From crisis to recovery - Managing your real estate portfolio through uncertainty - EY
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From crisis to recovery Managing your real estate portfolio through uncertainty
A state of turbulence
How will YOU navigate
through the next few years?
The commercial real estate sector continues to face significant challenges and uncertainty as a result
of COVID-19. The road to recovery is anticipated to take multiple years.
Covid 19
Illustrative Path
Potential positive trigger to the path
efficient treatment or vaccine availability
GDP
Time
A saw-toothed economic recovery
Industry experts have forecasted many potential recovery scenarios that may play out, including
V-shaped, U-shaped, and L-shaped, to name a few. Our specialists at EY believe that a saw-shaped
recovery is more likely as challenges with containing the virus and achieving mass immunization
will vary across geography and likely result in partial shutdowns as infection rates change.
https://www.ey.com/en_ch/long-term-value/covid-19-critical-choices-businesses-should-make
From crisis to recovery | 2
MARKET PERSPECTIVES From crisis to recovery | 3
32 % Average hotel occupancy
across major cities in Canada
Based on recent STR statistics, hotel occupancy as at October 2020 has recovered slightly from
the March lows of 15%, but is still significantly lower than pre-COVID levels. The hospitality sector
will continue to remain in peril until travel patterns resume.
15,000 + Retail store
closings in Canada
According to a several data points, 15,000 to 20,000 retail stores have closed across North America
in 2020, driven by high profile bankruptcies such as Aldo, Reitmans, David’s Tea, Moore’s, etc.
Based on a recent survey by Canadian Federation of Independent Business, one in seven Canadian
small businesses are at risk of closing.
million Square feet of unleased
office space in Canada
According to CBRE, Class A buildings in Toronto made up 50% of all of the available downtown sublease
space, primarily due to the shift to remote working. This has prompted organizations towards further
discussions on organizational strategy with their long-term office requirements. Interest may shift
towards undertaking shorter-term leases with greater tenant incentives.
From crisis to recovery | 4In response to COVID-19, a majority of employers are planning moderate or extensive changes to “reimagine work”. 77% of employers plan to make moderate • Remote work is here to stay — employees
to extensive changes to their workforce cost strategy, and 75% plan to make moderate to extensive changes to business disruption planning. However, the level express interest in maintaining some level of
of willingness to commit varies across industries. remote work when they return to the office,
even though that was not the case pre-
COVID-19. ~63% of employees who did not
Work % of employers planning to make work remotely before COVID-19 want to
Key highlighted focus areas of change
reimagined moderate to extensive changes to work remotely for at least one day a week.
(% = percentage of organizations planning that area of change)
pillar their strategies
• However, ~36% of respondents who worked
remotely full time before COVID-19 indicated
• Redesigning offices/re-evaluating policies on shared workspaces and meeting rooms (51%) they want a mix of remote and on-site work.*
Real estate Workplace
footprint real estate 74% • Measuring the productivity of remote work (49%) • Both Gen X and millennials are similar in their
• Significantly shifting the proportion of remote work vs. in-office work (48%) indication of interest; ~60% indicated interest
in a mix of remote and on-site work. Only 10%
of Gen Z respondents want to work full time
•S
ignificantly reducing the amount of internal travel for company meetings and training (59%) in an office.
Business
Business •S
ignificantly reducing the number of external events that the company will pay for that
travel
travel 74% require travel (51%)
and mobility
•R
emixing the amount of in-person vs. remote visits that employers can make to customers (47%)
• Health evidence procedures (72%)
Workplace
safety 86% • Social distance via floor space/occupancy limits (62%)
Flexibility and • Social distance via protocols (signage, one direction) (56%)
well-being
Remote • Enhancing technology for remote work, idea sharing, communication and knowledge sharing (56%)
work 78%
strategy • Evaluate policies around communicating planned scheduled work hours (54%)
Source: EY survey - EY commissioned the Physical Return to Work
Reimagined (PRWR) survey and JAM analysis (from an interactive
crowdsourcing event) using the MillionYou platform.
From crisis to recovery | 5SERVICE OFFERING From crisis to recovery | 6
Distressed Real Estate (Informal Proceedings)
Assess the situation Manage the crisis Identify opportunities
• Conduct current state market assessment. • Determine the need to temporarily or • Contemplate long term alternative use
permanently close down certain assets. or re-development strategies.
• Assess existing real estate portfolio/asset
against market (i.e. SWOT, benchmarking • Analyze debt covenants and provide support • Explore short-term alternative uses for
analysis, etc.) in negotiating debt modifications/extensions. current assets.
