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Mizrahi’s company ousted from condo tower project as saga continues

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The saga of the troubled condo project The One took another turn on Monday, when a court-appointed receiver announced it was removing developer Sam Mizrahi’s company from its role as construction manager and announced the project may be put up for sale. One of Canada’s most ambitious mixed-use developments, The One was pushed into receivership in October after a key lender said it would not provide additional funding. The planned 85-storey tower at the corner of Toronto’s Yonge and Bloor has been beset by delays, financial troubles and allegations of infighting between its principals — Mizrahi and partner Jenny Coco. The Financial Post’s Shantaé Campbell breaks down what you need to know about the project and what comes next.

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What is ‘The One’?

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The 85-storey tower at one of Toronto’s busiest intersections was launched in 2015 with an original budget of $1.3 billion and a scheduled completion date of Dec. 31, 2022. The One was envisioned as a multifaceted development encompassing 416 condominiums, a 175-room Hyatt hotel operating under the boutique Andaz brand, an array of retail shops and a diverse selection of restaurants. Topping it off, the flagship retail tenant was going to be an Apple store.

When did the trouble start?

In one of the earliest public signs that the project’s prospects were souring, Apple initiated a contract termination request with The One in 2020, citing construction delays. Apple’s withdrawal left more than 15,000 square feet vacant, including over 9,000 square feet of ground-floor retail space. Since then, the development has encountered numerous obstacles. According to court documents, these issues have had a significant impact on both the project’s timeline and budget. As of the court’s October decision to appoint a receiver, construction had progressed only to the 40th floor. Additionally, court documents revealed that total expenditures on the project had surpassed $2 billion.

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Why did it go into receivership?

In October 2023, senior lenders to the project, including KEB Hana Bank, requested the appointment of a receiver. According to court documents, the lenders alleged significant cost overruns, delays in the construction schedule, and a substantial amount of debt. The project was reported to be over budget by approximately $600 million and had accumulated around $1.7 billion in debt. It was also two years behind schedule. Senior lenders also alleged that an “acrimonious” relationship had developed between Coco and Mizrahi, along with the associated parties. Court documents say that these disputes and disagreements had a detrimental impact on the project’s advancement and its relationships with stakeholders, including the senior secured lenders. As a result, the senior lenders say they lost confidence in Mizrahi as overseer of the project, leading to the request for a receiver to be appointed, which the court agreed to. At the time, Mizrahi’s firm, Mizrahi Inc., was retained to continue construction of the project.

How does receivership operate in this context?

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Receivership is a common legal remedy employed by creditors to recover unpaid debts when a company defaults on its loan repayments. Within the framework of receivership, lenders possess the option to privately appoint a receiver in accordance with their loan agreements or seek one through the legal system. Alvarez & Marsal Canada Inc., a management consulting firm, assumed responsibility for managing the assets of The One and was expected to work with various stakeholders, including the senior secured lenders, to develop a strategy for the project. This strategy would potentially include securing additional funding, overseeing construction, resolving disputes among stakeholders, and ultimately determining the best course of action for the project, which could involve a sale or other measures to maximize value for all stakeholders.

What happened this week?

On Monday, A&M issued a notice of disclaimer to Mizrahi, effectively removing the company from its role as the general contractor and developer of The One. According to A&M’s latest motion record, dated Feb. 26, a review uncovered several concerns, including outdated schedules and budgets, a lack of formal procurement processes, delays in formalizing subcontracts, limited use of construction management software, and an absence of formal tracking of progress, among other issues. In a report issued on the same day, the receiver declared that bringing in Skygrid Construction Inc. as the new construction manager would be the most advantageous move for the project’s future. The transition to Skygrid’s management is set to take place on March 13, marking a new chapter in the development.

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What role does Jenny Coco play in all of this?

The court documents say that Mizrahi and Coco, through Coco International Inc., each own 50 per cent of the voting rights in the company that owns the project. According to court documents, Coco International Inc. provided a $75 million loan to Mizrahi Commercial, the company that owns the project. This loan was part of the project’s funding, along with other loans from senior lenders. The court decision doesn’t give details about the disagreements between Coco and Mizrahi, but says the lenders claimed there were “significant and material disputes about their respective obligations and their involvement in the project generally.”

Where does that leave condo buyers and other stakeholders?

Since the intervention of A&M, the construction of the tower has advanced. According to its report on the progress of ‘The One,’ the structure has grown to 53 storeys. Despite the concerns noted above, essential construction tasks, including mechanical, electrical and plumbing work, are progressing smoothly as the building’s exterior takes shape.This progress, however, does not necessarily mean business as usual for purchasers and stakeholders, especially since the project’s senior secured lenders have indicated that selling The One remains a possibility.

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A buyer who initially agreed to purchase a condo for 1.5 million might have to pay 2 million instead

Sanj Mitra

Sanj Mitra, a partner at business law firm Aird & Berlis LLP, said that if a sale happens, the court has the power to dismiss purchase agreements without dispute, though deposits are protected under Ontario law. “This safeguard ensures that if a project faces challenges or does not proceed, buyers can recover their deposits,” Mitra said. According to Mitra, what purchasers and stakeholders should watch out for are delays in completion which can incur additional costs that are often passed on to purchasers. “Buyers should review their purchase agreements to see if increased costs can be passed on to them at closing. If so, a buyer who initially agreed to purchase a condo for 1.5 million might have to pay 2 million instead … that’s what I’d be worried about if I was a consumer,” Mitra said.

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