Vandyk projects enter receivership on MCAP, Kingsett and Otera loans. Empire communities sets its sights on acquiring distressed properties.
Slightly more details than what a news item can carry
While Globe&Mail has been reporting on the problems being faced by Vandyk developments, it's important to acknowledge the constraints of space within a newspaper for ongoing stories. There are no such constraints in this website.
After thorough examination of the receivership documents available on the KSV Receiver website, we have compiled additional details here. Much of the information presented is directly extracted from these documents. However, it's crucial to note that this compilation may not offer the complete perspective, as it primarily consists of selected excerpts. For a comprehensive understanding, interested parties are encouraged to visit the KSV website or directly engage with the involved parties. The authors do not assert that this compilation is devoid of errors or that it encompasses every aspect of the situation.
The following is covered:
The default of Buckingham lands (MCAP)
The default of Backyard King Mills (MCAP)
The default of Grand Mimico (Otera)
The default of 41 Wabash and Newcastle properties (Fiera)
The default of 5 properties (Kingsett and Dorr)
Uptown
Heartlake
240
Ravine
Lakeview
The lawsuits filed by purchasers of Ravine pre-sold units against Kingsett/Vandyk/Exquisite Bay
Empire Communities expression of interest to acquire some of Vandyk properties and pay off all the loans.
While not covered in a separate section, Vandyk was being advised by Francesco Margani of Franc&Co for certain projects. Use CTRL+F on “franc” to search for him.
Again use CTRL+F on “diversion” about claims of diverting proceeds of $11 million and $17 million in Backyard King Mills and Uptowns respectively.
Based on receivership documents, Vandyk defaulted on $354 million of indebtedness. These are all claims. They have not been proven in court.
Without further ado.
1. Buckingham Lands (part of Grand Mimico Project) - MCAP
It is part of Vandyk’s Grand Central Mimico development. A fully approved high rise development site located at 23 Buckingham Street, Etobicoke, Ontario. It was approved to consist of three towers sharing one podium, with five levels of underground parking, and a total of 749 residential units.
In August 2020, MCAP provided a commitment letter for $37.5 million land loan.. The interest rate on the loan was RBC Prime + 2% per annum or 5.95%minimum. The commitment fee was $565K. The purpose of the advance was to refinance the existing 1st, 2nd and partial 3rd mortgages on the site, to capitalize the loan interest and fees. The term of the facility was 18 months, extendable by 3 months upon payment of extension fee.
The loan went into default. MCAP claimed events of default citing:
Monthly interest payment of month of Oct and Nov 2023 was not made
Extension fee due on July 1, 2023 was not paid
Property taxes and insurance renewals were not paid
Construction liens of $2.5 million + were not removed.
The receivership documents do not include an amended credit agreement. It’s probable that the loan was routinely extended for three-month periods and possibly defaulted when the renewal fee, due in July 2023 (a year after the initial maturity date), wasn’t paid.
When the original commitment letter was issued, the RBC prime rate was 2.2%, but it has since risen to 7.20%. Initially, when Vandyk drew on the loan, it would have been paying a minimum of 5.95%, which has now escalated to 9.2% (RBC Prime + 2%), marking a 50% increase.
As of November 2023, the loan remains outstanding, with total indebtedness reaching $38.4 million.
This financing was announced with such fanfare
Backyard Kings Mill - MCAP
The property is a residential real estate development comprising a two-tower, 234-unit residential condominium building with a 3-storey underground parkade located at 15 Neighbourhood Lane, Etobicoke, Ontario.
MCAP issued a Commitment Letter dated April 28, 2020, to finance the construction costs of the Project, with a maximum principal amount of $79.6 million. Notably, there was no cash equity in the financing program, as Vandyk's equity solely relied on appraisal surplus.
The loan had a duration of 32 months from the first advance, with pricing outlined in the original commitment letter as RBC prime + 2% or a minimum of 5.7%.
There have been four amendments to the Initial Commitment Letter. Amendment No. 1, issued in August 2020, aimed to clarify that the Commitment Letter was subject to syndication. Amendment No. 2, dated December 13, 2022, increased the approved Construction Loan by $4 million to $83.6 million. Additionally, it required an additional cash equity infusion of $1.3 million by Vandyk and deferred costs of $1.2 million through a deferral of the construction management fee.
