Urbancorp was one of Toronto’s most prolific and respected developers. When the company filed for bankruptcy protection last April, nearly 200 pre-construction buyers lost their future homes and their best chance to break into the market. Anatomy of a real estate disaster

Urbancorp was one of Toronto’s most prolific and respected developers. When the company filed for bankruptcy protection last April, nearly 200 pre-construction buyers lost their future homes and their best chance to break into the market. Anatomy of a real estate disaster

Patrick and Jessie Hooker weren’t planning to buy a house. It was April 25, 2015, and they’d accompanied Patrick’s sister, Jessica, to a sales centre in a former public school near Lawrence and Black Creek Drive. Jessica had bought a home from Urbancorp, a property developer with a 24-year track record of building moderately priced condos and townhouses in the GTA. Her home was to be part of a cluster of 88 supermodern townhouses, semis and detached homes called Ravines on Lawrence. Patrick and Jessie had given her a lift there to sign the papers.

Patrick, a geophysicist, and Jessie, a software engineer, are both in their mid-30s. He has a Bunyan-esque build and a calm, frank demeanour; Jessie, who was born in Malaysia, has dark, shoulder-length hair and an easy smile. At the time, they were living in a rented condo in Fort York. They were happy there, but they knew there wasn’t enough space for a child, let alone Jessie’s mother, who they expected would one day move in with them.

Inside Urbancorp’s sales centre, the Hookers walked through the sleek model suites. There was an open-concept living room with wood-veneer floors. New appliances gleamed in the kitchen. They were dazzled by the premium finishes, the spacious layouts, the high ceilings. While they waited, an Urbancorp salesperson approached them with some news: a buyer had backed out of a deal to buy a $580,000 four-bedroom townhouse just two doors down from Jessica’s. If the Hookers acted quickly, they could reserve it for themselves.

Fearing that another buyer would snatch it up, they scribbled out four post-dated cheques on the spot, for a total of $58,000. Before they knew it, they’d spent nearly all of their savings on something that didn’t yet exist. The scheduled occupancy date for their new home was October 2017, two and a half years away.

They moved out of their condo and into a two-bedroom apartment in Jessie’s sister’s basement in Richmond Hill, hoping to save money for their down payment. For the next few months, they commuted an hour each way to their jobs downtown. In January, they found out Jessie was pregnant—they were glad they’d had the foresight to lock down a large family home.

One day last April, a year and a half before they were supposed to move in, Patrick was reading a discussion thread on BuzzBuzzHome, a website that tracks new housing developments. There was a rumour circulating that Urbancorp was in financial trouble—that the company might be on the verge of filing for bankruptcy protection, which would jeopardize all of its unbuilt projects. “At first, I thought, Oh, it’s just some random thread on the Internet,” Patrick said. “It can’t be true.” But it was, and the full story was worse than they could have imagined.

When a buyer places a deposit on an unbuilt condo, a developer is required, under Ontario’s Condominium Act, to either insure the deposit or hold it in a trust account, so the money can be refunded if the project is cancelled or delayed. But the Hookers’ townhouse was freehold, which meant the Condominium Act didn’t apply to them. When it comes to freehold properties, developers can do whatever they like with buyers’ deposits—and Urbancorp had taken advantage of that freedom. The Hookers’ $58,000 was gone, and so were the deposits of 180 other buyers across the GTA.

The man behind Urbancorp’s precipitous rise and rapid fall is Alan Saskin, the company’s founder and president. He and his wife, Doreen, live in a $6-million Yorkville condo that has a library; three bedrooms, including a master suite with a spacious dressing room; and a private terrace large enough to host dozens of guests. Down in the parking garage, Saskin keeps a Tesla and an Aston Martin.

The Saskins take lavish vacations—one recent trip included stops at Machu Picchu, Easter Island, Angkor Wat and the Taj Mahal. Saskin goes to Art Basel every year and has at least one original Jean-Paul Riopelle in his personal collection. Over the past few years, he and Doreen have donated money to the symphony and the ballet, and he served as chair of the Artscape Foundation’s board of directors. In 2014, his daughter Jyll had her wedding at the Art Gallery of Ontario. Her husband, Phillip Gales, later became Urbancorp’s CFO.