• Determine realistic projections of near-term • Devise a liquidity plan to fund impacted • Identify opportunities to re-negotiate debt
cash shortfalls. properties (i.e. capital re-allocation, short term or increase leverage and extract capital.
credit, etc.)
• Identify strongest and weakest performing • Identify potential investment opportunities.
real estate assets using both qualitative and • Identify expense reduction opportunities.
• Evaluate marketability and saleability of
quantitative factors.
• Apply for government funding programs. certain assets.
• Assess health of key tenants and negotiate
• Assess the need for deferred rental payment • Conduct a cost/benefit analysis for renovations,
solutions with distressed tenants.
schedules, concessions, revised lease major repairs and other projects.
• Develop a portfolio tiering analysis to agreements, etc.
stratify assets.
•U
nderstand the value of assets given current
market conditions.
From crisis to recovery | 7Distressed Real Estate (Formal Proceedings)
• Distressed situations requiring debt or operational restructuring can often times be successfully addressed without the use of a more costly and public
formal insolvency proceeding such as a restructuring under the Companies’ Creditors Arrangement Act (“CCAA”) or a proposal under the Bankruptcy
and Insolvency Act (“BIA”).
• However, formal restructuring or insolvency proceedings are sometimes necessary and helpful tools for distressed companies to obtain a stay
of proceedings against the company to allow time for a successful restructuring.
• EY has extensive experience acting as Court Appointed Monitor under the CCAA and Proposal Trustee under the BIA helping real estate companies
with various issues related to restructuring including:
• Independently assessing restructuring strategies involving owned or leased real estate;
• Helping to optimize real estate assets by providing advice on loan-to-value ratios and appropriate use of leverage, refinancing or divestiture
strategies, and landlord damage calculations;
• Using our strong relationships with banks and other secured lenders to negotiate a commercial path forward;
• Working with banks, investment firms, and other financiers to secure interim financing in order to address immediate cash flow requirements;
• Assisting with lease or contract renegotiations and contract disclaimers;
• Assisting with renegotiating supplier terms and other strategies to stabilize operations and secure support throughout the supply chain;
• Assisting in communication strategies with the media, trade associations, governments, unions and various other stakeholders;
• Assisting in the preparation of sale and investment solicitation processes for a streamlined and court approved sales process; and
• Assisting in the preparation and presentation of a plan of arrangement to a company’s creditors to restructure the companies debt
and/or equity stack.
• EY also has extensive experience acting as a Court Appointed Receiver and Trustee in Bankruptcy of several real estate companies.
From crisis to recovery | 8WHY REAL ESTATE RESTRUCTURING From crisis to recovery | 9
•E
Y is the market leading restructuring advisory practice in Canada having supported the successful execution of many of Canada’s largest real
estate restructurings.
Restructuring •W
e work with companies, their lenders and other stakeholders to develop creative and unique solutions to restructure businesses and maximize
experience recovery for stakeholders.
•W
e are Licensed Insolvency Trustees who are highly respected in Canadian Courts and have acted in the capacity as CCAA Monitor, Trustee and as Receiver
for a significant number of real estate filings.
•W
e have broad, deep and well recognised credentials across the Canadian real estate industry, serving property developers, investors, owners,
and operators.
Real estate •O
ur national team has experience advising clients across all different types of asset classes, including hotel, apartment, retail, land, office, etc.
experience •O
ur team reviews, values and analyzes over CAD$50 billion of commercial real estate properties (both income producing and development) annually,
and have assisted in the underwriting of over $5 Billion of commercial real estate debt and advised clients on the acquisition and disposition of over
$15 Billion of real estate assets.
•E
Y brings a broad array of technical resources and expertise from across the functional areas of EY in a single team.
Seamlessly •T
his results in seamless collaborative and integrated advice that helps ensure all critical issues will be considered and analyzed with a focus on strategic
integrated and transaction objectives.
solutions
•O
ur diverse perspectives and skillsets allow us to support you through every step of the way.
•D
rawing on our expertise and professionals across Canada, and taking into account provincial cultural, legislative and regulatory differences, we will utilize a tailored
Teaming and and collaborative approach in each assignment to assist in assessing all options and potential risks.
collaborative
•O
pen and constant communication will allow for seamless knowledge transfer.
approach
ur team holds relevant credentials in real estate (i.e. AACI, Brokerage), finance (i.e. CBV, CFA, CPA) and restructuring (i.e. CIRP, LIT).