Amendment No. 3, dated June 19, 2023, extended the loan by 15 months from August 2023 to November 2024, with an option for two additional 3-month extensions upon an additional equity contribution of $335K. The pricing was adjusted to RBC Prime + 2% or a minimum of 7.70% per annum.
However, the additional equity contribution of $335K was not made, causing the loan to mature in August 2023. Subsequently, a fourth amendment was made on September 12, 2023, requiring the appointment of BDO as financial advisor to MCAP and mandating Vandyk to secure a binding commitment letter of $7 million mezzanine financing from Windsor Capital Group (WCP) to be funded by October 16, 2023. The mezzanine financing payments were to be made to MCAP, with an extension of the MCAP loan maturity from August 2023 to November 2023.
Francesco Margani, principal broker of franc&co., represented Mr. Vandyk in obtaining additional/alternative financing for various construction projects. He obtained a non-binding letter of intent from WPC to provide a $7,000,000 loan to Vandyk-Kings Mill for general liquidity purposes, anticipating net proceeds of approximately $5,880,000. However, as of the date of the affidavit, WPC had not provided a binding commitment letter for mezzanine financing, and the MCAP loan matured in August 2023.
Additionally, as of November 22, 2023, there are $16.3 million of contractor liens on the property.
Diversion: On November 14, 2023, the Financial Advisor, BDO, issued their final report, stating that a total of $11,000,000 in funds advanced by MCAP ($9,550,000) and Westmount ($1,450,000) had been diverted by Vandyk for use elsewhere.
The project has progressed to the point where the external structure of the building is topped off, the exterior wall system is partially installed, and preliminary mechanical and electrical work has been completed for the podium and building up to the 7th floor.
The below picture of the property is from Urban Toronto. More photos can be seen here.
As of November 23, 2023, the borrower owed $37.9 million.
Grand Mimico - Otera
On its website, the Vandyk Group outlines the Grand Mimico Project as spanning four city blocks with over 1.85 million square feet of new condominium residences, situated at 39 Newcastle Street. The development is slated to feature four towers ranging in height from 22 to 36 storeys, encompassing a total Gross Floor Area (GFA) of approximately 1,024,723 sq.ft. This includes roughly 990,279 sq. ft. of residential space and around 34,444 sq. ft. of retail space.
The borrower acquired the land for $89.9 million and secured a vendor take-back mortgage from the seller CIC amounting to $71 million, leaving the borrower's cash contribution at $18.4 million.
Otera issued a commitment letter dated July 4, 2022, for a land loan, comprising two tranches: a senior loan and a senior stretch loan, with initial and increased amounts under each tranche, up to a maximum principal amount of $84,350,000. The purpose of the loan was to refinance the property.
The loan term was initially set for one year from the commitment letter date of July 1, 2022, with the option for a one-year extension followed by two additional three-month extensions. The senior loan was priced at BNS prime + 2.55%, and the senior stretch at BNS prime + 7.55%. Given the current prime rate of 7.2%, these loans are expensive.
In February 2023, Otéra initiated discussions with the borrower regarding the impending maturity of its loan. Otéra proposed a 12-month extension to the loan term, contingent upon a prepaid interest reserve of approximately $7,560,000.
However, on May 19, 2023, Otéra received a liquidity report from the borrower indicating constrained liquidity, with the borrower unable to meet its debt obligations starting in September 2023. Despite discussions, no further extension of the maturity date under the Commitment Letter was reached, leading to the expiration of the commitment letter on August 15, 2023, without extension.
In July 2023, the Vandyk Group enlisted the services of Franc & Co. to aid in restructuring efforts, including recapitalizing projects and soliciting joint venture partners. A plan was devised involving a new lender providing preferred equity for Lakeshore DXE and a mezzanine loan for King's Mill. However, on September 24, 2023, it was revealed that the preferred equity and mezzanine financing would not be available. Consequently, due to cost overruns, Lakeshore DXE required an additional $15,000,000 equity injection from the Vandyk Group, which they were unable to provide.
As of October 23, 2023, the total indebtedness to Otera stood at $72.5 million, and the borrower had defaulted on its September and October interest payments totaling approximately $1.3 million.