Saskin originally studied architecture at McGill but quickly realized there was more money to be made in development. He earned his MBA at Harvard in 1981, then climbed the ranks of the Canadian real estate industry. He worked for Cadillac Fairview before decamping to York-Hannover, a smaller company, where he became a vice-president. According to former colleagues, Saskin was a strategic thinker who could see opportunities where other people didn’t, but he also had a daredevil streak. For a time in the 1980s, he made a hobby of shorting stocks on the TSX.

By 1990, Saskin was an executive VP at Camrost, a large commercial and residential developer. After a dizzying five-year rally, the housing market had entered a slump. The average price of a single-family home in the GTA was plummeting. Development giants struggled to refinance debt in a flailing market, and some collapsed into bankruptcy. Toronto developers found themselves sitting on parcels of land they couldn’t use.

Most people looked at this state of affairs and saw devastation. Saskin saw a gold mine. Home prices were depressed, but so were land prices. If he could buy up cheap real estate, he could build inexpensive homes, which are popular with first-time buyers, even in times of economic distress.

Saskin left Camrost with Ann Martin, who had worked under him as a senior project manager, and together they launched Urbancorp. His first move was to buy a small parcel of farmland in Richmond Hill; it was relatively cheap and had already been rezoned for 300 housing units. Saskin advertised stacked faux-Georgian townhouses for as little as $99,990 apiece, and young families lined up at the sales centre to place deposits. Urbancorp had found a way to make money on real estate when it seemed like there was none to be made.

The success of that first development earned Saskin credibility among financiers, allowing him to set his sights downtown, where he developed two projects on St. George Street: Sloane Square and Lennox Mews, which won Urbancorp glowing press. “For people who want a solid roof over their heads in a nice neighbourhood at a decent price, the company is doing everything right,” the Globe’s John Barber wrote in 1993. “All Urbancorp needs now is some competition.”

Within a few years, Toronto’s housing market had begun to recover. As the industry regained its confidence, Urbancorp started developing low-rise and mid-rise projects throughout the GTA. By 1998, the company had become the fifth-largest builder of new homes in the GTA, and it had made a major land purchase that would change the city: an ex-industrial site on King, west of Bathurst. Saskin turned some of the real estate into King West Village, a cluster of townhouses that initiated the area’s transformation from a grimy manufacturing district into a destination for young urbanites.

As Urbancorp grew, the company began aggressively pursuing taller, denser buildings. The denser the project, the more revenue. But Urbancorp would often sell units before they’d been approved by the city, which strained relationships with customers. In 2000, one buyer put a pre-construction deposit on a condo in Urbancorp’s Electra Lofts on King West only to discover that her unit had been removed from the floor plan during the approval process.

The constant tug-of-war with the city also jammed up the company’s construction pipeline. In 2002, new occupants of South Beach Marina Townhomes, an Urbancorp project on Queens Quay West, discovered that their building had a major omission: when one couple opened a door in their unit that was supposed to lead to the building’s elevator, they found an open shaft that ran all the way down to the garage. The elevator was installed a month after they moved in. Several years later, realtor David Fleming went to inspect a suite he’d purchased at Urbancorp’s Westside Gallery Lofts on Sudbury Street. He found chaos. His loft was a bare-concrete tomb with flaking walls and pipes poking through jagged holes in the ceilings. He made a video of himself exploring the wreckage and posted it on YouTube, where it racked up views among other realtors and developers.

Saskin declined to be interviewed for this story, but, according to one former employee, Saskin and Martin argued over their dealings with city hall. Martin was increasingly dissatisfied with the quality of the homes. She finally resigned. By the mid-2000s, the company’s credibility was eroding. “Urbancorp’s nickname in the industry is Urbancrap,” said realtor Carl Langschmidt. “They were a company that just delivered shitty units.”

In 2010, despite Urbancorp’s floundering reputation, Saskin went on a buying spree. Over the next five years, his company snapped up properties in Leslieville, King West, Downsview, Corso Italia and the Bridle Path. The projects were still selling, and the future looked bright.

