A judge has ordered dozens of commercial and residential buildings owned by Calgary-based Strategic Group Inc. into receivership, rejecting the company’s plan to reorganize under creditor protection.
The order is a blow to Calgary real estate developer Riaz Mamdani, who had sought to restructure Strategic’s Alberta holdings as it struggled to deal with the impact of a lengthy downturn in the province’s economy.
Strategic, one of Canada’s largest private real estate developers and managers, owes more than $650-million on the 56 properties to numerous lenders. It said in early December that it sought court protection for its Alberta properties because of a mass exodus among tenants, many of which either shut down or chose not to stay in their premises.
However, Alberta Justice Karen Horner ordered on Dec. 20 that receiver Alvarez and Marsal Canada Inc. take possession of the office towers, commercial buildings and residential complexes, most of which are located in Calgary and Edmonton.
The ruling came after the lenders opposed the company’s plans to restructure under the Companies’ Creditors Arrangement Act, alleging Strategic was seeking to serve its own interests while circumventing their rights. In a court document, they had sharply criticized the company’s management for not alerting them to the restructuring plans before applying for protection from creditors.
The receiver has the power to manage and operate the properties on behalf of the lenders, according to the court order. The receiver must also retain the employees associated with the various holdings.
Mr. Mamdani’s plans for his company following the loss of about a third of its properties were not immediately known, but he said he intended the business to proceed. He had previously hoped to sell some of the assets.
“This development is consistent with our end goal: to have an orderly disposition of some of our real estate assets to maximize recovery for our stakeholders and ensure our company is stronger moving forward," Strategic said in a statement. “We will work closely and collaboratively with the receiver to ensure a smooth transition and minimize impact to our tenants and residents.”
Strategic’s properties in British Columbia and Atlantic Canada were not part of its initial restructuring plan. Neither were buildings under construction nor the company’s property management, development and construction operations. In Alberta, Strategic has 354 employees.
In an interview last month, Mr. Mamdani said drastic measures were necessary because of Alberta’s severe economic downturn. In Calgary, the downtown vacancy rate has topped 32 per cent because of financial hardship in the energy industry.
“We had more defaults in the month of November of this year than I’ve ever had in my entire career, and do you know what? December got worse,” he said at the time.
Strategic sought to lessen the economic impact in recent years by cutting staff, selling assets and increasing its proportion of multifamily rental properties. It has also converted some commercial space into residential units and storage facilities. These moves were not enough to return operations to profitability, however.
Unlike Toronto and Vancouver, Calgary’s office market has been hollowed out as energy companies have contracted and shed staff, or in the case of many foreign-based producers, sold their assets and left Canada. This has had a ripple effect on all of the support businesses and retail operations downtown and in industrial areas.
Lenders in the case include such companies as Sun Life Assurance Co. of Canada, Bank of Montreal, ATB Financial, VanCity Community Investment Bank, Industrial Alliance Insurance and Financial Services, Royal Bank of Canada and several others.
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Jeffrey Jones