Toronto's 91-storey megatower is in trouble after bombshell court order

Toronto's 91-storey megatower is in major trouble after bombshell court order

Derek Flack/blogTO

The behemoth 91-storey hotel and condo tower under construction at the corner of Yonge and Bloor, known as The One, is in big trouble after the project was placed into receivership on Wednesday.

Developer Sam Mizrahi made a splash in 2015 with the announcement of a new icon for the city skyline, bringing on famed UK-based architects Foster+Partners to design a monumental tower that would claim the crown of Canada’s tallest building.

Eight years later, Mizrahi Developments’ flagship tower is still only partially built and has now been pulled from the hands of its developer after court filings revealed that the company had been placed into receivership after defaulting on loan payments.

An order from the Ontario Superior Court of Justice on October 18 appointed Alvarez & Marsal Canada Inc. as receiver and manager “without security, of all of the assets, undertakings and properties of Mizrahi Development Group,” and related companies, “including in connection with the development of the condominium, hotel and retail tower located at the southwest corner of Yonge and Bloor in Toronto.”

The scathing order from the court states that the project has incurred debts totalling over $1.23 billion (inclusive of interest and fees), which have matured, are due, and are payable in full. These debts have not yet been repaid, and the borrower is alleged to have not given any indication of repayment despite multiple demands and even a notice of intention to enforce security.

According to court filings, the future is also unclear for the flagship retail space that was to host Toronto’s next Apple Store, as the tech brand has reportedly pulled out of the project.

This comes as a real blow to The One and its ballooning budget — which is estimated to have now crossed the $2 billion mark — as the complex structural exoskeleton-supported configuration of the tower floating above a column-free retail space was reportedly designed (at great expense) to attract Apple.

The One has faced its fair share of challenges since first proposed in 2015, including battles over height, lengthy construction pauses over permitting issues, and, later, during city-wide lockdowns.

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Construction commenced in 2017, and the engineering complexities of the project have made for a slower-than-average ascent into the skyline and is currently a little over one-third of the way towards an eventual height of just over 328 metres.

These challenges are noted in filings, explained in a report from the receiver that notes, “Over the last few years, like many other large-scale construction projects, The One Project has faced various economic headwinds, including impacts from the Covid-19 pandemic, supply chain disruptions and unanticipated work stoppages, which together with other factors have resulted in material cost overages and extended construction timelines.”

The court order notes that the project is “far from completion, has been plagued by delays and cost overruns, not to mention continual infighting between the principal investors, both in and out of court.”

The documents state that “all of these problems are jeopardizing the Project, which is already delayed by at least two years beyond its original estimated completion date and still requires hundreds of millions of dollars of additional financing to complete.”

Receivership proceedings won’t spell the end of the project but instead have been implemented under court order “to create a stabilized environment to allow for the continued construction of The One, to obtain additional financing required for that ongoing construction, and to assess and implement the best means of maximizing the value of The One project.”

In cases such as these, receivership is a legal implement often used by creditors to recover funds owed to them when a company defaults on its loan repayments, as was the case with The One.

Lenders then have the chance to privately appoint a receiver as per their loan agreements or seek one through courts. In this case, the receiver was court-appointed to take possession and exercise control over the property — whether this pans out to managing or selling the assets.

So, what happens next?

Despite the major problems at hand, construction for the megalithic structure will continue thanks to additional financing commitments from debtors to the tune of $315 million.

Mizrahi, while down, is not entirely out and will remain involved in the project in its capacity as the general contractor, though will be acting under the supervision of the receiver, who will be engaging with construction advisors and assisting with day-to-day operations to see the project through construction.

Purchasers in the megaproject may be wondering about their investments, and the appointed receiver has stated that it has “not yet had an opportunity to review any of the existing condominium sales agreements.”

There is a suggestion that pre-construction condo purchasers may be affected by the court ruling, as the receiver has stated its intention to “review such agreements in conjunction with a review of the fair market value of the applicable unit to determine what, if any, steps will be taken with respect to these agreements.”

Court filings also revealed that the project is now estimated to be completed as early as March 2025, though it is expected that construction will press on until July of that year.