Because developers only collect deposits on pre-construction homes, they usually have to finance their projects with outside money. A developer with good credit and enough capital to make a large down payment can generally get a mortgage for two to three per cent above the prime rate. If a developer can’t get one of those loans—or if he can only get enough to partially finance a building—he can make up the difference by tapping into a vast pool of money controlled by mezzanine lenders, who are often willing to make loans that banks won’t. As a result, they demand high interest rates, usually in the range of eight to 15 per cent. These lenders often exude the swashbuckling confidence of people who stand to gain no matter what becomes of a project. If a development runs into trouble, they can simply take it over and sell it for parts.

Urbancorp relied heavily on mezzanine debt during its spending spree. One company, Terra Firma Capital Corporation, financed large swaths of Urbancorp’s land purchases starting in 2012. The loans allowed Urbancorp to acquire more and more land, but, in the process, the company took on a huge debt load. While bank lenders usually only finance between 50 and 75 per cent of the land purchase value, Urbancorp was often using a combination of Terra Firma’s loans and bank loans to finance up to 95 per cent of the land purchase price.

By 2012, the company had two new projects underway near Queen and Dufferin: Epic on Triangle Park and Edge on Triangle Park. The land was already zoned for three 14- to 16-storey buildings, but Saskin wanted taller towers, for the same reason developers always do: more floors mean more units to sell. If he could convince the city to give him more density, it would set the stage for a significantly bigger payday.

Urbancorp managed to get the city’s approval for towers that ranged from 19 to 22 storeys, but the projects, already delayed by the wait for rezoning, ran into holdups and cost overruns during construction. “His construction department was horrendous,” said a former colleague. In one instance, a $3-million construction contract ballooned to about $6.5 million, as the contractor piled on extras that Urbancorp executives had failed to price into the original deal.

In the east end, the company encountered similar problems. At 50 Curzon Street in Leslieville, Urbancorp had pre-sold 55 townhouses. Among the buyers were Elaine Quinn, a civil servant with the province, and her husband, Howard, a marketing manager at Manulife Financial. In June 2011, they put a 10 per cent deposit on a $610,000 home with stone countertops, hardwood flooring and nine-foot ceilings. They expected to move in by February 2013. Five months after they put down the payment, Urbancorp mailed the couple a notice saying that their occupancy date had been pushed back to October 31, 2013.

The Quinns were worried. They’d recently had a baby, and they weren’t certain where they’d be living when he started kindergarten. Three delay notices later, Elaine called Urbancorp’s management office, where someone in customer relations gave her a firm occupancy date of February 20, 2015. The couple sold their Leslieville house, intending to use the proceeds to finance the purchase of their new townhouse. But, within weeks, Urbancorp had pushed their occupancy date back to August 2015. The company blamed the city for dragging its feet on installing water service.

Meanwhile, 50 Curzon Street was facing another set of problems. According to a former site superintendent who worked on the development, the project started to unravel mid-construction. The crews stopped showing up for work, and the reason was simple: Urbancorp wasn’t paying them. In September, their bosses began flooding the property with construction liens. “We must have spent six months there, doing nothing,” said the superintendent.

The company wasn’t completing projects, and costs were mounting. In fall 2014, pre-construction purchasers at an Urbancorp townhouse development in Etobicoke discovered their houses had been downsized because the original plans hadn’t received approval from city council. Many buyers tried to back out of their sales agreements after two years of delays only to learn that Urbancorp wouldn’t refund their money for months. When the developer finally did issue refund cheques, it warned the recipients not to cash them right away. In January 2015, the company abruptly cancelled Kingsclub, a condo development near Liberty Village that was under construction. The project was supposed to contain 639 units, but Saskin had only managed to pre-sell about 180.

Buyers at Urbancorp developments across the GTA were noticing a disturbing lack of activity at the construction sites where their new homes were supposed to be built. In Markham, there were still trees on a lot where 28 homes should have been completed within a few months. At St. Clair and Caledonia, where 41 more homes were originally scheduled for completion in late 2016, Urbancorp had only just started demolishing the vacant school on the site.

It was around this time that Patrick and Jessie Hooker visited Urbancorp’s sales centre on Lawrence Avenue. Like most pre-construction buyers, the Hookers assumed that the strength of the city’s housing market would shield them from disaster. They belong to a generation that has never lost money on Toronto real estate. But the market hadn’t failed them. Urbancorp had.