•O
From crisis to recovery | 10SELECT SUCCESS STORIES From crisis to recovery | 11
Walton CCAA – Restructuring & Transaction Advisory
EY acted in its capacity as Court-appointed monitor of Walton International Group Inc. (“WIGI”), • Assisted Walton through the entire transaction process, including transaction strategy, marketing,
who was granted creditor protection, to conduct an orderly Sale and Investment Solicitation Process due diligence and transaction close.
(“SISP”) of various development land parcels located in Ontario and Alberta, with a particular focus
• Contacted over 200 potential investors and purchasers in the sale process, including over 40 from
in Edmonton.
outside of Canada.
Value Delivered • Successfully obtained competitive bids on many of the residential and industrial development lands
in Alberta (Edmonton and Calgary) and Ontario that resulted in a transaction of over $100M, which
• Assisted Walton in soliciting both asset sale proposals and also investment proposals which were
exceeded appraised values in a challenged market.
aimed to re-capitalize the entities and infuse new equity into the assets.
Asset portfolios:
Brantford Alliston Ottawa
• 1,000 acres Residential Industrial Lands Lands • 24 round 1 bidders
invited to round 2
• 3 markets
Stony • 5 parties awarded
• Commercial, Industrial Woodhaven Pilot Sound
Industrial transaction
and Residential
• Over $100MM
• 200+ potential buyers Point in sale proceeds
McConachie Henley Heights
Trotter
Vita
Crystallina
From crisis to recovery || 12
12SNS Property Finance – Restructuring & Transaction Advisory
EY advised an international property finance lender through the process of winding down an $18 billion Value Delivered
portfolio of commercial and residential real estate loans and real estate owned. EY assisted management
• Managed the disposition of a portfolio of $500 million in non-performing loans and prepared
with global restructuring issues and analysis. EY ran several large non-performing loan sales. EY also
potential alternative exit strategies for each remaining real estate loan in the portfolio.
assisted the bank in foreclosure proceedings and took over asset management responsibility for real estate
projects across North America and Europe. • Developed business cases to support increased funding for projects that were incomplete where
the additional investment yielded positive returns.
EY successfully ran a sale process for a number of development projects that were unfinished. Zach
Pendley led the disposition process for all defaulted loans / real estate projects across North America. • Sold over $2 billion of real estate projects that were owned or in the process of foreclosure by the bank.
Assumed responsibility for Oversaw completion of the Led the disposition of Sold a 600 acre distressed Successfully restructured
completing construction Westin Resort in Cape Coral, a defaulted loan on residential community a $100M loan on a senior
and selling 88 units at 333 FL and sold to private equity The Shipyards mixed-use (Summer-lake) in Orlando, housing project in Port Credit,
Sherbrooke in Montreal post foreclosure development in FL to Starwood Capital ON with Diversicare
Collingwood, Ontario
From crisis to recovery || 13
13Luxury Hotel in Downtown Toronto – Restructuring and Strategic Analysis
EY advised an international lender on the valuation and business review of the Trump International • Held discussions with hotel management and lenders to determine various cash inflows
Hotel, a luxury hotel and residence in Toronto. Responsibilities included the creation of a cash flow and outflows
model used to calculate the fair value of the hotel and residence as well as quantitative analyses to
• Assembled and analyzed pertinent economic and market data through research and discussions
determine potential exit opportunities for the lender. EY also advised InnVest on the acquisition of
with industry experts
the Hotel, including understanding the complex cash flow dynamics of the existing operations,
as well as the proposed conversion to a St. Regis branded hotel with Marriott. • Calculated the market value of the hotel under various appraisal methodologies and procedures,
including a reconciliation to a final value
Value Delivered • Developed an appraisal report under AACI standards, including all appropriate appendices and language
• Conducted a site inspection of the hotel including sample hotel suites, residential units, parking lot,
• Supported InnVest in the acquisition of Trump Hotel, including the creation of a complex cash flow model
restaurant, spa and other common areas.
that details the various inflows and outflows between the numerous stakeholders and owners, as well as
• Reviewed and analyzed supporting documentation on the hotel operations, including hotel management an assessment of the terms and conditions of the management proposal from Marriott St. Regis.
agreements, agreements with third parties, etc.
