Agent Will

Oh boy!  Another development two actually) goes into receivership.  Chandler Developments H+H (downtown Vancouver) and Garden City (Richmond) have run out of money and will be taken over by the becoming ubiquitous Bowra Group (who just took over Sofia).

Not good news… but not entirely unexpected.  I am not going to focus on the failure to complete but rather the much bigger story that lies behind it.  This is a story of inside deals, of greed trumping the image marketed, of future home owners (otherwise referred to as “the little guy”) getting taken out by a group of cronies.

You see, Chandler has been in a lawsuit going back to 2006 in which partners in the project started suing each other.  There were claims of double-selling and fraud.  The Vancouver Sun’s Fiona Anderson on July 27, 2006 reported it as:

Real estate marketer Bob Rennie has been added to a lawsuit involving a number of real estate projects and two former partners with checkered business pasts.

Mark Chandler has accused Rennie and Chandler’s former business partner, George Dengin, of conspiring to force Chandler to give up a number of real estate developments, including Tribeca Lofts in Yaletown and H+H, a 22-story tower at Homer and Helmcken, so that Dengin and Rennie could take them over. Chandler also claims that Rennie and his company Rennie Marketing Systems breached marketing agreements by disclosing and misusing confidential information about the projects.

The allegations were made in a counterclaim Chandler filed along with his statement of defence to a claim brought by Dengin in June. Rennie swore an affidavit in support of Dengin’s claim saying that Chandler had failed to account for a number of units sold in the projects and cited other instances of “unusual or apparently dishonest conduct.” Rennie was the man who introduced the two former partners.

After the Statement of Claim and affidavit were filed, the B.C. Financial Service Commission ordered the Chandler-Dengin partnership to cease marketing units in Tribeca and H+H, as well as Garden City Residences in Richmond and Hamlin Mews at 37th and Oak.

The counterclaim alleges that Rennie and Dengin “determined to . . . undertake activities . . . designed to destroy [Chandler and his company’s] ability to proceed with their current and planned real estate projects with the objective of destroying [their] reputation and causing [them] to abandon their interest in their real estate project, leaving the equity therein to [Dengin’s company] and to Dengin and Rennie.”

None of the allegations have been proven in court.

Chandler entered a plea agreement in 2003 arising from 13 charges of fraud, theft and forgery in Arizona. He was ordered to pay $189,500 in restitution, placed on three years’ probation and deported back to Canada. Dengin, a former Vancouver stockbroker, had his license revoked for five years in 1990 for trading infractions.

Now you got to love that.  A convicted fraudster met a fellow busted rule violator and thought they could make a great team.  They went out and got the best marketer in the city (Rennie) to carry out their plans and well it all went sideways they started suing each other.  I am NOT in any way saying that Rennie or anyone in his company was a party to the shenanigans (we don’t get to use that word often enough).

But that was 2006.  This is 2008.  What happened?  The CBC reports it as:

Two more condominium projects in the Vancouver area have run into financial difficulties, leaving dozens of purchasers in limbo.

The Chandler Development Group Inc.’s H&H Yaletown project in Vancouver, and the Garden City building in Richmond have been placed in the hands of a receiver, the CBC has learned.

Almost 250 condominiums in those developments have been presold. Until this week, purchasers had no idea the developer was in trouble.

News that the Chandler Development Group is facing financial challenges comes on the heels of another developer, the Eden Group of Companies, citing financial difficulties for a decision to halt its third development in Vancouver in less than four months.

The Sophia on E11th Avenue and Sophia Street in the city’s Mount Pleasant area went into receivership on Feb. 18 and the receiver, The Bowra Group, has 21 days to submit a plan to the courts.

Bowra has also been appointed to make sure that the H&H and Garden City projects get finished, builders get paid, and owners get their condos.

H&H is a 192-unit building, while Garden City is comprised of 108 units, according to a receiver manager’s report to the B.C. Supreme Court.

Both projects were scheduled to be completed by the end of June 2008.

“The company was running into cost overruns, they were running out of cash and I think the lenders wanted to complete the project,” said Bowra Group President David Bowra.

“But they weren’t convinced it could be completed without the assistance of a third party. So they decided to apply for a receiver to be appointed.”

The receiver has discovered that 23 condos in the Chandler Development Group projects were allegedly sold to insiders at prices well below market value, Bowra said.

They may get to keep their condos, but will likely have to pay today’s prices, he said.

It appears that the other buyers will get their condos for the price paid as there is enough money available to finish the job.

The emphasis is mine.  It would be the same story as the Sofia or most any other failed project in the world if it weren’t for the admission that the equivalent of insider trading had occurred.  And it looks like those insiders are about to get their comeuppance, as well.  You see, we are in a housing boom.  We are also in an affordable housing crisis.  When there are legitimate home owners to be wishing to purchase a presale getting shut out of sales and then being, in effect, taken for some seriously larger money (which they often cannot afford and are then shut out of the market) it weakens the industry’s image as a whole.

How prevalent is this?  Well, I’m sure it depends on the developer but from one personal experience I can say that it is unlikely I will bring any of my clients to their showroom ever again.  There was one project (which shall remain nameless) which sold 198 out 0f 202 units to Insiders before the VIP (without realtors - dirty tactic, btw) or the VIP (with realtors) or the general public.  How many classifications of buyer can one developer have, anyway?

Now, I’m no socialist by any stretch of the imagination but I do believe in fairness and the viability of the open market.  When property (or anything for that matter) is transacted behind closed doors and then resold to an unsuspecting public at “justifiably” inflated prices we have a ponzi scheme.  Some will claim the housing market is one great ponzi scheme but this Chandler bit is purely organized consumer-screwery.  Let’s just hope those insiders who got in on the whole sham do not cost the legitimate buyers who likely planned their life around the impending move.

I should also note that the failure of the developer in no way automatically reflects on the quality of the construction or the development itself.

If you are going to go the pre-sale route, do not let these recent bad apples turn you off.  Investigate your developer and see what else they have done.  Find out their track record.  If they try to dissuade you from using a realtor that should be a warning sign.  And, most importantly these days, find out what assurances the developer can make that your purchase will be completed on time and as promised.  If they cannot assure that will happen then what recourse will the give you.  If those answers do not satisfy you then please reconsider whether a pre-sale is right transaction for you.