Rendering of 1333 Weber St. East, Kitchener.ELM Developments
Being an expert in rehabbing insolvent real estate projects used to be a niche business, but the buyers of a partially finished condominium project in Kitchener, Ont., say their special skills are more in demand than ever.
“We are doing more than we used to. Two years ago we could almost see it coming and we expanded internally. The writing was on the wall, at least to us,” said Elliot Steiner, president of ELM Developments Corp. He created a sub-brand to his construction business called Elm Forward that focuses on what he calls “special situations” of insolvent or unfinished buildings.
“I’m not a soothsayer, it was just my opinion. But you could see the stress: You take a look at the numbers, you take a look at how the trades are doing, how’s labour, how’s cash flow. And you hear rumours about who’s paying what. And you could see the numbers just didn’t add up.”
ELM Forward was initially brought in by receiver KSV Restructuring Inc. to stabilize the building at 1333 Weber St. E. in Kitchener – a project known as Elevate – after the original developers were pushed into insolvency in October, 2023 owing more than $80-million and reportedly having less than $300 cash on hand.
A year later ELM, along with original lender Genesis Mortgage Investment Corp., formed a partnership with Dorr Capital Corp. to pay $75-million (a mix of cash and conversion of Genesis’ mortgage debt to equity) to take over and finish the project.
“I actually reached out and said, ‘I think I can fix this, let me have a look,’” said Brian Dorr, CEO of Dorr Capital. Mr. Dorr has some previous experience with the fallout from two recent high-profile real estate collapses. Dorr was a lender to Stateview Homes – declared insolvent in May, 2023, with debts close to $350-million including an alleged $37-million cheque fraud with TD Bank as the victim – and also to Vandyk Properties, which was pushed into insolvency in November, 2023, owing more than $203-million.
Mr. Dorr said those experiences have led to his company being consulted when other projects are facing financial problems. “I think initially we had some early difficulties in this cycle which put our name out there. I think we handled that efficiently and effectively,” he said. “I have a good reputation in terms of being able to structure deals, so I had people reach out and say, ‘What would you do?’”
Mr. Dorr’s expertise is on the finance side. For the bricks and mortar, ELM is taking the lead.
“We’re fortunate to be partnered with ELM Developments,” said Mr. Dorr. ”They’ve made a business of taking midstream deals and fixing them. I know that [ELM’s Mr. Steiner] is one of the preferred choices of receivers. I have never found anyone more detailed – and I thought I was a detailed person.”
For Mr. Steiner, becoming an unfinished building expert wasn’t a path he consciously chose having started as a contractor and general contractor in the 1980s and moving on to his own land development and home-building projects. But in 2007 he was asked to help out on a small unfinished project condo-townhouse called Jarvis Mansions in Toronto.
“I fell into this business 20-some years ago,” he said, “Our first project didn’t go smoothly. … They do now.”
More recently he’s been called in to complete several projects where Romspen Investment Corp. was a lender, including a handful of rental buildings in Quebec that the Journal de Montréal has reported are the subject of an unpaid taxes probe from Revenu Québec.
“If it’s gone bad, nine times out of 10 it didn’t happen yesterday. When we’re asked to come in, it’s been bad in one form or another for some time,” he said. “The owner at the time, or [general contractor] or project management, they will neglect long-term items to pay the bills. When a project runs out of money, you start skipping things. It’s not with bad intent: You say, ‘I’ll do it afterwards.’ And then you never catch up.”
He cites another example for one of the dozen or so “special situations” he’s helped manage in the last decade.
“I visited a project and we noticed they were putting drywall on: It looked good, like a lot was done, and everybody was impressed,” he said. “But nobody noticed that they were putting it on in an order that would cause them trouble to finish the electrical and plumbing; it was in an incorrect sequence. It would never work.”
When Elevate was being marketed for sale by CBRE Canada, the first of four planned towers was purported to be 80-per-cent complete. In the release announcing the new partnership, that figure was downgraded to perhaps 65-per-cent complete according to Mr. Dorr. Mr. Steiner won’t second-guess that figure, but agrees “the project is not 80-per-cent done, that’s for sure.”
Both men say they think there are likely more failed construction projects to come.
“I don’t want to be the grim reaper, getting all excited because the market’s bad. But for us, is it bad? No,” Mr. Steiner said.
Mr. Dorr sees things from a lender’s point of view. He says he sees light at the end of the tunnel on the issue of financially stressed preconstruction buyers defaulting on purchase contracts when buildings are ready to occupy. According to him, the situation began to improve as soon as interest rates began to fall in June.
“Almost to the day,” said Mr. Dorr. “Last month, I did not have a single discharge miss.”