The 'nightmare scenario': High interest rates are pushing more developments into receivership

financialpost.com:

To passersby, the construction site at Yonge and Bloor in downtown Toronto where The One, an 85-storey mixed-use development is slowly taking shape, looks just like any other, albeit on a grander scale. Workers are making progress, pushing up past the 50th storey as the building’s facade begins to take shape.

Behind the scenes, however, it has been anything but business as usual.

The project, launched by developer Sam Mizrahi and partner Jenny Coco nine years ago, was forced into receivership in October after a key lender grew impatient with delays, rising debt and ballooning costs. Last month, Mizrahi’s firm was removed as construction manager.

While The One’s struggles are drawing attention due to its $2-billion price tag, it is not alone. Facing a dangerous combination of higher interest rates and rising construction costs, an increasing number of residential construction projects have been forced into receivership over the past 12 months, a trend that industry watchers say is likely to get worse, even as Canada faces a severe shortage of residential housing.

“Receiverships are probably going to continue to be an issue for developers this year because of the elevated interest rates,” said Marlon Bray, a cost consultant at global real estate advisory firm Altus Group.

Higher rates, he said, can deal a double blow to developers, eroding demand for units while driving up financing costs, especially when delays hit.

It's almost impossible to come back from receivership these days, or extremely difficult

Though he notes former U.S. president Donald Trump is often cited as an example of a developer who was able to successfully navigate the receivership process, most don’t fare so well.

“Receivership is a nightmare