The developers describe the Shorelands Renaissance as the most luxurious residential development this country has ever seen. But the $1.1 billion project—including $850 million in debt owed to two Canadian banks CIBC FirstCaribbean and RBC Royal Bank—could be heading to court after the bankers issued a warning e-mail to the subscribers threatening to have the company that owns the property placed into receivership. The threat of losing the deposits made on the million-dollar residences has infuriated the subscribers in Hyacinth Akow Ltd, the development company, who have been waiting to take delivery of their homes for more than four years now. The project, which started in March 2006 was due to be completed in April 2008. The developers sought new financing in April 2010 because the project had run out of money and was already two years late. The complex, which completed construction last month, is built on 90,000 square feet of land, which was acquired for about $30 million in 2004.
On Tuesday, Rahael took a team from the Guardian on a walk-through of the complex, including the four-bedroom model residence. Located on the water’s edge at Shorelands, just opposite the Hi-Lo in Glencoe, the Shorelands Renaissance comes with an infinity pool, a fully fitted out gym with accompanying saunas, one for men and the other for women, a large common room with bar and flat-screen television as well as a 24-hour concierge service and a receptionist. Each of four-bedroom units has exclusive elevator access, is en-suite with its own walk-in closet and shower and toilet facilities. The four-bedroom units, all of which have ten-foot high ceilings, also come with an extra room for a helper, which is also en-suite. The price for the residences is about $3,000 per square foot. The four-bedroom units are 5,200 square feet, which means that this residence will put a $15.6 million dent in the purchaser’s bank account. The three-bedroom units are 4,200 square feet and the two bedroom units are 2,800 square feet. The penthouses, four of them, are 10,000 square feet each. The purchasers are required to choose and pay extra for their living room flooring, the ornamental lighting fixtures and the window treatments but the kitchen comes fully equipped with high-end steel appliances, the latest in kitchen cupboards and granite countertops.
Construction sources said the units were not delivered when they were due because the developers ran into the overheated construction mini-boom of 2006-2008 during the price of labour and materials, especially steel escalated significantly. The construction company, the Rahael family, with 50 per cent with a 25 per cent stake owned by property developers Jeffrey Guillen and Richard Woodruff, also experienced problems with the original contractors, which resulted in expensive remedial work having to be commissioned. Rahael said: “The facts are that in April 2010 when we approached the banks for additional funding in order to complete the project, the lenders imposed two main conditions on us: One was that we had to get all of the prospective subscribers to agree that they would pay the enhanced escalation and the other was that we, the developers had to pledge additional collateral in the form of property.” The developers needed an additional $425 million to complete the two-tower complex comprising 74 residences: Eight penthouses, 28 four-bedroom units, 26 three-bedroom units and 12 two-bedroom units.
Of the 74 residences, by 2010 the developers had received down payments of 35 per cent on 43 of the units. From these 43 residences, the developers, and their bankers, expect to get an additional $425 million comprising the balance owed.
From the 31 residences that were unsold at April 2010, the developers and the banks expected to generate $550 million.
Rahael said that the majority of the subscribers agreed their willingness, in writing, to pay the enhanced escalation but that “a number of subscribers who had indicated their willingness to pay were now saying that they were not prepared to do so.”
Rahael declined to specify how many of the 43 subscribers agreed in writing to pay the enhanced escalation and the number of them who were now reneging on those agreements. “What is happening is that now that they are being called upon to honor their commitments, a number of them are not willing to pay the enhanced escalation,” said Rahael. The original escalation clause indicated that the subscribers would be liable to pay an escalation of between 12.5 and 15 per cent. Escalation clauses allow developers to increase the cost of properties as a result of hikes in the costs. But the April 2010 escalation clause meant that all of the subscriber would be required to pay between 40 and 46 per cent more for their properties.
“The additional escalation is from the 15 per cent to about 45 per cent, which essentially reflects an additional 30 per cent escalation,” said Rahael. Rahael’s view of the dispute is contradicted by one of the subscribers, who requested anonymity because he did not want to jeopardise any possibility of a negotiated settlement. The subscriber said it is not true that a “majority” of subscribers had agreed to pay the enhanced escalation. Without giving specifics, because he did not know, the subscriber said that a “sizable number” had declined to pay the additional sums requested. “No rationale investor looking at all the alternative avenues for employing funds could conclude that that makes sense. Thirty-four of the residences were pre-sold and nine were sold during the construction period. Having sold 43 of the 74 residences before and during construction, in April 2010, the developers expected to earn $550 million from the sale of the 31 unsold units and $300 million more from the prospective homeowners, who were required to make the down payments for their units in the form of share subscriptions.
In order to qualify for the loan, the developers were required to pledge additional collateral in the form of property as well as get the subscribers to agree to pay enhanced escalation costs, Rahael said. “The majority of subscribers agreed to that enhanced escalation and indicated their willingness, in writing, to pay it. The problem is that a number of subscribers who had indicated their willingness to pay the enhanced escalation are now saying they are not prepared to do so,” according to Rahael. He refused to disclose the exact number of subscribers who had agreed to pay the escalation or how many are now refusing to pay it.