WB1200, also called Stewart, is a Westbank Corp. development in Seattle. The buildings are a pair of 47-storey skyscrapers with about 1,000 apartments.Handout
Westbank Corp., a prominent Canadian developer known for its ambitious architecture, is facing problems at several projects in Toronto and Seattle with contractors claiming millions of dollars in unpaid bills.
The number of lawsuits and liens has been piling up over the past year – a particularly difficult period for the industry as borrowing costs and construction expenses soar. More than two dozen construction and trade businesses have been fighting with Westbank over unpaid bills. The allegations have not been proven in court.
The Vancouver-based developer, which incorporates dramatic art at sites such as the Shangri-La hotels in that city and Toronto, said it is not commenting on the details of individual disputes that are subject to continuing negotiation or litigation, other than to say it expects to reach a resolution.
It added that delays caused by constructing through a global pandemic are far from unique to its projects. “Despite the challenging circumstances across the industry, our relationships are strong and construction on our projects is progressing,” Westbank spokesperson Ariele Peterson said.
Like other developers, Westbank has had to contend with the significant spike in costs for materials and labour along with soaring borrowing costs. Residential construction expenses are up 58 per cent over three years. And the cost of borrowing for builders is at its highest level since the turn of the century, with the prime interest rate charged by banks at 7.2 per cent.
The sharp escalations have contributed to financial problems at several other Canadian developers this year.
Sam Mizrahi’s Toronto luxury condo project The One was put into receivership in October by its lenders after it defaulted on $1.6-billion in debt payments. Lenders have put several Vandyk Properties developments into receivership after the Toronto-area residential builder defaulted on more than $183-million in loan payments. StateView, a residential builder based north of Toronto, was placed into receivership after defaulting on $349-million in debt payments.
In Vancouver, residential developer Coromandel Properties filed for creditor protection after its lenders demanded that it repay more than $200-million in loans. And Onni Group, a developer with properties in several North American cities, has been sued by numerous contractors in British Columbia for unpaid bills.
But Westbank, founded in 1992 by current chief executive officer Ian Gillespie, who has made “fight for beauty” a tagline at his company, is one of the largest and most well-known Canadian developers to see such an onslaught of litigation. Although the amounts of some liens are not large, the volume of claims and the litigation is notable, painting a portrait of a developer that is in conflict with its trades on many fronts.
A review by The Globe and Mail of legal action facing 10 other prominent Canadian real estate developers in Ontario shows no similar flurry of claims from unpaid creditors.
Westbank has pushed out completion dates at skyscraper projects in Seattle, Toronto and Vancouver after expanding over the past decade.
In Seattle, more than two dozen construction companies have accused Westbank and its former general contractor, Graham Construction and Management Inc., of not paying them for work at residential complexes called Museum House and WB1200.
The problems started surfacing in 2022 when Westbank removed Graham as its contractor at Museum House, sometimes referred to as Terry because of its location on Terry Avenue. Terry will eventually hold two 33-storey towers with 486 apartment units.
As the general contractor, Calgary-headquartered Graham was in charge of hiring specialists for work such as welding and installing windows. When Graham was removed in March, 2022, its subcontractors turned to Westbank for payment.
The bills started racking up. Twenty-two subcontractors have placed liens, or legal claims, on the Terry project, and/or Graham, Westbank and Westbank’s development company, Icon West.
“Graham and Terry failed and refused to pay,” High Rise Glazing Specialist LLC, said in a lawsuit filed December, 2022, in Washington State’s superior court.
The glazing company is still owed US$1.45-million for work done from June, 2020, through June, 2022, according to court documents. High Rise Glazing and its lawyer did not respond to a request for comment. Graham did not respond to repeated requests for comment. A trial is tentatively scheduled for next year.
Meanwhile, subcontractors continue to place liens against Terry, the most recent one filed Nov. 8 by Zuhause Design LLC for US$231,781.
Under Washington State law, a lien is no longer enforceable after eight months unless the complainant follows up with a lawsuit. However, contractors often do not take that step because the costs of suing can run into tens of thousands of dollars. Although some liens on the Terry project have, in effect, expired, that does not mean the developer has settled the contractors’ unpaid bills.
An active lien typically devalues the property and prevents the developer from refinancing the site, unless the developer satisfies the lien by paying the unpaid bill or arranges to release the lien by purchasing a bond to replace it.
Even though Westbank has released some liens by posting bonds, that does not mean the subcontractors have gotten paid.
