Just a few weeks ago, we talked about the iconic project The One at Yonge & Bloor being placed into receivership with $1.6 billion dollars in outstanding debt.
Another developer is going down because of the same spiking construction costs and interest rates.
This time, the amount of debt is relatively small when you compare it with $1.6 billion.
But the number of units involved is a lot more and it includes detached houses, townhomes and condos.
There are two significant differences on how deposits are handled in freehold homes versus condos and they directly affect how much money you can get back should the project be cancelled.
By the way, if you haven’t heard about the story of The One, make sure you catch it here.
It is definitely bad news for the entire real estate industry that developers are going down because of financial trouble, but I think it is important that you understand what is going on in the current market.
Let’s start with:
#1 The Developer
Vandyk Properties was founded by John Vandyk in 1979.
The Mississauga based company primarily focuses on low-rise townhouse and detached homes.
Over the past decade, the company expanded aggressively to mid-rise and high rise condo projects.
In order to do so, they have been taking on hundreds of millions in debt.
Of course, no one on earth could foresee the impacts brought along by Covid.
Labour and material shortages translated to spiking construction costs.
And the 10 interest rate hikes is definitely a killer.
As of now, Vandyk has more than $203 million dollars in outstanding debt and the lenders have applied to appoint a receiver to manage 5 of Vandyk’s projects.
#2 The Projects
They include 1,757 unbuilt homes in a mix of condos, townhomes and detached houses.
Around 47% of those, 830 units have been sold.
Let’s take a look at each of the 5 projects.
Project #1 - UPtowns
This is a townhome development in Brampton, with around 340 units.
The project first went on sale in 2017 and was expected to complete in December 2020.
It is now 3 years behind, but still looks very far from completion.
Buyers have been waiting for 6 years and are now told that the closing date will be between the end of 2024 to mid 2025.
According to CBC Toronto, around $267 million in mortgages and liens have been registered against the site.
The developer is also facing at least 5 lawsuits from subcontractors claiming for more than $8 million dollars of unpaid work.
On top of all that, the developer now faces a demand from debtors to appoint a receiver to oversee and manage the project.
Project #2 - Heartlake Collection at UPtowns
This is basically phase 2 of project #1, with another 200 townhomes or so at the same location in Brampton.
It went on sale last year and is currently still in the selling phase.
Construction hasn’t started yet.
Project #3 - The Ravine
This project features 37 detached homes, all backing onto the ravine in Mississauga.
It was launched for sale last year with homes starting from around $1.8 million dollars.
They are supposed to be completed in spring 2024, but I don’t think that is going to happen.
Project #4 - Lakeview DXE Club
This project consists of 2 boutique style condos on Lakeshore, at the border between Mississauga and Etobicoke.
They went on sale last year and construction hasn’t started yet.
Project #5 - Grand Central Mimico
This is a huge one.
It is a transit oriented master planned community right by the Mimico Go station in Etobicoke.
The development will span 4 city blocks and have 9 proposed condo towers.
The first phase is called Grand Central Mimico, with 3 condo towers, around 750 units.
It went on sale back in spring 2021.
I remember it was the hottest project in town and people were fighting for units.
I was not confident about the developer so I didn’t work on the project, but it was pretty much sold out in no time.
Construction started quickly, then it was stopped earlier this year in the spring.
Contractors were not paid, the primary architects were not paid, agents were not paid.
Currently, 3 liens are registered on the site, seeking more than $800,000 for unpaid work.
There are also various lawsuits against this developer on different projects.
What about the buyers in the 5 projects facing receivership demand?
Their deposit money is stuck and some of them have been waiting for years already.
Are they ever going to get their money back?
#3 Freehold versus Condos
There are two major differences between how deposit monies are handled in freehold homes versus condos.
The first one is money held in trust.
When you buy a pre-construction condo, your deposit money is held in a lawyer’s trust account and the developer won’t get to touch the money until final closing.
This is a requirement under the Condominium Act.
But in the case of pre-construction freehold, the developer is not required to put the deposits in trust and they may spend the money whenever they want.
The second major difference is excess deposit insurance.
We know that Tarion offers protection on deposits. But for how much?
For condos, only $20,000.
Even for just a $500,000 unit, the deposit is often around $100,000.
So what would happen to the $80,000 that’s not protected by Tarion?
The Condominium Act requires the developer to purchase excess deposit insurance, whatever’s not covered by Tarion will be covered by insurance.
So condo buyers will always get their deposit back even if the money somehow disappeared from the trust account.
What about freehold homes then?
The deposit for a million dollar home is usually around $200,000.
Tarion only insures up to $100,000.
The remaining $100,000 will just be at risk.
Let’s say the developer went bankrupt and there’s only so much money left on the table.
They will have to pay the secured lenders first.
If there’s anything left, then they return the deposits.
That’s the rule of the game in freehold.
So you have to be ultra-careful choosing the developer when you are buying a pre-construction freehold.
If you want to learn more about receivership and what are the possible outcomes after the Supreme Court granted a receivership order, you can watch this video about The One.