A condominium development by Urbancorp has rankled buyers when the company cancelled it's Kingsclub condo project with plans to build rental apartments instead on the King St. West site. The project is pictured on Jan 28 2015.Fred Lum/The Globe and Mail
A high-profile Toronto condo developer is facing panicked investors in Israel, where the company raised the equivalent of more than $60-million last year, amid the resignation of its Israeli law firm, a potential class action lawsuit and questions over the company's corporate governance.
In filings with Israeli securities regulators this week, Urbancorp said it had delayed releasing financial statements for 2015 to investigate a series of financial issues it warned "may have significant bearing" on the company. The developer, which is based in Toronto, went to Israel last fall to raise money by issuing bonds on the Tel Aviv Stock Exchange. The bond issue attracted several large institutional investors in Israel, the Haaretz newspaper reported.
The company's update came days after Tarion Warranty Corp., which provides warranties for new homes on behalf of developers, said it was planning to revoke the registration of 17 Urbancorp projects because of a large number of claims and a lack of financial disclosure by the builder.
Urbancorp has appealed the decision, which would allow it to continue with existing projects but prevent the company from undertaking new ones. In its Israeli financial filings the company said it expects to settle the dispute "in a short period of time" rather than proceed with a lengthy appeal.
The news sent Urbancorp's bond price plummeting more than 40 per cent this week, Israeli media reported. The company's bonds, which paid a coupon rate of 8.15 per cent, fell to the equivalent of junk bond status, with an effective 53-per-cent yield, the Haaretz report said.
Urbancorp also reported that one of its Canadian-based directors, retired B.C. investor James Somerville, had abruptly resigned from the board on Monday, less than a month after he was appointed. The company's Israeli law firm, Shimonov & Co., also announced it had resigned in late March over a series of unresolved disputes.
The company's audit committee said it is investigating other financial issues, including a writedown of some of Urbancorp's geothermal assets. (The company advertises geothermal heating and cooling technology in several of its condo projects.) It is also examining the circumstances surrounding an agreement with Urbancorp's CEO, Alan Saskin, in which he agreed to inject $12-million into the company as part of the bond offering.
The company announced that Mr. Saskin had transferred the funds in December. However, Israeli media reported that Urbancorp later revealed that Mr. Saskin had mortgaged some assets to take out a loan from a non-bank financial institution that came with "considerable restrictions" and later reduced the amount contributed to $10-million.
The loan was with the same financial institution that received the majority of the proceeds from the bond issue, Israeli business publication Globes reported. Investors have petitioned to launch a class action lawsuit against the company over concerns that Mr. Saskin had violated the terms of his financial commitments.
Urbancorp is one of Toronto's best-known condo developers. Launched in 1993 by Mr. Saskin, a former Cadillac Fairview executive, the company has built dozens of condos and other housing developments in the Greater Toronto Area.
However, buyers have become increasingly vocal as some of the company's projects have been cancelled or delayed. Urbancorp cancelled one condo development in Toronto's King West neighbourhood, known as Kingsclub, last summer, with plans to shift toward rental apartments. Several contractors have registered construction liens against another project in the city's Leslieville neighbourhood.
Calls and e-mails to Urbancorp's head office in Toronto went unanswered Tuesday.