The One skyscraper under construction in downtown Toronto on Feb. 13, 2022.Eduardo Lima/The Globe and Mail
The partnership behind the tallest and most ambitious luxury condominium development in Canadian history has disintegrated, sparking a court fight and raising doubts about the future of the project.
Jenny Coco, the road-paving magnate who partnered with well-known Toronto developer Sam Mizrahi to build The One, an 85-storey Toronto skyscraper, is asking the courts to appoint a special investigator to probe the affairs of their jointly owned company.
In a recent court application, the Coco family alleges that after years of discord between Mr. Mizrahi and Ms. Coco, Mr. Mizrahi agreed to buy out their interest in the project by Aug. 30. The Cocos allege they are owed roughly $100-million, which was injected as debt and equity.
But Mr. Mizrahi has failed to secure financing, the Cocos allege. “The buyout is not happening. Sam’s financing has fallen through and he cannot close,” the application alleges.
In a statement, Scott Hutchison, a lawyer for Mr. Mizrahi, said his client will be responding to the Cocos’ application. “Mr. Mizrahi respectfully disagrees with the assertions in the Notice of Application filed on behalf of Ms. Coco. He has consistently acted lawfully and in the best interest of the project and all its stakeholders,” Mr. Hutchison said.
A lawyer for the Cocos, Nina Perfetto, said the family will not be commenting while the matter is before the courts.
The partnership’s implosion is another major obstacle for The One, which is in the early stages of construction and located in an upscale shopping district in Toronto’s Yorkville neighbourhood. The One’s long-planned retail anchor tenant, technology giant Apple Inc., has turned to the courts to have its lease terminated, citing repeated construction delays. The luxury development has also been dragged into the Bridging Finance scandal that has rocked Bay Street, after allegations from one of the project’s lenders that Bridging investor funds were used to backstop its loan.
Ms. Coco is a co-owner and director of Bridging, a private lender that managed more than $2-billion on behalf of 26,000 largely retail investors until it was placed under the control of a receiver in 2021 at the request of Ontario’s securities regulator. The Ontario Securities Commission has alleged fraud and self-dealing on the part of Bridging’s former top executives, married duo David and Natasha Sharpe, but has not alleged any wrongdoing on the part of Ms. Coco.
The Coco family’s legal filing against Mr. Mizrahi details a fractious history between the two partners, who have failed to resolve their differences despite enlisting a number of private mediators and arbitrators over the past three years. In the filing, Ms. Coco blames their “strained and acrimonious” relationship on Mr. Mizrahi, whom she alleges cut her out of important decisions and failed to report to her family on financial matters. The Cocos’ financial interest in the project dates back to around 2015.
As part of a 2021 resolution, Ms. Coco and Mr. Mizrahi reached an agreement that obliged Mr. Mizrahi’s holding company to eventually buy out the Coco family’s equity and debt interests in The One, the court application states. (The recent court application does not distinguish how much of the $100-million allegedly owed to the Cocos is equity and how much is debt, but their equity interest has been pegged at about $30-million in other public filings.)
After the buyout agreement, Mr. Mizrahi and the Cocos reached a second agreement that granted Mr. Mizrahi the power to make certain unilateral decisions about the project so long as the planned buyout took place by Aug. 30, 2022, the court records allege.
As that deadline inched closer, Mr. Mizrahi’s financier for the buyout – a lender that is not identified by name in the application – got cold feet and pulled out, the court records allege.
Sam Mizrahi, president of Mizrahi Developments, poses for a portrait at the corner of Yonge Street and Bloor Street West in 2014.Fred Lum/The Globe and Mail
That decision coincided with the June 2 filing of an unexpected bombshell from The One’s fourth-place lender, a Chinese-state-owned enterprise called the China-East Resources Import & Export Co., or CERIECO.
In its claim, CERIECO sued Mr. Mizrahi and Ms. Coco, alleging, among other things, that Ms. Coco had arranged for Bridging to pledge the assets from its flagship fund, the Bridging Income Fund, as part of the collateral package backstopping CERIECO’s $213-million loan to The One.
It’s not clear what disclosure, if any, was made about this guarantee to investors in the Bridging fund, or whether Bridging received any consideration for the pledge. Bridging had “no business reason to agree to the guarantee,” CERIECO’s claim states.
CERIECO also alleged fraud on the part of Mr. Mizrahi and Ms. Coco, accusing them of conspiring with a CERIECO representative in Canada, Bosco Chan, to secure releases from the loan guarantees that had been provided by Bridging and Coco Paving, which was the Coco family’s business at the time.
According to CERIECO’s claim, when it came to time to advance its $213-million loan to The One in 2017, it was advised that it should include a Canadian resident as a director of the subsidiary advancing the loan. So it named Mr. Chan, an Ottawa resident who helped broker the loan, as a director, along with the president of CERIECO in China.
Unbeknownst to CERIECO, Mr. Chan signed documents that released Bridging and Coco Paving from their guarantees, it alleged in its claim. Mr. Chan had no authority to do so, CERIECO alleged, as the loan agreement stipulated that CERIECO’s president in China was the only official who could sign off on such a move.
When the first loan payment of more than $61-million didn’t arrive in June, 2021, CERIECO attempted to enforce on the guarantees and learned about Mr. Chan’s releases, the company alleged. When confronted about this, Mr. Chan acknowledged that he negotiated a $7.5-million “release fee” from Coco Paving, which was purportedly supposed to go to CERIECO, the claim alleges. Instead, Mr. Chan kept $4.5-million for himself, and directed the other $3-million to Mr. Mizrahi’s personal bank account, CERIECO alleges.
None of CERIECO’s allegations have been proven in court and statements of defence have yet to be filed.
CERIECO’s explosive claim was bad news for Mr. Mizrahi’s planned buyout of the Cocos. According to the Cocos’ court application, Mr. Mizrahi’s lender for the buyout said it needed to put the loan on pause while it reviewed the unexpected lawsuit – then eventually pulled out entirely.
Mr. Mizrahi asked the Cocos to extend their agreement that provides him with exclusive control of The One, but without any assurance that he could execute the buyout, they declined, the court documents state. The Cocos argue that such control was contingent on a completed deal. “Sam is seeking to achieve what he bargained for, without paying for it,” their court filing states.
In addition to a special investigator, the Cocos are also seeking full access to the books and records for The One, as well as an order that requires preservation of those records. And they are seeking a declaration that a resolution granting Mr. Mizrahi the right to exclusively run the project is invalid.
A hearing for the application is scheduled for Dec. 5, 2022.