Yet another project by the embattled Vaughan-based real estate developer Stateview Homes has been put up for sale, with the Ontario Superior Court approving the sales process for the On The Mark project in Markham last week.
The receivership was initiated by KingSett Capital, the principal secured creditor on the residential development project that is owed $18.471M, and is just one of five separate receivership applications submitted by four of Stateview Homes' creditors looking to recover hundreds of millions of dollars in outstanding debt.
The receiverships were granted by the Ontario Superior Court in May, resulting in eight of the Stateview Home's projects being placed under receivership. Shortly after, the Court also approved the sales process for seven of the eight projects, with the goal of recovering as much as possible of the $350M Stateview Homes owes to its creditors.
The eighth project not included in the initial sales process approval was On The Mark, a collection of 70 townhouses at 160 Markland Street in Markham -- near 16th Avenue and Woodbine Avenue -- that was approximately 90% complete when it was placed under receivership.
Sales on 38 of the homes had already closed prior to the receivership coming into effect. The remaining 32 were sold and expected to close by the end of June, but have not been able to do so as a result of the receivership.
According to court documents obtained by STOREYS, those 32 purchasers collectively paid $4.2M in deposits, all of which was spent by Stateview Homes prior to the receivership. Although On The Mark is nearly finished, the cost to complete the project is estimated at $12.25M -- $8.25M for construction and $4M in HST that was not remitted to the Canada Revenue Agency.
"The On the Mark Project presents a number of issues and considerations that are unique compared to the other Stateview Group's Projects given the advanced state of the project," said KSV Advisory, the court-appointed receiver. Due to that complexity, the receiver "engaged a former president of a major Toronto developer" on what to do with On The Mark, and returned last week with a potential resolution.
The Sale and Stalking Horse
On July 19, the Ontario Superior Court approved the sale process for On The Mark, as well as the submission of a stalking horse bid -- an offer conditional on no better offer being received in the subsequent sales process -- placed by Medi Group, one of the trade creditors on the project that is owed approximately $343K.
The stalking horse bid placed by Medi Group -- as 2077060 Ontario Inc. -- is for $14.375M. For the 32 remaining purchasers, Medi Group will offer to complete their existing unit agreements, on the condition that each purchaser agrees to provide an additional $100K and other "nonsubstantive changes to their purchase agreement."
According to the receiver, each of the 32 remaining units were sold for an average price of approximately $1.15M, but because most of them were sold before April 2020, the receiver notes that the market price for the homes has "increased significantly," with a marketing firm the receiver consulted estimating an average increase of $300K per unit.
"In consultation with KingSett, the receiver evaluated whether it could complete the project and came to the determination that it would not be economically viable to do so, particularly if the existing homebuyer agreements remained in place," KSV said. "In particular, in the receiver's opinion, the estimated cost to complete construction of the project, coupled with the uncertainty of being able to secure the necessary trades people to complete the work given the significant amounts outstanding to them, would make completing the project significantly risky and uncertain."
KSV says that KingSett agreed with their assessment and was initially not in support of completing the project "given the potential risks to destruction of value for KingSett and other creditors," but engaged in negotiations that ultimately led to the stalking horse bid submitted by Medi Group.
According to the receiver, those other "nonsubstantive changes" include "confirmation that there are no other agreements or obligations" between the homebuyer and Medi Group, agreeing that Medi Group may "use alternative suppliers to complete construction of the applicable unit," and "confirmation that no commissions, agent fees, broker fees, or similar expenses will be due in connection with the sale."
As part of Medi Group's bid, it will also "assume the accrued and unpaid trade payables owing," to a maximum aggregate amount of $7,190,702, and "assume and provide a cash reserve for other lien claims, up to a maximum of $82,153.50, that are determined to have priority over the security interests of KingSett."
While there are 32 remaining purchasers, two -- Melissa and Nelda Taurasi -- are proposed to be excluded under Medi Group's bid. Melissa and Nelda Taurasi are the spouses of Carlo and Dino Taurasi, the CEO and President of Stateview Homes. Melissa and Nelda Taurasi have since filed a complaint, citing unfairness and a lack of transparency regarding the reason for their exclusion, with the judge presiding over the case deferring judgement until the conclusion of the sales and solicitation process.
The outside date of Medi Group's bid is August 31, and On The Mark will now undergo a traditional -- albeit truncated -- sales and solicitation process involving the distribution of marketing materials, securing bids, selecting a successful bid, and closing the bid, which will require court approval.
Explaining the truncated sale process, KSV said that it believes "the short sale process is necessary in order to avoid any further degradation of the homes" and that the timeframe should provide sufficient time for interested parties to perform diligence and for the homebuyers to make a decision on whether to close on their units.
According to the receiver, it has also corresponded with some of the 38 purchasers whose agreements closed before the receivership came into effect, "regarding certain deficiencies in the homes that were sold to them." KSV says it has informed those purchasers that On The Mark will not be able to meet any warranty obligations, and advised that they seek warranty protection provided by Tarion Warranty Corporation, which administers Ontario's new home warranty program.
Earlier this month, the Ontario Superior Court also greenlit the sales process for a ninth project by Stateview Homes, called Hampton Heights, which was placed under receivership by a different creditor and handled by a different receiver, RSM Canada. In that case, an expedited sales process was also sought due to concerns that the partially constructed homes would be degraded or damaged by inclement weather and other hazards.
Prior to its troubles, Stateview Homes was planning to develop On The Mark 2. According to the receiver, Stateview Homes had commenced negotiations with the vendor of the On The Mark 2 lands, but the transaction has not completed. However, Stateview Homes had already pre-sold some units, received deposits from purchasers, and again appears to have spent the total amount, according to KSV, who says further information will be provided in the future.