Troubled condo project The One looking for $1.2-billion sale – or else lenders won’t unload it

The receiver for The One condo tower is seeking to sell Sam Mizrahi’s unfinished skyscraper, saying creditors won’t accept anything less than $1.2-billion for the troubled project.

The One’s lenders are owed $1.5-billion after Mr. Mizrahi and the tower’s co-owner, road-paving magnate Jenny Coco, defaulted on loan payments during the construction of the luxury condo and hotel tower in downtown Toronto.

The sale of the partly constructed tower is likely to be difficult given the history of the building, today’s high borrowing costs and a slowdown in the condo market. The receiver hopes to start the sale process Thursday, but if no bid satisfying the $1.2-billion minimum emerges, the project’s senior lenders are committed to provide financing to complete construction.

The One was placed under an Ontario Superior Court of Justice-ordered receivership last October after one of its lenders refused to provide more funding unless an outside group was appointed to manage the project.

Since then, the receiver, Alvarez & Marsal Canada Inc., has replaced Mr. Mizrahi’s development firm as the general contractor of the project with another construction firm; revised the budget, schedule and costs to complete the tower; redesigned the upper floors to make it easier to sell their units; and chose a commercial real estate firm to run the building sale.

The receiver said these steps were taken to prepare The One for a sale, and has requested court approval to carry out its plan. Alvarez said one of the key terms of the sale is a minimum bid threshold of $1.2-billion, the equivalent of 80 per cent of the creditors’ claims. A sale at this price could wipe out the project’s equity, which is split equally between Mr. Mizrahi and Ms. Coco.

The senior lenders have told the receiver that “they will not support any transaction proposal” with a purchase price of less than the minimum bid threshold, according to the receiver’s second report filed with the Ontario Superior Court of Justice on May 28.

The senior lenders include KEB Hana Bank, a South Korean bank acting as trustee for IGIS Global private placement real estate fund.

The receiver is seeking court approval to use Jones Lang LaSalle Real Estate Services as the sales broker, with the first round of bids due July 30 and the second round of bids due Sept. 24. It wants the court to approve a successful bid no later than mid-October.

Even though the condo market has softened and there have been very few large commercial real estate deals amid today’s high-interest-rate environment, Alvarez’s report said it believes that “now is the appropriate time to market the project to solicit any and all potential forms of value maximizing transactions.”

The One has been under development since 2015 and was marketed as Canada’s tallest condo building with 85 storeys of condos, hotel rooms and retail spaces. It is at the corner of Yonge and Bloor streets in the heart of Toronto.

Alvarez is seeking approval to redesign the upper part of the building by adding more units per floor, instead of only two to four luxury suites per floor.

Just over 70 per cent of these large upper-floor condo units have not been sold. And of the 19 that have been sold, nine of the buyers are in default.

“There is an extremely limited market for units of the size and sale price of those located in the upper levels,” Alvarez’s report says.

Construction continues at The One and the concrete structure is complete through Level 57, according to the report. Under the revised plans for the top floors, the project will add 88 units to the upper levels.

The One is years behind schedule and had defaulted on multiple loans before it was put into receivership. In October, the project’s lead lender asked an Ontario judge to put a third party in control, alleging that the development owed $1.6-billion to its lenders and was hundreds of millions of dollars over budget.

After a slew of delays, there was hope that the project would be finished by March, 2025, but earlier this year, the receiver said The One will not be completed by then.