From crisis to recovery || 14
14SELECT
CREDENTIALS Walton CCAA SNS Property Finance Trump Hotel Toronto
EY acted in its capacity as Court-appointed EY advised an international property EY advised an international lender on
monitor of Walton International Group finance lender through the process of the valuation and business review of the
Inc. (“WIGI”), who was granted creditor winding down an $18 billion portfolio Trump International Hotel, a luxury hotel
protection, to conduct an orderly Sale and of commercial and residential real estate and residence in Toronto. Responsibilities
Investment Solicitation Process (“SISP”) loans and real estate owned. EY assisted included the creation of a cash flow model
of various development land parcels management with global restructuring used to calculate the fair value of the
located in Ontario and Alberta, with issues and analysis. EY successfully ran a hotel and residence as well as quantitative
a particular focus in Edmonton. sale process for a number of development analyses to determine potential exit
projects that were unfinished. opportunities for the lender.
Resort in the Rockies Olympic Village Cineplex Odeon Corporation
Acted as advisor for a resort company Acted as Receiver and Manager related to EY, acting in its mandate as Monitor
owning land and several resort structures, 763 market for sale and 119 market rental in the CCAA proceedings advised on the
including a hotel. EY developed a strategic condominium units and 64,000 square renegotiation of more than 60 leases and
financial and transactional plan including feet of commercial tenancy strata units disclaiming of more than 40 leases resulting
restructuring options, prepared a detailed at the Olympic Village in Vancouver. The in more than $20 million of incremental
CIM and financial analysis, and provided assignment included validation of market annual cash flow savings as part of the
guidance to the client on its strategy, pricing, leasing of commercial strata units overall restructuring of Cineplex Odeon.
and negotiations with its lender. and the sale of the rental condominiums.
From crisis to recovery | 15Hotel Portfolio in Edmonton Strategic Group Portfolio Reitmans (Canada) Ltd. Confidential Company
EY advised an Alberta lender on the – Impairment and Lease Analysis
EY was appointed Receiver by multiple EY acted as court-appointed Monitor
valuation and business review of three lenders on various assets in the Strategic in the CCAA proceedings of Reitmans EY advised a publicly-traded technology
hotels located in the Greater Edmonton Group Portfolio. EY developed a unique (Canada) Ltd., with other 576 stores. company on a scenario analysis for
area. Responsibilities included the creation strategy as well as alternatives for EY oversaw their financial and operational a portfolio of leases, which detailed
of a cash flow model used to calculate each asset, is currently managing the restructuring plan which included the the financial impact of termination
the fair value of the hotel as well as marketing and disposition process for wind-down of two banners and disclaiming and sublease options. The scenarios
quantitative analyses to determine the various assets. multiple store leases. EY also supported considered current and future market
potential opportunities for the lender. the company with financial modelling conditions, including COVID-19’s impact
post-CCAA and post-COVID realities. on the leasing market.
Oak Bay Beach Hotel Terrace House Development Bondfield Construction The Aldo Group Inc.
EY, acting under its mandate as court EY acted in its mandate as Monitor with Acting as CCAA Monitor, EY oversaw the EY acted as Monitor in the CCAA
appointed receiver of the Oak Bay Beach enhanced powers in the CCAA proceedings completion of over $1 billion of large scale, proceedings of the Aldo Group, one of
Hotel undertook a sales process and of the Terrace House development, a infrastructure and construction projects. Canada’s largest shoe retailers. In its role,
oversaw the orderly disposition of the proposed mass timber residential tower in EY facilitated extensive negotiations to EY oversaw the restructuring process,
asset. For this hotel on Vancouver Island, Vancouver. EY managed site preservation assign various construction projects to third including the sale of equipment from store
EY developed the sales process, marketing services while administering a sale and party contracts to minimize surety losses. locations and negotiations with landlords for
materials, and ultimately ran the sales investment solicitation process resulting in their retail locations throughout both the
process to completion. numerous acquisition and investment offers. United States and Canada.
From crisis to recovery | 16EY | Assurance | Tax | Strategy and Transactions | Consulting For inquiries, please reach out to a member of our Real Estate Restructuring team:
About EY Zachary Pendley Neil Narfason
EY exists to build a better working world, helping create long-term value for clients, Senior Vice President Senior Vice President
people and society and build trust in the capital markets. Enabled by data and technology, (Toronto) (Calgary)
diverse EY teams in over 150 countries provide trust through assurance and help clients
grow, transform and operate. Working across assurance, consulting, law, strategy, tax and zach.pendley@ca.ey.com neil.narfason@ca.ey.com
transactions, EY teams ask better questions to find new answers for the complex issues O: 416 943 5465 O: 403 206 5067
facing our world today.
William Jegher Kevin Brennan
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ED None
Duncan Yang Brian Denega
Vice President Senior Vice President
This publication contains information in summary form, current as of the date of publication, and is intended (Toronto) (Toronto)
for general guidance only. It should not be regarded as comprehensive or a substitute for professional advice.
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