There is also a subordinate charge of CIC for $25 million on the project and as per the priority agreement in receivership documents, it is to secure the additional consideration payable to CIC if borrower secures bonus density for the project which was obtained through Ministerial Zoning Order (MZO) a few years ago.
41 Wabash and Newcastle properties - Fiera
Through a commitment letter dated October 28, 2022, Fiera issued a loan in the principal amount of $9,000,000 for the acquisition of the 41 Wabash property. Additionally, further construction loan advances of up to $14,558,480 were earmarked for the construction of 15 residential townhomes. However, as construction did not commence, these construction advances were not disbursed.
The term of the loan was set for 18 months and stipulated payment of interest only on a monthly basis. The interest rate was based on the National Bank of Canada's prime rate of interest plus 4.75%, with a floor rate of 10.70% per annum.
Without Fiera's knowledge or consent, the borrower granted a second mortgage over the Wabash Property to 2306610 Ontario Corp. in the principal amount of $1,200,000. This mortgage was registered on title on August 9, 2023, constituting an event of default. Additionally, the borrower failed to make its monthly payment of $85,450.68 due under the Wabash Loan on October 17, 2023, and has not made any payments since.
As of October 31, 2023, the indebtedness to Fiera under the Wabash Loan amounted to $9,147,328.76, excluding legal and other professional fees.
Newcastle Properties
In a commitment letter dated December 15, 2022, Fiera extended a mortgage loan in the principal amount of $9,550,000 and established a line of credit of up to $1,000,000. This financial support was intended to aid in the acquisition of three adjoining parcels of land situated at 48, 50, and 52 Newcastle Street, Toronto, Ontario.
Currently, the Newcastle Properties consist of two single-storey commercial buildings, with some units occupied by tenants.
The loan term spanned 24 months and necessitated payment solely of interest on a monthly basis. The interest rate was set at the National Bank of Canada's prime rate of interest plus 5.75%.
Without Fiera’s knowledge or consent, the borrower of the Newcastle properties granted a second mortgage to Diversified Capital Inc. over the Newcastle Properties in the principal amount of $30,000,000. This mortgage was registered on title on October 31, 2023. Additionally, on November 14, 2023, two claims for lien (in the amounts of $34,557.34 and $146,689.23) under the Construction Act were registered against title to the Newcastle Properties by SVN Architects + Planners Inc.
As of October 31, 2023, the indebtedness owing to Fiera for the Newcastle properties amounted to $9,667,811.63, excluding legal and other professional fees.
5 Vandyk Properties - Dorr Capital and Kingsett
These are 5 properties under the Dorr Capital and Kingsett receivership application.
Uptowns
Heartlake
240
Ravine
Lakeview
Except for Uptowns, the other four properties are un-developed land.
1. Uptowns (Uptown Lands)
Uptowns is located at 10302 Heart Lake Road, Brampton, Ontario. The land is approximately 6.5 acres and is currently being developed with 342 stacked townhouses providing approximately 379,842 square feet of gross floor area. The development is approximately 28% constructed and pre-sales have been completed for 329 of the 342 townhomes.
2. Heartlake (Jordan Lands)
A property located at 10194 Heart Lake Road, Brampton, Ontario. It is approximately 22.47 acres, of which 9.67 acres are developable. It is currently zoned for the development of 200 townhomes providing approximately 242,602 square feet of gross floor area. Approximately half of the 200 townhomes have been pre-sold, but construction has not yet commenced;
3. 240 (Royal York Lands)
a property located at 327 Royal York Road, Etobicoke, Ontario intended to be developed with a two-tower project consisting of 692 residential condo units providing approximately 516,000 square feet of residential space, approximately 5,726 square feet of ground floor retail space, approximately 75,000 square feet of office space, and approximately 16,416 square feet of Metrolinx station space. Although the zoning of the Royal York Lands has been completed, no pre-sales have been made and construction has not yet commenced;
4. Ravine (Derry Lands)
It is a property located at 336 Waterhouse Cres N, Mississauga, Ontario and have been approved for the development of 39 detached and 6 semi-detached residential units. Each of the residential lots are serviced and approximately 5 of the 45 residential units to be developed thereon have been pre-sold. (This is from the receivership claims. According to the lawsuit filed by original purchasers of some of the lots, it appears that more than 5 units were pre-sold). However, no construction has commenced.