That was the situation for Iris Window Coverings NW Inc., which has an outstanding bill of US$123,178 after providing automated draperies for the Terry project. Westbank posted an US$184,000 bond to release the lien. But none of that money has flowed to Iris Window, which is now struggling financially.
“It’s a huge issue. We’re a small company,” said Iris Window president Scott Davidson. “This is a contributing factor to some of our financial challenges.”
A similar story has occurred at WB1200, a pair of 47-storey skyscrapers with about 1,000 apartments also called Stewart, after the street name. Westbank plans to suspend a Boeing 747 fuselage between the towers as a tribute to the aircraft maker’s history in Seattle.
About a dozen subcontractors placed liens against the project and Graham over the past two years, with the latest one filed in December. Zuhause’s Nov. 8 lien is for US$13.5-million. The company started work at Stewart in June, 2021, according to the lien document. Zuhause did not respond to a request for comment.
Westbank was also embroiled in litigation with Graham over a US$50.1-million lien the general contractor filed against the WB1200 project accusing Westbank of not paying for work conducted from April, 2018, through November, 2022.
Westbank took Graham to court to reduce the amount of the lien, and Graham countersued Westbank, which kept the lien active. Graham eventually reduced the lien to US$42.5-million and then released it. But the lawsuit has not been closed, according to court filings.
Experts say a large number of liens filed against a developer is seen as a red flag of problems.
“Typically it means there are serious issues with funding,” said Seth Millstein, a lawyer with Pillar Law PLLC, who has practised construction law for nearly two decades in Washington State.
Westbank has traditionally served as its own general contractor, co-ordinating construction of its projects and hiring the subcontractors. But it broke the pattern in Seattle and Toronto, where it is building offices, condos and rental apartment buildings.
Westbank selected construction company EllisDon Corp. as contractor for two of its Toronto sites: A 57-storey commercial office and residential tower at 19 Duncan St. near the financial district, and an apartment complex of five buildings with 890 rental units at Mirvish Village, the former site of the Honest Ed’s thrift store, a Toronto landmark at Bathurst and Bloor streets.
However, similar to Seattle, the relationship with its general contractor began to fray in 2022, and Westbank took over as its own contractor from EllisDon on both projects.
EllisDon, which along with Graham is one of the country’s top construction management companies, launched a legal action in June against Westbank for missed payments at Mirvish Village. In the same month, EllisDon filed and then dropped a separate claim for $4.4-million it said was owed on Duncan.
Westbank is one of the companies behind the King Toronto condo project currently under construction.Fred Lum/The Globe and Mail
Three other construction companies followed suit and sued Westbank in September and October for unpaid bills over the Mirvish site.
“Transitions of this kind are invariably complex and require time to resolve,” Westbank executive Ian Duke, who leads the acquisitions and development teams, said in an interview in November. He also said the decision to remove EllisDon “is a more disruptive move than we normally want to do,” but he added that discussions and disagreements with trades is a normal part of the business.
“What you end up with in situations like this is a difference of opinion between us and them as to the cost of delays in the project, who should bear the delays and who caused the delays,” he said. ”These are conversations that as a matter of course we have on every project … and obviously we’re having them a little more now because with the pandemic and delays that’s caused.”
But other industry executives warn it can be costly in reputation, time and money to let contractor relationships degrade to that stage.
“That’s a big problem, you don’t mess around with not paying your key trades,” said Bryan Levy, CEO of Toronto-based DBS Developments. “We’d take that very seriously.”
Westbank began in the 1990s, building a couple of shopping malls in the Vancouver suburb of Richmond, and two high-end condo buildings on Georgia Street, as the city started to see an influx of condo-building.
The developer gained more prominence in Vancouver as it took on increasingly high-profile and unique projects: the Shangri-La tower, completed in 2008; the complicated redevelopment of the Woodward’s department store site that combined market housing, social housing, retail and university space, completed in 2009; and the Fairmont Pacific Rim hotel, embellished with poetry on the exterior, and now one of the city’s most expensive hotels.
In 2011, Westbank opened an office in Shanghai, with Mr. Gillespie telling The Globe that the public debate raging in B.C. about whether speculation from foreign buyers was making Vancouver and its suburbs unaffordable was racist and inflammatory.
The following year, Westbank had branched out to Toronto and built that city’s Shangri-La hotel, with a dragon-shaped sculpture in front.
