Three large luxury downtown condo projects by developer Cresford Group have been placed under court-ordered receivership following a claim by creditors that the company failed to pay construction trades and hid its precarious financial standing from investors.

Among the allegations set out in court documents posted on the receiver’s website is an allegation that Cresford kept two sets of books to conceal budget overruns from its lenders.

The receivership, which involves about 2,000 condo units across three buildings (33 Yorkville Ave., the Halo and Clover), was ordered by the Superior Court of Justice (Commercial List) on Friday.

Investors bcIMC Construction Fund Corp. and Otera Capital asked the court for the receivership in early March.

Cresford lawyer Steven Graff said the company’s mortgages were in default and it was trying to find a resolution with its senior lenders.

“The company took efforts to try to stabilize the business through court protection under (the) Companies’ Creditors Arrangement Act. The company wasn’t successful in obtaining that relief and all three developments went into receivership,” he said on Tuesday.

Any allegations of financial improprieties will be dealt with in the receivership and in “other ongoing proceedings,” said Graff. The allegations of financial impropriety have not been proven in court.

Graff added that the receivership is happening in the context of the COVID-19 shutdowns “where developers are having a difficult time meeting their requirements due to ... the flow of trades and the curtailment of the availability of funding generally.”

The court filings allege a complicated network of creditors and lenders in the three projects. Among them, the applicants claim the developer owes payments on a $164 million mortgage. It also alleged that Cresford “in effect” sold interests in 33 Yorkville to fund equity contributions for the project.

In the court documents, it is claimed that Cresford pre-sold 918 units in the Yorkville project, taking in $160 million in deposits. It is also claimed that Cresford took in $3 million from purchasers of 388 units at Halo and $49 million in purchase deposits on 499 units at Clover.

Otera and bcIMC had extended about $200 million in credit to Cresford and each is owed half that amount, according to their court application. A lawyer for the those companies declined to comment on the case, referring questions to PricewaterhouseCoopers, the receiver. It also declined to answer questions.

As of March 2, Cresford’s senior secured creditors on the three projects claimed they were owed a total of $421.4 million, according to court documents. That includes about $202 million for the Yorkville project, $75 million for Halo and $145 million for Clover.

Cresford also owed about $35 million to trades and other suppliers at the end of February, according to the pre-filing reports of PricewaterhouseCoopers.

The Yorkville debt is owed to bcIMC Construction Fund Corporation and OteraCapital Inc. The Halo and Clover debts are owed to bcIMC Construction Fund Corporation and bcIMC Specialty Fund Corporation.

Those amounts do not include money owed to other secured creditors or claimants, including the pre-construction condo buyers. All the figures are subject to revision, said the receiver.

The PricewaterhouseCoopers website said that no decision has been made as to the future of the contracts of pre-construction condo purchasers. Those buyers are asked to contact project.yorkville@pwc.com or halo.clover@pwc.com for more information.

The receivership comes after the former chief operating officer of Cresford filed a claim in January against the company and its president Daniel Casey.

Maria Athanasoulis alleged she was fired for pushing Casey to make contractually required equity investments and that Casey secretly borrowed high-interest funds from a third-party lender.

A countersuit from Cresford denied those claims.

Neither claim has been proven in court.

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The three condo projects under receivership are in various phases of development. The luxurious Yorkville Ave. residence is supposed to incorporate 1,079 units in two towers, one 69 storeys tall and the other 45 storeys. The site is under excavation but the buildings aren’t yet under construction, according to court documents.

The Halo at Yonge and Grosvenor streets is supposed to have 413 units in a 39-storey building and is in the early phases of construction.

The Clover at Yonge and Wellesley streets is at the most advanced building stage, with plans calling for 522 condo units in two buildings, one 49 storeys tall and the other 18 storeys.

“Those are all prime sites close to or on Yonge St.,” said Pauline Lierman, director of market research at Urbanation, a company that tracks new development.

“It would not surprise us if the sales do fall through and the sites are re-marketed at some point with the exception of the Clover, which just needs to be finished and I don’t know how they’re going to work that out,” she said.

Lierman said the Cresford situation is comparable to the insolvency of Urbancorp, and is not representative of the health of the condo industry as a whole. About four years ago, hundreds of Urbancorp buyers who had paid deposits on pre-construction homes were left in a lineup of creditors when that developer failed.

The court application by bcIMC and Otera alleges that a cost consulting report from Altus Group on 33 Yorkville showed that its $900 million budget was substantially short of the amount needed to complete that project. Examinations of the Clover and Halo projects showed similar shortfalls in their respective original budgets of $270.5 million and $230.9 million

According to court documents, another preliminary review by PricewaterhouseCoopers found “inappropriate project contracting and accounting,” and the “transfer of costs between condo projects.” Those findings bear further investigation, however, says the receivership application by the two lenders.

The bcIMC and Otera application also alleges that, “It appears that the Cresford Group did not want to return to its lenders to seek approval from the relevant lenders for above-budgeted contracts that would have required the injection of additional equity….

“Instead, in certain circumstances, it asked specific trades to divide their awarded contracts in two. First, the trade would agree to a construction contract that was consistent with the lender-approved budget. Second the trade would issue a separate purchase order for any amounts in excess of the budgeted amounts.”

There is a fourth Cresford project underway. The Yonge St. Living (YSL) condos at Gerrard St., an 83-storey tower still in the excavation phase, is not included in the receivership, said Graff.

A spokesperson for Tarion, Ontario’s regulator for homebuilders, said it is aware of the Cresford financial situation and is investigating the developer and the three projects.

Under the Condominium Act, developers have to hold buyers’ money in a trust, said Tarion. When a project is cancelled, the seller has to return the payments. If those deposits are not returned, buyers are entitled to up to $20,000 under the Ontario New Home Warranties Plan.