5. Lakeview
It is located at 1345 Lakeshore Road East, Mississauga, Ontario. It is approximately 3.13 acres and intended to be developed with two mid-rise condominium towers consisting of 478 residential units, approximately 10,218 square feet of commercial space and two levels of underground parking providing 433 parking spaces. Despite pre-sales having been completed for 395 residential units, no construction has commenced.
Initial loan for Uptowns was provided by MCAP which was later acquired by Kingsett. Kingsett/Dorr has provided financings for all the five properties in this section and have cross collateralized them to secure the financing.
The table below provides an overview of the facilities. The total commitment amounts to approximately $298 million, with an outstanding indebtedness of $186 million. Feel free to let me know in the comments if you would like me to elaborate on the evolution of the Kingsett loans.
All the loans are currently in default.
MCAP issued a demand letter in September 2023 for Uptowns, citing the following events of default (this loan was acquired by Kingsett in November 2023):
Diversion of approximately $17 million of funds advanced by MCAP and/or released from purchaser deposit monies for the purposes of paying development charges, which remain unpaid as a result of the diversion.
Failure to inject further equity to address cost overruns in connection with the development of the Uptowns Lands.
Failure to make scheduled payments under the MCAP Commitment Letter, including interest reserve payments due on July 1, August 1, and September 1, 2023.
KingSett/Dorr cite the following events of default:
Lakeview failed to make its monthly interest payments due on July 31, August 31, and September 30, 2023.
Ravine failed to make its monthly interest payments due on September 30 and October 31, 2023.
240 failed to make its monthly interest payments due on September 30 and October 31, 2023.
Uptowns and Heart Lake failed to make their monthly interest payment due on September 30, 2023.
Additionally, property taxes on these properties remain outstanding.
The Ravine - Bay Development Lawsuit
The Ravine was initially being developed by Exquisite Bay Development Company (EBDC) and was later sold to Vandyk when EBDC could not service Kinsett loan on it. The development made the news in May 2022. From CBC
Buyers say Mississauga developer 'holding deposits hostage' after project went awry | CBC News
Exquisite Bay Development Inc. says it's acting in good faith in a difficult situation
In 2019, Yusuf paid a deposit on a home in Longview Ravine Estates — a 45-property development by Exquisite Bay Development Inc., also known as Bay Homes. The company billed the site as a luxury development of detached and semi-attached homes that backed onto a ravine in north Mississauga.
But the project went sideways, and last month Exquisite Bay sold the land to a different developer.
Buyers told CBC News they were never notified of the sale or the fate of the project; instead, they received letters, dated Apr. 11, 2022, from Exquisite Bay stating that they were in violation of their purchase agreements, and that the company was keeping their deposits unless they agreed not to take legal action.
The letters contained no mention of the sale or the cancellation of the project.
"It feels like they're holding our money hostage," said Kerrese Predovich, who also signed on in 2019 and expanded her family with the expectation of moving into the new house.
"It feels like they're holding our lives hostage. For the last three years, we've just been waiting."
….
Exquisite Bay's Yousuf said other buyers are in default because they put their houses on the market, which also violated the purchase agreement. One couple received a letter from Exquisite Bay saying they'd listed their house for rent online, but the couple has said they didn't try to rent out the house — it never got built.
All purchasers were asked to contact the company's lawyer and those who did have been offered their deposit back, plus six per cent interest for each year, Yousuf said. But in order to receive it, buyers have to sign an agreement promising not to take legal action.
……..
Exquisite Bay bought the land in Mississauga, Ont., for just over $21 million in 2018, according to real estate documents, and sold it for $38 million to Vandyk Properties last month.
In a statement, Vandyk's vice-president, managing director of real estate Sherman Chan, said the company is keeping the project intact and won't be making any drastic changes.
He acknowledged Exquisite Bay's buyers are in a difficult situation, and said Vandyk will be looking at providing them an advanced opportunity to buy in its development, "in hopes of ensuring that they're heard and acknowledged."
