The City of Toronto is putting the brakes on the potential purchase of a financially troubled hotel now housing around 500 homeless people and asylum seekers, despite quietly making a bid for the facility earlier this year.

With its shelter system at capacity, city officials have since 2017 used the Toronto Plaza Hotel to house newly arrived refugees and homeless families from the charitable Fred Victor Centre.

The city has signed at least $4.5 million in contracts with Alternative Living Solutions Inc. (ALS), a private contractor, to house and feed those staying at the 199-room hotel near the juncture of Highways 401 and 400.

However, ALS doesn't actually own the hotel. The company has a deal with Virk Hospitality, the Plaza's owner, which was placed into court-ordered receivership in July. Virk also owes the city about $150,000 in unpaid property taxes.

On Monday, after this story was published, a city spokesperson issued a statement confirming officials with the real estate division have found there isn't a business case for buying the site.

"As it was a large site, it would have been for broader city needs, not solely shelter, support and housing," said Tammy Robbinson in an email to CBC Toronto.

"It has now been determined that this wouldn't be possible and the purchase is not being pursued."

With the deal scrapped, the city is risking a private developer snapping up the seven-acre property and forcing hundreds of people back into Toronto's shelter system.

The court case

While the Toronto Plaza Hotel is full almost every night, it's facing serious financial problems. A court-appointed receiver is now trying to recoup as much money as possible from Virk Hospitality to pay back about $31 million the company owes to creditors.

An ongoing Ontario Superior Court case has provided details about the hotel's finances.

Some 500 people are currently staying at the Toronto Plaza Hotel, even though some of the rooms are off limits due to mould issues. (Paul Smith/CBC)

Justice Glenn A. Hainey placed Virk Hospitality into receivership, finding the company had failed to meet its mortgage obligations by redirecting some $3 million to numbered companies controlled by one of Virk's owners.

While Virk and ALS are separate entities, a search of corporate records shows that businessman Enzo Mizzi is an officer of both companies.​ Mizzi has been challenging the receivership in court.

His lawyer told CBC Toronto, while Mizzi may have transferred money to other companies he controls, he did so to pay for renovations to the hotel. "It was technically not permitted," said lawyer Micheal Simaan.

But the hotel residents "have always been his utmost concern," Simaan said. "He was always making sure they would be taken care of."

Hainey has also ordered Mizzi to return $186,000 he allegedly withdrew from a bank account that is used to pay to house and feed the refugees living at the Plaza.

The sale

Simaan confirmed the City of Toronto had already made one attempt to buy the Plaza, although it's unclear how much was offered for the property.

The hotel has been appraised by the court-ordered receiver but that value is confidential, Simaan said. However, he claims fair market value is "at least" $35 million.

The city has been relying on the hotel to shelter homeless people and asylum seekers since 2017. (Paul Smith/CBC)

The city would be considered a "captive buyer," he said, and in his opinion, it would be a good investment for taxpayers.

Virk originally purchased controlling shares of the property in 2016 for $17.5 million. It's unclear how much has been spent on renovating the property since.

CBC Toronto has learned that two floors of the hotel, including about 35 rooms, are currently closed due to mould problems.

However, the lucrative city contracts — worth millions annually — add considerable value to the hotel for any would-be buyers.

Toronto's potential bid

Previously, city spokesperson Natasha Hinds Fitzsimmins told CBC Toronto the city hasn't made a decision on whether it should step in and buy the Plaza.

That's at odds with the city's own documents and information from people with direct knowledge of the situation.

The Plaza is just one of a number of hotels the city uses. The city's own shelter system consistently operates above the 90 per cent capacity target set by city council.

CBC Toronto located a September 2018 contract between the city and the receiver that shows the city has already made at least one offer to buy the hotel.

"The owner of the property had attempted to sell the property earlier this year and the city had submitted an offer," states a document form the City of Toronto's Real Estate Services division.

The document also reveals the city currently has a signed agreement with the receiver to enter the hotel "for the purpose of undertaking a building condition survey."

"The city is seeking to acquire the property, which consists of 199 rooms and seven acres of land, for municipal initiatives," reads the agreement.

"Real Estate Services is recommending that the required due diligence for acquiring the property be completed prior to any open market offer due dates in order to strengthen the city's offer."

In other words, the city has already signed an agreement, with the intention of taking a second run at buying the hotel.

But Fitzsimmins maintains the city hasn't yet resolved to buy the facility.

"The purpose of this document was to obtain authority to enter into a licence agreement with the receiver so that we could complete our due diligence," she stated in an email. "The city is still in the process of completing its due diligence on the property, which will form the basis of any bid, should the city submit one."

What happens if city doesn't buy hotel?

The city now has to hope the hotel's next buyer continues to rent the hotel rooms to the city at the current, discounted rate of about $50 a night (plus food costs), or scramble to rehouse those living there.

City shelters likely aren't an option for the families, and housing availability is notoriously tight throughout Toronto.

According to an October 2017 joint report from the city's finance and shelter officials, Toronto's public shelters are already stretched to "over capacity" and affordable housing is increasingly difficult to find.

About 400 other homeless people or refugees have already been moved out of the city due to lack of affordable housing space in Toronto.

The city is downplaying those concerns.

"As is done on a regular basis, the city relies on additional hotel or motel accommodation to address capacity issues for families and refugee claimants," Hinds Fitzsimmins said.

For now, those staying at the Toronto Plaza Hotel are still being taken care of.