A group of bondholders facing a total loss of $45.6 million is trying to find out what happened to their money in the wake of the Oak Bay Beach Hotel entering receivership.
Bison Properties — developer and owner of the luxury waterfront hotel and spa on Beach Drive — owes $133.1 million to at least 200 creditors. It went into receivership in December, and business services company Ernst and Young took over management of the hotel.
Sales of strata-titled hotel units and condominiums were intended to finance the construction. But only 12 of 100 hotel units and six of the 20 condos ever sold.
The receiver plans to sell the unsold and common portions of the 120-unit hotel. No price has been announced.
However, sale prices do not always cover debts. For example, the Parkside Hotel and Spa, on Humboldt Street in Victoria, sold in 2013 for $23 million after its owner’s finances collapsed. It was built for $60 million. Like the Oak Bay hotel, its guest rooms were sold to individual owners.
It’s uncertain whether bondholders, many of whom invested with the aim of receiving eventual ownership in one of the Oak Bay Beach Hotel’s strata units, will see their money again. That’s because bondholders are behind other major creditors, who will be paid out before them. These include the construction lenders, owed $64.8 million, whose money is secured by a first-priority mortgage.
Bonds were issued through Bison, whose president is Kevin Walker. The hotel opened in 2012, replacing an older and smaller hotel.
Alberta retirees Darlene Belford and husband Rex Swettenham, originally from Vancouver Island, invested $490,000 in a bond. They planned to redeem it for a hotel unit as a ‘home away from home,’ ” Belford said in an affidavit filed in B.C. Supreme Court.
Now that it appears their investment is lost, “our financial position in retirement has been irreparably harmed; the purchase price represented approximately one-third of our retirement savings,” she said.
In the documents, Belford said she represents an Ad Hoc Bondholders’ Committee, made up of 38 of about 51 bondholders.
Bondholders “wish to know what happened to the money that they invested,” Belford said.
The committee is asking the court to approve its request for two fiscal years’ worth of the hotel’s monthly management and occupancy reports, bank statements and payments to staff.
It’s also questioning the apparent early redemption of some bonds. Construction lenders replied that redemptions were legitimate and allowed under the terms of the bond debenture.
Walker said in a court document that decisions around bonds were vetted and approved by professional consultants administering the bond fund.
He said it was Bison’s policy to ensure investors understood the risks of buying bonds, reflected in documents investors were required to sign.
Bison advised prospective investors to receive independent legal advice, Walker said. He also said that Belford had agreed to cancel the real estate contract for a particular unit.
Ernst and Young is questioning the committee’s request for hotel expenditures, saying in a document that it “has been hesitant to provide confidential financial information to an unspecified group of third parties, particularly when the use to be made of such documents is largely unarticulated.”
Meanwhile, bondholder Bruce MacKenzie, a retired pediatric dentist who lives in Central Saanich, said he did his due diligence prior to investing $250,000. He received independent advice and understood that the investment was high risk. “It is like any gamble. Lots of times, they don’t pay off.”
MacKenzie, who is not part of the bondholders’ committee, has been a patron of both the old and new Oak Bay Beach hotels.
“We wanted the Oak Bay Beach Hotel to be re-established. So that was our motivation,” he said Monday.
