Vancouver Olympic Village development enters receivership

The financial problems with the Millennium Water development are taking the troubled project in a new direction, as the owners go into receivership. “This agreement gives us stability,” said Vancouver city councillor Geoff Meggs.

VANCOUVER

“Now, the milestone payments don’t have to become a recurring crisis. If (the developer) lacks the capacity to pay each time, the damage to the asset will be greater, compared to an orderly approach.”

The City of Vancouver has negotiated an agreement with the owners of the Millennium Water development to put the project into receivership and hand over management to accounting firm Ernst and Young.

Millennium recently failed to make a scheduled loan payment, which raised serious concerns about how the company will pay back its loans on the $1 billion project.

In August, Millennium was supposed to make a $200-million payment, but the city received $192 million and by Sept. 20, a total of $197 had been received. The next payment of $75 million was due from Millennium in January.

“They were facing another deadline in 60 days, which was problematic,” said Meggs. “We always had the option to force them into receivership, but we decided to negotiate an agreement for consensual receivership.”

The owners of Millennium Southeast False Creek Properties, Shahram and Peter Malek, agreed to go into receivership to avoid pending legal action.

The city was preparing to go to the B.C. Supreme Court to petition Millennium into receivership.

Receivership is a form of bankruptcy in which a company can avoid liquidation by reorganizing with the help of a court-appointed trustee.

There are a total of 1,108 units in the Millennium Water project. The marketing company hired by Millennium has managed to just sell 259 units out of 737 market sales units, about 35 per cent of the total. This number includes 223 pre-sales units that were sold last year.

The agreement allows the receiver to make immediate decisions about a new marketing strategy and is designed to secure the payment of about $740 million dollars that is still owed by Millennium to the City. The loan for construction represents about $560 million.

“First, we will sit down and produce a marketing plan that makes adjustments to price,” said Meggs “As part of the agreement, Millennium has pledged other types of security that will be used to close the gaps in the repayment program.”

According to Meggs, cutting prices could reduce the amount of revenue that was anticipated from the sale of the units and create a payment gap.

Almost half of the unsold units left on the market are priced at less than $1 million, but another 24 per cent of these units are priced between $1 million and $2 million.

Twenty eight per cent cost more than $2 million.

About 60 per cent of the 119 market rental units have been rented out.

The city is working with a non-profit housing operator to manage 252 social housing units.

New York-based Fortress Investment Group, which was the developer’s original lender, stopped financing the project.

This move forced the city to buy out the building loan to better control costs and finish in time for the 2010 Winter Games.