Read more here
The individual buyers (plaintiffs) filed lawsuits naming Kingsett, Vandyk, and Exquisite Bay et al. as defendants, making various claims. For those interested in reading further, the individual claims can be found beginning on page 389 of the PDF (page 2166 of the Application Record) at the KSV site [link provided].
Most claims are similar, detailing how the purchasers were misled by Exquisite Bay.
Kingsett filed a statement of defense seeking to dismiss the claims. The claims were related to 12 lots that were pre-sold to plaintiffs. The summary of Kingsett’s defense is:
KingSett was not a party to the agreements of purchase and sale executed between Exquisite and the Plaintiffs. KingSett has no involvement with any of the events concerning the agreements of purchase and sale and/or representations made related thereto. plaintiffs would only obtain clear title and possession of the Lot when it was substantially completed and ready for occupancy, and the Plaintiffs had paid the total Purchase Price. These conditions were never met and title was never transferred to the Plaintiffs, nor have they ever been in possession of the Lots.
Kingsett loans to Exquisite
During the winter of 2020, KingSett was engaged by Exquisite to provide funding for its development of the Property. KingSett ultimately agreed to provide, among other things, two loans, for the purposes of providing construction financing and land servicing financing to Exquisite and executed two commitment letters with Exquisite, as borrower, and Ahmed and Bay International Inc., as guarantors, dated February 5, 2020, amended on April 28, 2020 and December 10, 2021 (the "Exquisite Loans").
On or about November 25, 2021, there was a cost overrun of $940,000 on the land servicing Project Budget and a projected cost overrun of $9,362,276 on the aggregate land servicing and construction Project Budget. Pursuant to the terms of the Exquisite Loans, Exquisite, as the borrower, was required to account for any cost overrun by injecting equity.
Kingsett exercises its rights as lenders and Exquisite sells to Vandyk
Exquisite was unable to meet its obligations to KingSett as required under the Exquisite Loans, including with respect to its minimum cash equity requirements, as adjusted to account for cost overruns, and interest reserve requirements. As such, Exquisite defaulted under the Exquisite Loans. Exquisite elected to sell the Property in light of its default, rather than having KingSett enforce its contractual rights to appoint a receiver or receiver manager.
Exquisite Sells the property
To facilitate a sale, Exquisite partnered with an independent, third party mortgage broker, Franc & Co., for the purposes of selecting a purchaser for the Property. In or around December 2021, KingSett advised Vandyk that it was involved in a residential development project which may go up for sale in the New Year.
KingSett was not involved in any further discussions related to the sale transaction. Further, at the time of the contemplated sale, KingSett had not agreed to provide funding to the purchaser of the Property, including on any specific terms.
Kingsett lends to Vandyk
Following closing of the sale transaction, KingSett was engaged in negotiations with Franc & Co, about providing funding to Vandyk. KingSett ultimately agreed to provide, among other things, two loans, for the purposes of providing construction financing and land servicing financing to Vandyk and executed two commitment letters with Vandyk, as borrower, and John Vandyk and Vandyk Properties Incorporated., as guarantors, dated March 11, 2022, as amended on April 26, 2022 (the "Vandyk Loans"). Each of the Vandyk Loans was secured by a mortgage.
No Unjust Enrichment
KingSett has not been unjustly enriched by its conduct. There has been no corresponding deprivation to the Plaintiffs. Even if KingSett was enriched and/or the Plaintiffs were correspondingly deprived, all of which is not admitted but expressly denied, there was a juristic reason for the enrichment or deprivation. Any enrichment for KingSett connected to the Property is as a result of its lending arrangements, which serve as the juristic reason that is fatal to the Plaintiffs' unjust enrichment claim.
Empire Communities EOI
On October 12, 2023, Empire Communities sent a non-binding expression of interest to Vandyk to carry out due diligence on the following projects to acquire them.
The EOI mentions that while it is very early to decide on the transaction structure or purchase price, Empire understands that estimated cost to discharge all the debts on the property is $272 million. The loan outstandings as per schedule in EOI.
Empire goes on to state that they will finance the transaction from their high yield bonds, existing credit lines and by involving third party equity partners.
Empire requested a 30-day due diligence period in the EOI. The receivership documents have no further details on this. Probably nothing came of it.
Now you know the details.