When Urbancorp buyers placed deposits on their homes, many of them regarded the money as down payments. In reality, deposits function more like loans. Each payment on a pre-construction home is pooled with the deposits of all of the other buyers of that development. And so, when buyers hand over their post-dated cheques at a sales centre, as the Hookers did in April 2015, what they’re actually doing is advancing the developer money, at little or no interest, which the developer can then use to get more financing—or, in the case of a freehold home, to spend on whatever he wants.

What buyers get in exchange for their money is not a home, or even an ironclad promise of one; a deposit entitles a pre-construction buyer to nothing more than a signed agreement of purchase and sale, which is written by the developer with his own interests in mind. The developer usually has latitude to make changes to the design of a unit; a buyer may show up on inspection day to find a side door missing, an unexpected set of steps to the front door or the entire unit built as a mirror image of the original floor plan. Developers often reserve the right to change the types of materials used without notice to the buyer, meaning the completed unit may look different from the model suite. A developer may even have the ability to cancel a project altogether.

When developers fall short of their obligations, there’s one organization that’s supposed to keep them honest: Tarion, the private, not-for-profit corporation that enforces Ontario’s New Home Warranties Plan Act. By 2015, Tarion had started to worry about Urbancorp’s troubles. The staff met with the company several times and asked to send in a forensic accountant to review Urbancorp’s books, but, as a non-government corporation, it had no formal investigative power. Urbancorp was free to refuse—and it did.

The pre-construction deposit, which homebuyers regard as sacrosanct, is surprisingly insecure. Tarion protects buyers against the loss of their deposits through government acts, but only to a degree. The legislation covers up to $20,000 of a condo down payment, which has to be held in trust. The coverage for freehold deposits, which don’t have to be held in trust, is higher, at $40,000, but most deposits exceed that amount. As 10 per cent of a property’s purchase price, a $40,000 deposit would barely cover a one-bedroom apartment in Toronto, let alone a single-family home. To recover anything in excess of $40,000, a buyer has nowhere to go but the courts. The bulk of Urbancorp’s townhouse developments were freehold—and most of the buyers I spoke to had no idea their deposits weren’t fully protected until it was too late.

By 2015, Urbancorp had invested in at least 17 different pieces of land in five years. Only two developments had been completed, and the company was hemorrhaging money as it tried to keep up with its debts. Among its holdings were nearly $16 million worth of deposits from homebuyers at five unbuilt townhouse developments.

Saskin’s existing loan options were no longer sufficient. He needed new and cheaper financing to sustain the company until developments were complete enough that Urbancorp could start collecting full payments from buyers. Only then would he be able to clear his debts.

He decided to tap into a popular source of interim capital: the Israeli bond market, which had gained a significant presence in North American real estate financing during the economic collapse of 2008. By 2016, U.S. real estate companies had raised $2.4 billion (U.S.) from Israeli bondholders. For developers, Israeli bonds come at much lower interest rates than mezzanine debt, but they’re ridiculously complicated to engineer. To issue bonds in Israel, a developer has to submit to financial audits and write a complex prospectus that describes his assets and what he intends to do with the money. The principals of the company usually travel to Israel for what’s known as a roadshow, during which they meet with money managers and investors. Several of Urbancorp’s loans were coming due in 2016, and it was unlikely that the company would be able to build homes quickly enough to pay them off. Saskin would have seen the Israeli bonds as the only way to refinance his debt.

He created a new company whose sole purpose was to hold all the projects he was about to peddle to Israeli investors. The new corporate structure included most of Urbancorp’s pending developments but excluded three troubled east-end projects, whose presence may have raised red flags. Saskin also committed to inject $12 million into the company. The prospectus made no mention of Urbancorp’s escalating conflict with Tarion. “The investors in Israel never bothered to inquire what Urbancorp’s status was with Tarion,” says Howard Bogach, the watchdog’s CEO. “Had they inquired, we would have told them that there were concerns.” Saskin travelled to Israel for the roadshow and met with potential investors, with huge success. “Out of all the people we visited on our roadshow, only one had googled us,” an incredulous Saskin told a colleague upon his return.

