Fortress Assists in Sale of Downtown Toronto Development Site
Friday May 17, 2019
The Charlotte Adelaide Tower (CHAT) was proposed as a 46-storey condo project in the heart of the King West corridor at the southwest corner of Charlotte and Adelaide Streets.
A challenging site from the onset, it was abandoned by the original developer and subject to numerous site constraints. In 2014, it was purchased by a Fortress related entity to protect the original lenders secured on title and bring forth a new vision. A development team was assembled to propose a new plan for the site, and unfortunately that plan was rejected by the Ontario Municipal Board in October 2018. This was despite the backing of a team of industry leading consultants and experts that strongly believed and argued that the plan represented an appropriate intensification for a site in the downtown core. The loss at the OMB was a substantial set back to the project and viability of a stand-alone development on the lands. The OMB decision also did not provide any recommendation or guidelines for an acceptable development yield, adding further complexity to the evaluation of alternative plans to develop the site.
Since the OMB decision came with no allowances it meant a complete re-design and going back to the starting line. Upon being denied, the senior lender moved immediately to sell the site to recover their position. An emergency refinance of the site earlier in 2019 allowed for a short window of time for ownership to try and salvage maximum value for all stakeholders. Fortress began working on a potential sale of the site and negotiating with potential buyers to determine the highest value for all involved.
Vince Petrozza, COO of Fortress, spearheaded negotiations to sell the site and worked relentlessly to ensure the best possible terms were put forth for all stakeholders in the project. “While we knew the site did not retain the same value it would have had as an approved site, we still believed the value was there for someone,” said Petrozza. “I approached several groups and the eventual purchaser saw the most value as it completed their existing neighbouring parcel. This allowed for us to negotiate an ‘upside’ in the sale that could give lenders an additional future payment for the site once it was approved.” Fortress negotiated a bonusing provision that provides for an increase in the base purchase price in the event that certain density targets are hit by the purchaser.
On April 4, 2019, FAAN Mortgage Admin agreed to the sale of the site which discharged the syndicate mortgages from the property and exited the lenders. Details of the sale can be found in FAAN’s most recent report to court, where items 64-70 speak to the CHAT project (begins at the bottom of page 20). FAAN who is the court appointed trustee for these mortgages completed their own due diligence before agreeing to the gross selling price between $18.45 million and $23.65 million –- for the CHAT Property, which will provide recoveries of approximately 45% to 88% of the principal amounts advanced by the CHAT investors.
Fortress continues to work diligently with its partners as well as FAAN to bring the best value forth for all projects in their portfolio. This exit is an example of Fortress’ principals coming up with a solution on a site that had lost viability after the OMB declined the original proposal. The value of Fortress management experience and skill set has been acknowledged by the Trustee in its report to court: “given the Fortress Parties’ industry experience and familiarity with the projects, the Trustee recognizes that there are circumstances where a Fortress Party’s involvement in a transaction can be accretive and benefit the Investors (item 119 in the May 10th report to court).” Key industry relationships Fortress has maintained and fostered allowed for the CHAT site to achieve its highest and best value as part of a greater land assembly.