More real estate developers face insolvency owing to high debt levels and construction costs as Canada is on track to reach about 240 real estate insolvencies this year
Sam Mizrahi’s luxury downtown Toronto condo tower The One has been one of the highest profile projects to default on its loans, with lenders owed $1.6-billion.Residential property developers are facing rising insolvencies as they struggle with higher borrowing and construction costs – and industry experts warn the trend is likely to worsen as interest expenses remain elevated.
From January to May this year, there was an average of 20 real estate, rental or leasing insolvencies in Canada every month. Companies either sought bankruptcy protection or filed creditor proposals to make it easier for them to manage their debts under the Bankruptcy and Insolvency Act. “For the first time in a really long time in Canada, we are seeing some stress in the system,” said Syl Apps, who co-heads the Canadian operations of Hines Interests LP, a Houston-headquartered real estate firm that owns and manages about 850 properties in 30 countries.
The loan eventually became much more expensive as the Bank of Canada raised interest rates from 0.25 per cent to 5 per cent over 2022 and 2023. During that time, the prime lending rate jumped from 2.45 per cent to 7.2 per cent. The cost of construction rose 10 per cent from 2017 to 2018 in the Toronto region and 8 per cent across the country’s major cities, according to
Then the pandemic slowed down development. Construction was hindered because workers had to socially distance on site. Developers delayed the start of construction – and they also delayed project launches. “A lot of lenders did that to the best of their ability. They entered into forbearance agreements, accepted some missed payments and basically worked with the borrowers,” said Jeffrey Berger, managing director with restructuring and insolvency firm TDB Restructuring Ltd., whose company is working on between 10 to 15 insolvent real estate projects.
The lender cut King David some slack and agreed to a forbearance agreement, which gave the developer more time to repay the loan. The new deadline was July 8, 2023, the court documents said.
Loan Deadline Bank Time Receivership Rate Construction Bank Of Canada Brampton Markham
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