November 10, 2008

Project Financing

Permit deadline passes for Sky Towers development

RICHARD GILBERT

staff writer

The global credit crunch has created a serious problem for the Sky Towers development in Surrey, B.C., after the developer was unable to secure financing for the project and missed a deadline for crucial permits.

Units in the Sky Towers development, adjacent to the King George SkyTrain station in central Surrey, were first put on the market in November 2007.

The B.C. Real Estate Development Marketing Act required Young In Development to file a disclosure statement in October 2007.

It allowed the developer to market Sky Towers without obtaining a building permit or financing for a period of nine months on certain conditions.

“Those conditions allow marketing if the estimated date for the issuance of a building permit and for obtaining a satisfactory financing commitment, as disclosed in the disclosure statement, is nine months or less from the date the developer filed the disclosure statement with the superintendent,” said a recent press release from the B.C. Financial Institutions Commission.

Marketing must stop if building permits or financing has not been obtained by the end of the nine=month period.

An amendment to the original disclosure statement, that outlines the necessary building permit or financing, must to be filed before the developer can continue marketing the project.

According to Jay Mitchell, the deputy superintendent of credit unions, trusts and real estate with B.C.’s Financial Institutions Commission, no such amendment was ever filed by Young In Development.

More importantly, an amendment to the disclosure statement was not received within 12 months after the initial document was filed in October 2007.

“They can market for a total of 12 months and at that point there is a rescission right that kicks in,” said Mitchell, adding that it means the pre-sales purchasers can cancel the purchase agreement at any time.

“All the deposit money is with a law firm and the process for getting the money back is in the purchase and sales contract.”

Mitchell said the developer must now decide whether to hold on to the land or look for financing to start the project again. If they decide to proceed with the project a new disclosure statement needs to be submitted.

The 901-unit Sky Towers development sold out within 30 hours over a weekend in November 2007.

A record 545 units were sold on Saturday, surpassing the previous one-day sales record. The remaining 356 units were sold on Sunday.

There were 880 buyers who put down deposits on pre-sales agreements.

If a large number of people ask for their deposits back, it would be more difficult for the project to get financing.

Earlier in October, Jung Development’s five-tower Infinity project was forced to seek court protection from creditors when its main financier, the American investment bank Lehman Brothers, collapsed.

The first of the 36-storey towers in the 1,400 unit project is completed and occupied.

Two additional towers are three-quarters built and zoning approval has been put in place for the final towers.

The developer has brought in consultant PricewaterhouseCoopers to try to find a new developer as a partner to complete the project, which sits across the street from Sky Towers site.

Jung Development and Young In Development are not legally connected, but have the same owner.

Editor’s note: A representative of Young In Development would not supply his name, so his comments have been left out of this story.

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