Company with huge real estate holdings in the north has $144M in debt, files for creditor protection
![For rent For sale One of the largest owners of residential real estate in Ontario --with large holdings in northern Ontario – has filed for creditor protection after accumulating more than $144 million in debt. (File)](/content/dam/ctvnews/en/images/2024/2/5/for-rent-for-sale-1-6757116-1707178204916.jpg)
One of the largest owners of residential real estate in Ontario --with large holdings in northern Ontario – has filed for creditor protection after accumulating more than $144 million in debt.
The company would buy homes and apartment buildings, mainly in northern Ontario, renovate them and make a profit by renting them out at higher rates.
But rising interest rates ate up much of the cash that was supposed to be used for renovations, causing revenues to tank.
The group of companies, which filed for insolvency under the Companies’ Creditors Arrangement Act (CCAA), owns residential properties in Timmins, Sault Ste. Marie, Sudbury, Kirkland Lake, Capreol, Val Caron and Temiskaming Shores. The properties total 631 units – including single family homes and apartments -- of which 424 are occupied.
Collectively known in court documents as “the company,” the group of companies is made up of Balboa Inc., DSPLN Inc., Happy Gilmore Inc., Interlude Inc., Multiville Inc., The Pink Flamingo Inc., Hometown Housing Inc., The Mulligan Inc., Horses In The Back Inc., Neat Nests Inc., and Joint Captain Real Estate Inc.
They all filed for creditor protection under the CCAA last month.
Among the creditors are northern municipalities, including Timmins (owed $793,352.09), the Sault ($645,125.05), Greater Sudbury ($283,704.36), Kirkland Lake ($92,099.62) and Temiskaming Shores ($11,391.23).
“The company renovates the residential properties it acquires by performing restorations with a view to reviving such properties and providing sustainable and affordable single or multi-family housing,” said court documents filed in support of the CCAA process.
“The company has acquired, renovated, leased and/or sold over 800 underutilized properties across Ontario, and the applicants have raised and invested approximately $100 million to acquire and renovate the properties.”
Only had $100,000 in cash on hand
While the group owns hundreds of properties worth millions, when it filed for creditor protection, it had less than $100,000 in cash on hand.
Before the CCAA filing, the company defaulted on numerous mortgage loans, leading to dozens of court actions by creditors.
To turn a profit, the company has to renovate its properties in order to raise rents above the limits set by the province. But when rising interest rates consumed much of the cash, a crisis followed.
“The applicants’ lack of liquidity has prevented them from undertaking approximately $4.1 million of renovation needed for certain unrenovated rental units, which the applicants estimate is resulting in approximately $350,000/month in lost rental revenues,” the court documents said.
The group tried to ease the pressure in 2022 when it sold 223 properties. But problems persisted so they tried to attract financing from 60 financial institutions, all of which turned them down.
With “unsustainable losses” getting worse, the company hired a financial advisor in August 2023 to come up with a long-term solution.
“To date, the applicants have not been able to find a comprehensive solution,” the court documents said, prompting the CCAA filing in January.
Would cause prices to plunge
“If the properties were immediately liquidated, the supply of units available for sale in these communities would increase by approximately 36 per cent, including by approximately 70 per cent in Timmins,” the court documents said.
“As a result, there would likely be a significant reduction in sale prices, resulting in losses for investors and other home sellers in these communities.”
To prevent that, the monitor is suggesting the properties be sold 15 per cent at a time, so the Timmins properties would be sold over four years, while it would take about two years to sell properties in the Sault and Sudbury.
Under the CCAA process, lawsuits against an insolvent company are ‘stayed’ -- put on hold -- until the restructuring process is complete and the company strikes a deal with creditors to resolve the debts.
The company can also access $4 million in temporary loans so it can keep operating as it restructures.
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The company is seeking to extend the stay on court actions until March 28 to give it time to reorganize. It was granted an extension until Feb. 15, when it will return to court to make its case for the full extension until the end of March.
KSV Restructuring Inc., is the court-appointed monitor for the CCAA process. The court documents detailing the process can be found here.
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