Sleb, a loft project in a recycled factory on Ontario Street in Montreal, Canada, which was marketed to Irish investors, has run into trouble and is reorganising its financing.

Sleb, a loft project in a recycled factory on Ontario Street in Montreal, Canada, which was marketed to Irish investors, has run into trouble and is reorganising its financing. The developer, Minco Construction, has applied for protection from the courts on a number of occasions since first doing so in 2005 on its Sleb 1 project, but an announcement was made to investors in recent weeks that it was incapable of proceeding with the Sleb 2 building.

The Sleb 2 project was promoted heavily in Ireland, Britain and Canada by Colliers International, with 15 units being sold on the Irish market. Investors had been told that there were some problems with the development but they were still unprepared for the document which arrived informing them that the project in which they had invested was not to be built and offering them the option to switch to an earlier phase of the development.

When the investors were buying into Sleb 2, initially they were under the impression that Sleb 1 was completely sold out, although this was not indicated by the agent. This would not appear to be the case, as it transpires that just 74 of the 103 units available have completed preliminary purchase contracts. Consequently, there are plenty of units available in the first building to cater for all the investors in Sleb 2.

The problem for investors in the project is that it would appear that Minco Construction is incapable of completing Sleb 1 without receiving further substantial funding, which will only be forthcoming if it can present a list of clients willing to buy into the Sleb 1 project to its proposed backer, Legg Mason.

Documentation received by clients suggests that Minco is looking for a loan of $18.3 million to ‘‘complete the renovation of the Sleb Phase 1’’.

On October 18, a letter from Colliers requested that investors ‘‘return to Minco as a group indicating a willingness to exchange to Sleb 1,together with support documentation from a financier or accountant indicating your financial strength and your ability to purchase if required to do so’’.

Irish clients are particularly put out as they say they were never actually consulted on the topic of transferring. On October 17, they received an e-mail from Stephane Miron, a solicitor in Montreal acting for many of the purchasers, saying that an Italian individual who had bought out the debt of the bank who loaned money to Minco was filing a motion to bankrupt Minco Construction. The e-mail went on to state that ‘‘it is in the Irish interest that the bankruptcy does not go ahead so I will confirm that the Irish are negotiating a transfer’’.

A further, and potentially more crucial, issue is that clients believed that their initial downpayment, in the region of €30,000 to €40,000 for most purchasers, would be transferred directly through to the developer, but that insurance had been arranged to make sure that this payment was secure.

It now transpires that Colliers is still unsure if this policy was ever actually activated and clients have been informed that, even if it was, it would only cover half to two thirds of their deposit, as, if enforced, it is limited to a maximum payout of CAD$30,000 or about €21,000.

On October 9, investors received a letter from Colliers stating that Stephane Miron was to attend a meeting with the insurers at which stage ‘‘we will hopefully be able to tell you what exactly the insurance position is’’. One client pointed out that these units were sold on the Irish market in October 2004 and it has taken two years to discover that there may be no insurance in place.

Marcus Magnier of Colliers Jackson Stops in Ireland described the current offer from the developer as ‘‘the only game in town’’. He said that unless the current clients in Sleb 2 decided to switch their money into the Sleb 1 project, there was a very high probability that their investment would be left ‘‘swinging in the wind’’.

Investors who spoke to The Sunday Business Post were very distressed with the situation, saying they doubted the developer’s ability to complete even the first project at this stage and they were looking to have the funds invested so far returned by Colliers.

Colliers says any insurance was only in place for CAD$30,000.They are also unhappy at Colliers treatment of the issue. One investor was encouraged to take an offer of a Sleb 1 unit for a price higher than the original Sleb 2 unit by CAD$12,854 (about €9,075). Magnier said that the units in Sleb 1 were more spacious and, therefore, the clients were actually getting better value for money. He also pointed out that the units were being passed on at the September 2005 list price. He said that this project was in a very good position and was quite close to completion with some units requiring ‘‘nothing more than carpets to complete’’.

A further letter on October 19 stated: ‘‘The Minco Motion to extend the protection of the court has in fact been accepted by the court. I don’t have the details as to exactly how long this protection lasts but it further emphasises the importance of transferring from Sleb 2 to Sleb 1.” Clients were also quite taken aback at the swiftness of the demise of the project stating that ‘‘up until last Christmas we were informed that the project was definitely on track with some minor delays of no great importance’’.

Since that time there have been several letters urging clients to switch over to the first phase of the project. At time of going to press, the Sleb 2 project was still being promoted on Colliers Irish website.

The Sleb story seems symptomatic of the market in general. In May this year, Canada’s Gazette newspaper reported that the country’s housing agency had warned that the growing number of unsold new condominium units in downtown Montreal was threatening the stability of the marketplace.

The Canada Mortgage and Housing Corp (CMHC) noted there were 225 finished and unoccupied condo units downtown, with another 2,200 either planned or under construction. ‘‘The inventory build-up,” it declared, ‘‘is worrisome because only 730 condos were sold in all of downtown last year’’.

Condominium construction has seen phenomenal growth across the Montreal area in the last decade, thanks to rising land costs, smaller household sizes and the desire of ageing buyers to downsize into smaller, easier-to-maintain homes.

Last year, however, the seven-year run of increasing sales for the Montreal new home market came to a halt, when construction fell by 12 per cent.

The CMHC is estimating a further 13 per cent drop this year.

In central Montreal, several large projects appear to be stalled or behind schedule. On Bleury Street, backers of Le Riopelle, a condo-hotel project set for delivery last November, expects to break ground this autumn. Nearby, Le Mosaique Southam, another high-end project, is similarly stalled.

 

Diarmaid Condon is an independent overseas property consultant with significant agency experience.

He can be contacted on his website at www.diarmaidcondon.com