the exterior, especially for people who are buying at over $3,000 a square foot, right? This is the most expensive, highest real estate in Canada at the most prominent corner. This is not a formula-built building or a cookie cutter building. This is a high-end, luxury icon."
What this means for purchasers who have already put down a deposit on a unit in the building is unclear. For the time being, the receiver has paused all condo sales and is reviewing all existing sales agreements to 'identify potential issues relating to those agreements.' As well, market advisors are being consulted on "estimated fair market value of each condominium unit in the Project, and to provide insight regarding current residential market trends and possible value maximizing opportunities for the Project," the report says. Of the planned 416 condo units, 345 have sold.
"When they bought, they bought because I was the builder, I was the developer, I was constructing the building," Mizrahi said. "They knew what they were buying from me because they had seen the buildings I built."
The sold units total approximately $673.2M, including four units "sold to parties related to Mizrahi" which had a combined sale price of roughly $22.4M. Deposits due to date total $129M, of which approximately $105M has been paid, with 25 unit purchasers owing a collective $24M in overdue deposits.
Direction Disagreements
In their report, Alvarez & Marsal describe a deteriorating relationship between them and Mizrahi throughout the course of the receivership.
At the outset, the receiver determined that there was no immediate need to replace Mizrahi Inc., and that retaining the company would minimize any construction disruptions. Although construction "progressed significantly" since the receiver's appointment, growing the building from 42 to 53 storeys, Alvarez & Marsal began identifying several "deficiencies," including a lack of an accurate schedule, a lack of a formal procurement progress, delays in formalizing fixed-price subcontracts, and a lack of monthly updates and construction management reports.
"The Receiver understands that [Mizrahi Inc.] does not agree that all of the deficiencies identified... exist and/or believes that a number of issues have been addressed throughout the Receivership Proceedings," the report reads. "Although construction of the Project has continued to progress, and [Mizrahi Inc.] has generally continued to cooperate with the Receiver, there has been an increasing strain on the working relationship between [Mizrahi Inc.] and the Receiver relating to the above-noted deficiencies and more recently because of, among other issues, the inability of [Mizrahi Inc.] and the Receiver to agree on terms for [Mizrahi Inc.]’s post-receivership work."
These disagreements, Mizrahi says, stemmed from their difference in opinion in how to proceed with the building.
"They had a schedule that we didn't agree with, and we had a schedule that they didn't agree with," he said. "And budgeting, as I said, there's a difference in how to finish the building. Depending on which how you finish the building, the budget's going to change, and they want to build a building that costs less."
Alvarez & Marsal say that now, based on a revised budget and schedule, The One will not be completed by March 2025, as previously projected. An updated completion date was not provided.
Building For Sale
With many millions of dollars worth of construction left to complete, the receiver is now looking for a buyer for the project through a sale and investment solicitation process (SISP). Last month, a request for proposals process for real estate brokers began, with Alvarez & Marsal ultimately contacting five real estate brokerage and advisory firms to assist with planning and executing the SISP.
The selected broker, as well as a sales timeline, is expected to be approved at the next court hearing.
Mizrahi, who owns the project in a 50-50 split with Coco, says he was previously made aware of the intention to sell the building.
"Even though we're no longer the general contractor I still own 50% of the development — still a 50% shareholder — so they're now looking at doing a sales process in order to repay the debt, which is very normal, and that will happen, and it'll get done, and the debts will be repaid and that's a normal course," Mizrahi said.
Although he won't be involved in the completion of the building, Mizrahi says his legacy at The One, a project that has consumed the last decade of his life, still stands.
"I developed the building, I bought the corner, I zoned it, I built it up to the 53rd floor — all of the heavy lifting, I've done. There's no dispute about that," he said. "Nobody can dispute that my legacy in terms of what I've done stands and speaks for itself."
Mizrahi says he's proud of what he and his team have accomplished, particularly the hurdles they've had to overcome with constructing such a precedent-setting building. As for what the final product will end up being under its new construction plan, he's not so sure.
"The changes the receiver wants to do, and new ownership, let them go with the method they want to do," Mizrahi said. "It's different than my way of doing things, but I'm not going to attach our name to something that is not exactly the way we build and to the standards that we build."
Awaiting Payment
With Mizrahi Inc.'s last day working on The One fast approaching, their disagreements with Alvarez & Marsal seem far from over. Mizrahi is now seeking out, via court proceedings, what he believes is millions of dollars in unpaid construction management fees.
"The receiver didn't pay me," Mizrahi said. "We made sure everybody [the other contractors] got paid, but when it came down to myself, we're owed a lot of money. Every month they would tell me 'Yeah, you're going to get paid'... and it reached a point where we filed the motion for the non payment."
In the initial court order appointing Alvarez & Marsal as the receiver, they were directed to pay Mizrahi Inc. for amounts owing related to construction management services performed prior to August 31, 2023 and for fees "properly incurred on or after September 1, 2023."
In their report, however, Alvarez & Marsal say that "the amounts paid to [Mizrahi Inc.] were not in accordance with the [general contractor] agreement, or any other agreement between [Mizrahi Inc.] and the Debtors." As such, they "determined that continued payment of all costs included in the General Contractor invoices was not commercially reasonable." Mizrahi and the receiver engaged in negotiations, but were unable to reach a mutually acceptable arrangement.
Alvarez & Marsal say they continued to pay Mizrahi, but only in respect to hard costs, recoverable costs, and Mizrahi Inc.'s actual out-of-pocket direct and indirect labour costs — something that resulted in a monthly reduction of approximately $1M in payments to Mizrahi Inc.
