Condo project stalls after running out of money

Kitchener development in receivership, leaving a legal, financial mess

Developers presold every condominium but still ran out of money to complete a 15-storey tower, leaving a leaky hulk, a big hole and a legal mess in east Kitchener.

Construction stopped in July on the first tower of the Elevate project at 1333 Weber St. E. The tower is 80 per cent complete and “the roof is not watertight, which could lead to significant damage to the project with winter fast approaching,” a Toronto judge found in ordering the development into receivership on Oct. 12.

The site also has a large hole where work had begun on excavation for three other towers. The property is beside the Highway 8 expressway, not far from the Franklin Street overpass.

Developers Werner Leuschner and Kamal Patel launched the project that was supposed to begin occupancy this past spring. Court documents indicate all 177 condos in the unfinished tower were sold, along with 325 units in towers not yet built.

Buyers agreed to pay an average of $470,000 for condos in the first tower, according to a list of buyers and prices. Down payments averaged $92,000.

“The evidence shows that, at present, the project is stalled. Trade contractors have left the site. It is unclear if the site is secured,” wrote Justice Peter Cavanagh of the Superior Court of Justice. “In the circumstances, I am satisfied that it is just and convenient to appoint the receiver.”

Receivership assigns property control to a court appointee who can sell assets to pay outstanding debt. Creditors intend to secure the property and sell it to recover loans.

Lenders are owed at least $64 million, Cavanagh said, and debts are still mounting.

A lawyer acting for the developers declined to comment.

Kitchener council approved the ambitious project in 2020. It’s on the site of a demolished Howard Johnson hotel, wedged between a Beer Store and Hiway Zehrs.

Plans include two other towers at 12 storeys each and another tower at 15 storeys, for a total of 570 residential units.

When the city approved the project three years ago, a city planner said it would help the neighbourhood intensify and promote transit, cycling and walking. City hall hoped the project would be a catalyst for more improvements to the area.

Court filings indicate the condo project has unravelled over 17 months. A lender says the developer began construction on later phases in May 2022 before securing financing for those phases. By December, contractors seeking to get paid registered construction liens against the property.

Documents name up to 30 lawyers connected to the case, acting for contractors, lenders, developers, architects, suppliers, insurers and others

By last March, the development was defaulting on loans and municipal taxes, a lender says. An agreement was reached with lenders to keep the project going, but construction ceased by mid-July as costs ran over and trade contractors went unpaid, court documents indicate. Insurance on the project has not been paid since February.

Documents name up to 30 lawyers connected to the case, acting for contractors, lenders, developers, architects, suppliers, insurers and others.

KSV, a Toronto-based restructuring firm, has been appointed receiver and has put documents online. The firm did not immediately respond to requests for comment.

Receivership was sought by a B.C. investment firm that lent almost $20 million for the project. A different court action related to the project remains unresolved.