By then, the developer was on a roll, expanding further into Vancouver and Toronto, and eventually into Seattle and San Jose, Calif. It also expanded to Asia, with projects in Tokyo and offices in Taipei, Shanghai and Hong Kong.
Like many other developers, Westbank launched new projects when interest rates were exceptionally low. Between 2010 and 2018, Canada’s prime rate was at or below 3 per cent. Prime never moved higher than 4 per cent until last year. Today, however, it is 7.2 per cent after a series of central bank rate increases.
This is important because construction loans typically have a variable interest rate that is about two percentage points higher than a lender’s prime lending rate.
Some of Westbank’s projects were originally scheduled to be completed in 2021 – before the Bank of Canada and other central banks started raising rates.
In Seattle, WB1200 and Museum House were originally scheduled to be completed by 2021, but Westbank’s website now says WB1200 will be completed in 2024, and Terry will be completed this year. It is unclear whether either will actually be finished by then.
In Vancouver, a 57-storey luxury condo tower downtown known as The Butterfly was supposed to be completed in 2023. But real estate observers estimate it is a year away still, and records show there are no completed sales of the condo units yet.
To look at how Westbank has been hit by the rise in interest rates, The Globe examined its construction loans based on land registry filings. In March, 2018, Westbank took out a $312.7-million loan from HSBC Canada for its Alberni condo project in Vancouver. The loan has an interest rate of prime plus one percentage point, according to public documents. In 2018, the prime lending rate was 3.45 per cent, which meant the interest rate on the loan was 4.45 per cent. Today, the interest rate on that loan would be 8.2 per cent. There is no sign that the loan has been discharged, according to property records from mid-November.
Westbank also took out an $85-million loan from Royal Bank of Canada this past May for a rental project in Vancouver’s West End that has an interest rate of the bank’s prime rate plus five percentage points – now a 12.2 per cent rate – according to mortgage documents registered to the property.
Westbank said construction loans are used to finance the majority of development costs in most real estate projects. “Although they may appear large in a vacuum, they represent a fraction of total project value. We do not disclose the specifics of project financing, budgets or costs, or matters related to our partnerships,” Ms. Peterson said.
Allied REIT, one of Westbank’s major partners in Toronto, is working with Westbank on Duncan and a project called King Toronto, a collection of condo units west of the financial core. Allied has provided loans to Westbank for the two Toronto projects and for two in Vancouver.
“We have complete confidence in Westbank as our joint venture partner,” Allied executive chair Michael Emory said. “Westbank has and will continue to meet all obligations to Allied, just as Allied has and will continue meet all obligations to Westbank.
Craig Macklin, president of Lumbermens Credit Group Ltd., which provides credit risk intelligence for the construction industry, said that while he can’t speak directly to Westbank’s financial position, late payments are becoming increasingly common in the development industry.
“In this environment, the length of time it takes for someone to pay a vendor is being drawn out,” he said. “It’s the cascading effect of less credit and more expensive credit. Most people aren’t going to jump to pay in 30 days any more. The more important you are, they might pay toward something like 45 days.”
Mr. Macklin worries that these delays are putting increasing financial pressure on small suppliers, which have trouble surviving extended cash crises. Westbank’s King Toronto condominium project, for one, has been delayed again because its window-wall contractor, Integro Building Systems Inc., was declared bankrupt on Aug. 31.
His point is simple: When sub-trades can’t pay their own bills, they can’t help finish delayed building projects.
That is the case for Iris Window, the Seattle drapery supplier that is waiting to get paid by Westbank.
Iris Window has struggled to make money on jobs that were contracted at a fixed price that was quickly overtaken by rising inflation and labour costs. “A lot of suppliers wouldn’t hold their prices. In some cases, we had success in passing it along, other times not,” Mr. Davidson, the president, said.
He said Westbank recently contacted him to see if bids he placed years ago for its other delayed project were still good. “We weren’t in a place where we were interested,” said Mr. Davidson. “If our financial situation were different, we might be willing to stick our neck out.”
Housing affordability is a key issue in the provincial election campaign in British Columbia, particularly in major centres.
Here are some statistics about housing in B.C. from the Canada Mortgage and Housing Corporation’s 2024 Rental Market Report, issued in January, and the B.C. Real Estate Association’s August 2024 report.
