Failed condo development being revived with potentially higher prices

Condo owners facing difficult decision A stalled condo development might finally move forward, but as Colton Wiens reports, it could be costly for owners.

A failed condo development in Kitchener is in new hands, leaving those who purchased property with a decision to make.

A proposed four tower project is underway at 1333 Weber Street East in Kitchener.

The original Elevate Development Corporation project planned to bring 622 new homes to market by 2029, but according to a release from Dorr Capital Corporation, the project went through a string of cost overruns and failed to service the loan.

According to Dorr, construction and misspending was the main reason the original project was not completed.

"He got a bit outside scope in terms of what he was building and he didn't have the financing in place to do that. He, unfortunately, did it exactly at the wrong time in the market," said Brian Dorr, president and CEO of Dorr Capital Corporation

Dorr believes it’s been about 18 months since any construction happened at the site and hopes to begin construction again this month.

The release said following the issues with the original deal, Canadian mortgage lender Dorr Capital Corporation, ELM Developments, and BC’s Gentai Capital Corporation purchased the project on October 8, from 1776411 Ontario Ltd. for approximately $75 million.

GCC will be providing the loan on the property. Dorr Capital will facilitate the transaction with ELM Forward. ELM Forward is a division of ELM Developments that specializes in the construction and development of distressed assets.

"Thought it was very solvable, so as a good corporate citizen, I said 'Well, what's going on?'" said Dorr. "After talking to all the individual players I initiated saying, 'Hey, look, we should figure out a way to solve it and I'd like to put together a bid."

The project covers 3.60 acres of land and was rezoned in 2016. Dorr said construction of Tower A is 75% complete and will have a total of 177 residential dwelling units. They believe the original construction was well done and that they don’t need to do many fixes.

"Obviously, with it sitting, we do have some concerns. ELM Developments has definitely secured the building so far. It's really about re-engaging the contracts and getting it done," Dorr said.

Tower B has been approved and will carry 193 residential units. Tower C will have commercial space and 159 residential units. Tower D will also carry commercial space and 93 residential units.

Dorr said it will have to reassess the sales strategy. It said rental is not off the table. According to Dorr, significant restructuring of financing, a complex sales strategy, and adequate development is needed for the project to succeed. Dorr said it spent over 10 months assessing all the downsides of this deal.

According to Dorr, all the units in Tower A have been sold. However, Dorr said the original agreements are old and they have four months to decide if the pricing will change.

"We want to re-engage them under our own name because that was just done so long ago and so that's going to take four months. But our hope is we keep everybody," Dorr said. "We're looking for something that will be a win-win. We're looking for something that will still get them deep value. But we also need to be mindful that we need project economics that works so that we can actually build it. But our intention is definitely to keep the value that these investors have put into the project.”

While the pricing decision for Tower A hasn’t been made yet, Dorr confirms the court documents showed existing purchases of units in Tower A would only be assumed by the developers if the people that purchased in the pre-sale agree to a 24 per cent price increase. Dorr said they still need to attend to each purchaser.

"We appreciate them, we want them and we just want to get it built. So I don't know the answer, because it's kind of going to be one of these, as we go, kind of minor adjustments here and there. I don't think it'll be something too dramatic," Dorr added.

Dorr said units in Tower B have not been completely sold. Anyone who put down a deposit on a unit in Tower B is eligible to receive their deposit back. All the units in Tower C have been sold, and pricing is being accepted as is. No units in Tower D have been sold.

Real estate expert Tony Johal did not have any clients who have purchased units in the development, but said he wouldn’t be surprised to see purchasers of units in Tower A trying to get out.

"So you have to ask yourself a question. 'If I purchased this in 2021 or 2020, was I already paying at the height of the market?' said Johal. "They will likely just take the money and go elsewhere."

Dorr said it plans to finish building Tower A first, while completing the podiums for Towers B and C at the same time. He expects the four towers to be completed over the next few years.

Johal said while it’s good news for the purchasers that this development is going ahead, anyone looking for a condo has a lot of options on the current market. He believes it will take some time for these four towers to fill up with occupants.

"They're certainly not going to sell as quickly as what they did before, because people are scared. They're afraid. They've got options now,” said Johal.

He added, one bright side is that most people who purchase a condo unit before construction tend to be in a financially stable situation.