On December 14, 2015, the newly reconstructed Urbancorp Inc. made its Israeli offering. The bonds were worth 180 million shekels, or about $64 million (Cdn.), and Israeli mutual funds gobbled them up. The money bought Saskin some badly needed time. Urbancorp received $58 million from the bond issue and used most of the funds to pay off existing loans. Saskin had managed to satisfy some of his Canadian lenders, but, in exchange, he’d invited an army of Israeli mutual fund managers and securities regulators into his business.

For the moment, they were satisfied with him, but that didn’t last long. Within days of finalizing the bond issue, Urbancorp registered at least two more loans. Two months later, it defaulted on a $5-million 2014 loan from Terra Firma and Laurentian Bank that had come to maturity. The lenders quickly set about making a series of increasingly dire legal threats. At the same time, homeowners at The Bridge, a 534-unit condo tower, sued Urbancorp and Tarion over a long list of unaddressed construction problems, including shoddy balcony concrete, improperly installed wall cladding, and faulty wiring and elevator systems. As Urbancorp continued to collapse, Tarion’s leadership decided to use one of the most coercive weapons in its arsenal: it moved to revoke the company’s registration, which would bar 17 Urbancorp companies from building and selling homes.

In late March, the bad news reached Israel. The bond market there had recently been rattled by a plunge in the price of Extell bonds over fears the New York luxury condo market was becoming oversupplied. Into this jittery environment, Urbancorp fired a bottle rocket: it finally disclosed its problems with Tarion, and Saskin admitted his initial failure to make the $12-million capital injection into his company that he’d committed to in Urbancorp’s prospectus.

The reaction was swift and furious. The value of Urbancorp’s bonds dropped by 53 per cent in a single day, and the Israeli lenders initiated a class-action lawsuit. They accused both Saskin and Urbancorp of breaching disclosure and reporting duties. When Urbancorp finally released its 2015 financial report, it projected a $15-million loss in the fourth quarter. The bond price immediately plunged again.

Rather than wait for its bondholders to react, Urbancorp turned to the Canadian courts, filing for bankruptcy protection for eight of its subsidiaries. The move blindsided investors in Tel Aviv, who had expected Urbancorp to use the Israeli court system. Coincidentally or not, Urbancorp’s insolvency filing happened on the first day of Passover. An Israeli judge had to be summoned out of recess to deal with the mess.

Urbancorp eventually sought protection for 24 of its companies. Another three were thrown into receivership when a consortium of construction lenders took the company to court over $27 million in unpaid debts. Saskin also filed for personal bankruptcy protection—a career nadir for a man who had once been hailed as a visionary. At the time of Urbancorp’s collapse, it had 1,058 homes under construction in the GTA.

In a press release, Urbancorp tried to tamp down hysteria among its buyers. “We determined, after much consideration and consultation, that a court-supervised process is the best way to deal with current cash flow issues,” Saskin said. “The court process is intended to ensure that, with our partners, we will be delivering these homes in the next two years.” It’s possible that Urbancorp would have been able to build some or all of those homes if its Israeli creditors had been in a forgiving mood. They weren’t. At a meeting of the bondholders, they voted to demand immediate repayment of their misspent shekels. The quickest way for Urbancorp to satisfy many of its creditors—which included not only the Israeli lenders but also Scotiabank, CIBC, a few smaller banks, dozens of pissed-off contractors and Terra Firma—would be to sell off the company’s undeveloped land for whatever it was worth. The company would have to convince a court to set aside existing sales agreements—no land buyer would want to sell new homes at five-year-old prices.

Urbancorp’s buyers were stunned. Not only had their deposits been spent but they might not be fully recoverable. By tying up their deposits for years, Urbancorp had robbed them of both money and time. There were a number of loans between the company’s subsidiaries, leading to confusion about which buyers’ deposits had gone where. Buyers at four of the townhouse developments attempted to band together. Ontario law offers no formal support system to pre-construction purchasers who have been burned by a developer, so they found each other the way everyone does: online. They formed Facebook groups, and traded news and rumours gleaned from around the web. “This waiting is emotionally exhausting,” one person wrote in August. “I still don’t understand why this isn’t a criminal matter.” Their hope stayed alive until September 15, when Ontario Superior Court Justice Frank Newbould authorized Urbancorp’s court-appointed monitor to sell six of its properties, free of any obligations to pre-construction buyers.