Average residential home price in B.C.: $938,500
Average price in greater Vancouver (2024 year to date): $1,304,438
Average price in greater Victoria (2024 year to date): $979,103
Average price in the Okanagan (2024 year to date): $748,015
Average two-bedroom purpose-built rental in Vancouver: $2,181
Average two-bedroom purpose-built rental in Victoria: $1,839
Average two-bedroom purpose-built rental in Canada: $1,359
Rental vacancy rate in Vancouver: 0.9 per cent
How much more do new renters in Vancouver pay compared with renters who have occupied their home for at least a year: 27 per cent
This report by The Canadian Press was first published Oct. 17, 2024.
VANCOUVER – Voters along the south coast of British Columbia who have not cast their ballots yet will have to contend with heavy rain and high winds from an incoming atmospheric river weather system on election day.
Environment Canada says the weather system will bring prolonged heavy rain to Metro Vancouver, the Sunshine Coast, Fraser Valley, Howe Sound, Whistler and Vancouver Island starting Friday.
The agency says strong winds with gusts up to 80 kilometres an hour will also develop on Saturday — the day thousands are expected to go to the polls across B.C. — in parts of Vancouver Island and Metro Vancouver.
Wednesday was the last day for advance voting, which started on Oct. 10.
More than 180,000 voters cast their votes Wednesday — the most ever on an advance voting day in B.C., beating the record set just days earlier on Oct. 10 of more than 170,000 votes.
Environment Canada says voters in the area of the atmospheric river can expect around 70 millimetres of precipitation generally and up to 100 millimetres along the coastal mountains, while parts of Vancouver Island could see as much as 200 millimetres of rainfall for the weekend.
An atmospheric river system in November 2021 created severe flooding and landslides that at one point severed most rail links between Vancouver’s port and the rest of Canada while inundating communities in the Fraser Valley and B.C. Interior.
This report by The Canadian Press was first published Oct. 17, 2024.
British Columbia voters face no shortage of policies when it comes to tackling the province’s housing woes in the run-up to Saturday’s election, with a clear choice for the next government’s approach.
David Eby’s New Democrats say the housing market on its own will not deliver the homes people need, while B.C. Conservative Leader John Rustad saysgovernment is part of the problem and B.C. needs to “unleash” the potential of the private sector.
But Andy Yan, director of the City Program at Simon Fraser University, said the “punchline” was that neither would have a hand in regulating interest rates, the “giant X-factor” in housing affordability.
“The one policy that controls it all just happens to be a policy that the province, whoever wins, has absolutely no control over,” said Yan, who made a name for himself scrutinizing B.C.’s chronic affordability problems.
Some metrics have shown those problems easing, with Eby pointing to what he said was a seven per cent drop in rent prices in Vancouver.
But Statistics Canada says 2021 census data shows that 25.5 per cent of B.C. households were paying at least 30 per cent of their income on shelter costs, the worst for any province or territory.
Yan said government had “access to a few levers” aimed at boosting housing affordability, and Eby has been pulling several.
Yet a host of other factors are at play, rates in particular, Yan said.
“This is what makes housing so frustrating, right? It takes time. It takes decades through which solutions and policies play out,” Yan said.
Rustad, meanwhile, is running on a “deregulation” platform.
He has pledged to scrap key NDP housing initiatives, including the speculation and vacancy tax, restrictions on short-term rentals,and legislation aimed at boosting small-scale density in single-family neighbourhoods.
Green Leader Sonia Furstenau, meanwhile, says “commodification” of housing by large investors is a major factor driving up costs, and her party would prioritize people most vulnerable in the housing market.
Yan said it was too soon to fully assess the impact of the NDP government’s housing measures, but there was a risk housing challenges could get worse if certain safeguards were removed, such as policies that preserve existing rental homes.
If interest rates were to drop, spurring a surge of redevelopment, Yan said the new homes with higher rents could wipe the older, cheaper units off the map.
“There is this element of change and redevelopment that needs to occur as a city grows, yet the loss of that stock is part of really, the ongoing challenges,” Yan said.
Given the external forces buffeting the housing market, Yan said the question before voters this month was more about “narrative” than numbers.
“Who do you believe will deliver a better tomorrow?”
Yan said the market has limits, and governments play an important role in providing safeguards for those most vulnerable.
The market “won’t by itself deal with their housing needs,” Yan said, especially given what he described as B.C.’s “30-year deficit of non-market housing.”
IS HOUSING THE ‘GOVERNMENT’S JOB’?
Craig Jones, associate director of the Housing Research Collaborative at the University of British Columbia, echoed Yan, saying people are in “housing distress” and in urgent need of help in the form of social or non-market housing.
