Two Vancouver developers are poised to reach a settlement after being locked in a court battle stemming from the troubled Jameson House project at West 838 Hastings Street.
Argo Ventures Inc. is seeking up to $8 million in damages from Bosa Properties Inc. for what it claims is negligent misrepresentation and conspiracy.
The Jameson House saga started in November 2008, when global economic turmoil pushed Jameson Developments Corp., which owned the mixed-use development site, into court protection under the Companies’ Creditors Arrangement Act (CCAA).
Bosa took over the development and completed the project in June.
Argo, which pumped $8 million in financing into Jameson Developments, agreed to terms under the CCAA whereby it would receive proceeds from the project if revenue exceeded $179 million. Argo and Bosa would then split all excess revenue up to $195 million. At that point, Argo would have recouped its $8 million.
The project’s eight floors of strata office space remain vacant largely because of a dispute about how much the floors are worth.
Argo CEO Jason Hong is upset that Bosa CEO Colin Bosa attempted to give pre-sale buyers substantial discounts when, according to Hong, no discounts were needed.
Hong told Business in Vancouver that the discounts would have reduced the project’s revenue to below $179 million and consumed his entire investment.
“They gave $24.5 million of discounts on pre-sales and wiped out our claim,” Hong said. “We have an issue with that. They shouldn’t do wanton discounts.”
But Bosa counters that the discounts were needed to keep buyers happy and to secure an agreement whereby they anted up larger deposits, averaging about 25% of the sale price.
“What Jason is saying is that he had no knowledge of that, which is absolutely false,” Bosa said.
Seaspan Corp. chairman Kyle Washington was the project’s largest single pre-sale buyer.
He originally agreed to pay $18 million for four floors of office space in 2008. But in June 2009, Bosa proposed that Washington get the floors for $13.5 million.
Similar discounts were offered in the project’s retail space, which Hong said reduced pre-sale revenue to $6.41 million from $9.75 million.
Residential tenants for the project’s 138 homes were not left out.
Pre-sale buyers for the units originally agreed to pay $118,717,846, but after discounts that total dropped to $104,383,328.
Bosa said some pre-sale buyers had tried to get out of their contracts during the CCAA protection phase and that providing discounts was necessary to ensure that all the building’s pre-sale buyers were committed to closing their purchases.
Most of the residential and retail discounts were allowed to stand, and the deals closed.
Then in July, Bosa proposed that Washington could pull out of his pre-sale agreement and that Bosa Properties would buy all eight floors of office space for $27.5 million.
Bosa argued that that price was a bona fide offer and that no one in the market was willing to pay more.
But Hong believes it was a conflict of interest for Bosa Properties to be bidding on the office strata units and that the bid was below market value.
Hong then exercised his right under the CCAA agreement to stop Bosa from closing a deal to buy the office strata units.
Bosa filed a BC Supreme Court petition to force Hong to sign off on the discounted sales, but the court sided with Hong.
Hong subsequently filed a lawsuit against Bosa alleging “negligent misrepresentation” and “civil conspiracy.”
Hong had Burgess Cawley Sullivan appraise the office strata units on November 4. It determined that the property was worth $35.54 million – over $8 million more than Bosa attempted to pay.
But Bosa said other strata office real estate deals that were closed during the summer were also in the $465-per-square-foot price range, which is what his offer of $27.5 million equates to.
He pointed to the College of Physicians and Surgeons of British Columbia (CPSBC) buying nearly 60,000 square feet on seven floors at the new office tower built behind the historic Rosewood Hotel Georgia on Howe Street. No one at either the CPSBC nor its broker, Avison Young, would confirm a price for the Hotel Georgia office space.
Hong said the CPSBC deal was negotiated in 2010 when the market was softer. He added that, in September, Bosa closed a deal to sell Jameson House’s third floor for $565 per square foot. The deal, according to Hong, shows that the project’s upper floors are worth more than $465 per square foot.
But Hong and Bosa told BIV at press time that a resolution to their dispute will likely be reached this week.
Details of the settlement have yet to be released. •