Loraine Adal-Salmon and her husband, Anthony Salmon, told me they were looking forward to giving their children, five-year-old Isabel and seven-year-old Olivia, separate bedrooms in the family’s new semi-detached house in Urbancorp’s Manors of St. Clair West development. The girls had been bunking together in a guest bedroom in the family’s cramped townhouse. As Urbancorp tore down a school to make way for their future neighbourhood, the Salmons regularly visited the construction site. In April 2016, when they learned Urbancorp was insolvent and their $81,000 deposit had been spent, they kept the bad news from their daughters for weeks. “We’d been planning where our coffee maker was going to be,” Loraine said. “We believed our contract was a guarantee that we were getting our home.”

Another couple, Justin Polce and Anna Maria Pedace, put a $68,000 deposit on a semi-detached home at Urbancorp’s Lawrence Avenue development in 2013. The couple were in their late 20s at the time and still euphoric from their wedding a few months earlier. The semi seemed like a remarkably good value. Urbancorp promised hardwood flooring, a finished basement, and an iPad-controlled smart-home system.

Polce, who works in urban planning, started to worry a few months later, when he saw that Urbancorp hadn’t advanced its rezoning application for a year. When the couple found out they would likely never get their house, they were gutted. “If we had known even three years ago that this was going sour, it would have been easy to look for a smaller home at the same price,” Polce says. “You can’t do that in 2016.” The Urbancorp fiasco has warped the contours of their married life. The couple had hoped to have a child by now, but their condo isn’t big enough. They’ve been scouring the north end of the city for properties in the same price range as their Urbancorp townhouse with no luck so far. The average price of a new low-rise home has jumped 33 per cent in the past three years, from $654,147 to $937,689. “Our future is up in the air,” Polce says.

At Urbancorp’s half-completed Curzon development, 45 buyers joined forces and hired lawyers to represent them. It’s expected that the new owner of the land will charge each Curzon buyer a $200,000 premium on top of the purchase prices they negotiated with Urbancorp in 2011. In the meantime, their homes remain half-completed shells in a mud-encrusted construction site, cordoned off with graffiti-covered hoardings. Signs on the perimeter fence warn passersby to stay away.

For Patrick and Jessie Hooker, who have moved out of Jessie’s sister’s basement and are renting a two-bedroom condo downtown, losing their future home meant renting indefinitely. Four-month-old Nathan has his own nursery, but the living room, already crowded with furniture, has little space left over for the deluge of baby gear and toys yet to come. Their rent is about the same as the mortgage payments would have been on their townhouse.

“We’d love to look for a new home, but there’s no point,” Patrick said. “We can’t do it without the money we lost.”

In the months since Urbancorp’s problems became public, Alan Saskin has retreated from public life. He resigned from his spot on the Artscape board of directors and pulled back from the day-to-day management of his company, allowing a court-appointed monitor to handle many aspects of the business. He’s now Urbancorp’s sole officer. Everyone else resigned, including Phillip Gales, Saskin’s son-in-law.

Saskin’s reputation as a businessman is permanently tarnished. He has been struggling to avoid personal bankruptcy. According to court filings, he has no income, and his expenses are being paid out of family trusts or out of Doreen’s pocket. The insolvency proceedings have put a pause on any lawsuits against him and Urbancorp, but it’s only a matter of time before those legal battles resume. Tarion is suing him and Urbancorp over $146,000 in unpaid warranty claims, and the Israeli class-action is still pending.

Urbancorp’s shafted buyers are no longer customers: they’re creditors. They’ll have to wait in line to recover what’s theirs. Among the first to be repaid will be the insolvency monitors, banks, contractors, mezzanine lenders and bondholders who have registered legal claims against Urbancorp’s assets. Whatever is left will go to the pre-construction buyers.

There may be a silver lining. Urbancorp hasn’t gone bankrupt yet, and its raw development land has gained so much value in the past few years that the sale proceeds might cover most of the company’s debts, allowing it to refund buyers’ deposits and even potentially go back into business. As real estate prices continue to rise, condo-dwelling young professionals might be willing to ignore the company’s financial troubles for the opportunity to break into the market. Patrick Hooker, for one, is keeping an open mind. “This hasn’t deterred me from buying pre-construction,” he said. “Maybe I’ll do a bit more research into the builder next time.”