“The amount of housing that it’s going to take through straight-up supply to arrive at affordability, it’s more than the system can actually produce,” he said.
Among the three leaders, Yan said it was Furstenau who had focused on the role of the “financialization” of housing, or large investors using housing for profit.
“It really squeezes renters,” he said of the trend. “It captures those units that would ordinarily become affordable and moves (them) into an investment product.”
The Greens’ platform includes a pledge to advocate for federal legislation banning the sale of residential units toreal estate investment trusts, known as REITs.
The party has also proposed a two per cent tax on homes valued at $3 million or higher, while committing $1.5 billion to build 26,000 non-market units each year.
Eby’s NDP government has enacted a suite of policies aimed at speeding up the development and availability of middle-income housing and affordable rentals.
They include the Rental Protection Fund, which Jones described as a “cutting-edge” policy. The $500-million fund enables non-profit organizations to purchase and manage existing rental buildings with the goal of preserving their affordability.
Another flagship NDP housing initiative, dubbed BC Builds, uses $2 billion in government financingto offer low-interest loans for the development of rental buildings on low-cost, underutilized land. Under the program, operators must offer at least 20 per cent of their units at 20 per cent below the market value.
Ravi Kahlon, the NDP candidate for Delta North who serves as Eby’s housing minister,said BC Builds was designed to navigate “huge headwinds” in housing development, including high interest rates, global inflation and the cost of land.
Boosting supply is one piece of the larger housing puzzle, Kahlon said in an interview before the start of the election campaign.
“We also need governments to invest and … come up with innovative programs to be able to get more affordability than the market can deliver,” he said.
The NDP is also pledging to help more middle-class, first-time buyers into the housing market with a plan to finance 40 per cent of the price on certain projects, with the money repayable as a loan and carrying an interest rate of 1.5 per cent. The government’s contribution would have to be repaid upon resale, plus 40 per cent of any increase in value.
The Canadian Press reached out several times requesting a housing-focused interview with Rustad or another Conservative representative, but received no followup.
At a press conference officially launching the Conservatives’ campaign, Rustad said Eby “seems to think that (housing) is government’s job.”
A key element of the Conservatives’ housing plans is a provincial tax exemption dubbed the “Rustad Rebate.” It would start in 2026 with residents able to deduct up to $1,500 per month for rent and mortgage costs, increasing to $3,000 in 2029.
Rustad also wants Ottawa to reintroduce a 1970s federal program that offered tax incentives to spur multi-unit residential building construction.
“It’s critical to bring that back and get the rental stock that we need built,” Rustad said of the so-called MURB program during the recent televised leaders’ debate.
Rustad also wants to axe B.C.’s speculation and vacancy tax, which Eby says has added 20,000 units to the long-term rental market, and repeal rules restricting short-term rentals on platforms such as Airbnb and Vrbo to an operator’s principal residence or one secondary suite.
“(First) of all it was foreigners, and then it was speculators, and then it was vacant properties, and then it was Airbnbs, instead of pointing at the real problem, which is government, and government is getting in the way,” Rustad said during the televised leaders’ debate.
Rustad has also promised to speed up approvals for rezoning and development applications, and to step in if a city fails to meet the six-month target.
Eby’s approach to clearing zoning and regulatory hurdles includes legislation passed last fall that requires municipalities with more than 5,000 residents to allow small-scale, multi-unit housing on lots previously zoned for single family homes.
The New Democrats have also recently announced a series of free, standardized building designs and a plan to fast-track prefabricated homes in the province.
A statement from B.C.’s Housing Ministry said more than 90 per cent of 188 local governments had adopted the New Democrats’ small-scale, multi-unit housing legislation as of last month, while 21 had received extensions allowing more time.
Rustad has pledged to repeal that law too, describing Eby’s approach as “authoritarian.”
The Greens are meanwhile pledging to spend $650 million in annual infrastructure funding for communities, increase subsidies for elderly renters, and bring in vacancy control measures to prevent landlords from drastically raising rents for new tenants.
Yan likened the Oct. 19 election to a “referendum about the course that David Eby has set” for housing, with Rustad “offering a completely different direction.”
Regardless of which party and leader emerges victorious, Yan said B.C.’s next government will be working against the clock, as well as cost pressures.
Yan said failing to deliver affordable homes for everyone, particularly people living on B.C. streets and young, working families, came at a cost to the whole province.
“It diminishes us as a society, but then also as an economy.”
This report by The Canadian Press was first published Oct. 17, 2024.
