Eron Gateway Investor Report |
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Funding Requirements At the time of our appointment, project construction was close to a standstill due to lack of payments to contractors and suppliers. The project needs an immediate injection of new funds to re-start and complete the project. Prior to our involvement, Gateway had arranged for a short term mortgage in the amount of $4.0 million from Paragon Properties (Finance) Ltd. Provided this additional financing is obtained, Manulife will apparently advance a further $2.3M of its approved, but not yet funded financing. The Paragon financing is a bridge financing mortgage designed to be a short term vehicle. The term is for six months with an option to renew for a further six months with a payment of a fee. The interest rate payable is 12.68% per annum. The security for the loan is a second charge behind Manulife's first (all Manulife properties) and a first charge on residual lands. This will require further postponement of Eron's mortgage. This is expensive short term financing. However, the project needs immediate financing as currently construction is close to a standstill due to lack of payments to contractors and suppliers. Other key considerations include: Timing- the Grande Prairie area is experiencing early winters which would preclude the contractors from getting the asphalt base down and allowing stores to open during the winter. As well, many national tenants will not open on a gravel parking lot or driveway. There is also a concern about potential damage to existing infrastructure due to inclement weather conditions. Momentum- the market place in Alberta is experiencing a major thrust, particularly in the Grand Prairie area and northern communities. If arrangements are not concluded forthwith the contractors and suppliers will withdraw from the project and the momentum built over the last twenty four months will stall or erode to a point which it will make it very difficult to re-attract tenants and trade suppliers. New contractors would probably require retainers and up front payments prior to commencing work. Builders liens- have been filed in the approximate amount of $4,600,000. Contractors are presently holding back construction. Manulife- we understand Manulife has delayed funding of its mortgages as they relate to Mark's, Mohawk and Burger King mortgages. We have been informed however, that upon confirmation of funding by Paragon, that they will continue funding. Servicing road- part of the funds required are for the completion of 110 Street which is a serviced road north of 100th Ave. dissecting the main site and providing additional access to current tenants and future development sites. This will also allow fragmenting and/or sales of individual parcels to separate purchasers or users. We are continuing negotiations with Paragon to secure financing to restart the project. |
It would appear that the amount to be raised for this project was $20,000,000.
According to Eron's records how much was actually raised for the project?
Approximately $22,000,000.
According to Eron's records how much was advanced to the project?
The Eron records are incomplete - at this stage the property development manager has indicated that its records would suggest that approximately $17,000,000 may have been advanced to the project.
What happened to the rest of the money?
It was either used by Eron to pay commissions, fees or interest owed to other investors. Also, potentially some funds could have been invested in other projects.
What security was taken on the Project?
Eron has a mortgage in the principal amount of $20,000,000.
Are there any mortgages or other loans in priority to the project security?
The following three mortgages held by Manulife on specific buildings appear to have priority:
- Totem Building $2,250,000 interest 7.625%, and maturing April 1, 2002
- Staples Building $1,925,000 interest 8.75%, and maturing November 1, 2001
- Kelsey's Building $ 630,000 interest 9.0%, and maturing December 1 ,2001
Total of $4,805,000.
The following mortgages of about $4.5 million have been approved, but are unfunded by Manulife:
- Mark's/Petland $3,350,000, interest 6.93%, 5-year term.
- Mohawk/Country Style $677,000, interest 7.0%, 5-year term.
- Burger King $565,000, interest 7%, 5-year term.
Total of $4,592,000.
What is the value of the project?
The project was appraised in June of 1997. We also commissioned a brief update to this prior appraisal. In summary, based on these appraisals, it appears that potentially 50% of the market value of the project could be eroded if a distress sale was contemplated now. In that event the Eron investors would see little, if any, of their investment recovered. There appears to be an opportunity to significantly increase the amount of realization ultimately available to the investors if at least Phase 1 of the project is completed.
Are there any other security or guarantees which might increase recovery on the project?
At this time, it appears that the underlying project property will be the only source of recovery.
Will I get my money back?
It is too early to tell definitively how much of your money will be recovered. However, at this early stage it appears unlikely that full recovery will be realized.
When will I get any money back?
It is likely to be many months before any money is available to investors.
We caution you that the information available to us is still incomplete and limited in scope. Nothing in the foregoing should be construed as guaranteeing any return of funds. We will keep you informed on a regular basis and will issue a further project update on or about November 30, 1997.
In the meantime if you have any further questions or information concerning the project, we can be reached by in writing at the above noted address or by fax at (604) 688-6128, clearly marking your fax as relative to the "Gateway Power Centre" project.
Yours truly
Price Waterhouse Limited
Judicial Trustee
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