Dan Uszynski, president and executive vice president of operations of Big North Capitol Inc., in Kingsville, Ont., on Jan. 24.Dax Melmer/The Globe and Mail
On the one-year anniversary of one of the largest private mortgage insolvencies in Canadian history a group of lenders has turned the millions of dollars they were owed into the foundation of a “mom and pop” private equity company that they believe offers the best chance of recovering their losses.
BIG North Capital (BNC) was formed by a collection of 177 different individuals and corporations that had been in some cases unwitting lenders to close to half the homes purchased by former child actor Robby Clark, who borrowed as much as 100 per cent of the price on more than 600 properties around Ontario between 2019 and 2023. When a severe cash crisis pushed Mr. Clark to file for creditor protection under the Companies Creditors Arrangement Act (CCAA) in Jan., 23, 2024, he was holding onto 405 properties and owed more than $144-million.
The tsunami of debt that washed over Mr. Clark was unprecedented, not least because there was no large financial institution behind it but rather hundreds of so-called “mom and pop” lenders who had been sold on private mortgages and promissory notes by former Mortgage Alliance mortgage broker Claire Drage through her Lion’s Share Group Inc. or Windrose Group businesses.
Dan Uszynski, a retired industrial engineer from Windsor, Ont., was one of those lenders who had worked with Ms. Drage and is now the president of BNC.
“We were on vacation, we were in Hawaii, and we got an e-mail: ‘We’re going into a CCAA,’” said Mr. Uszynski. “We came right back, and we went to Claire’s office. It was a beautiful day the sun was shining … we came in and they were having a group meeting in the middle of the office. Everyone was reassuring us all was well: this was a little blip, everyone was going to recover.”
Like many of Ms. Drage’s lenders, he at first believed her reassuring words, but he also volunteered to serve on a committee of secured lenders (those who lent money registered against property) organized to advise court-appointed lender’s counsel George Benchetrit of Chaitons LLP. It wasn’t long before the scales fell from his eyes, he says.
“Once you realize you’re in a situation where the equity’s not there …” said Mr. Uszynski, who trailed off with a rueful shrug. “When we looked at the facts, the portfolio, it wasn’t worth $155-million in equity. We were guessing, maybe $75-million.”
Still, it took months for the court to wrest control of the CCAA from Mr. Clark – who started off as a driver of the process as a debtor-in-possession – and still months more for all the parties to realize that a sale or refinance of the homes wasn’t going to pay back nearly enough of the outstanding debts. “There were no buyers for the portfolio,” Mr. Uszynski said.
Through 11 months of CCAA wrangling the companies continued to bleed money on operating costs and professional fees, resulting in an extra $15-million of borrowing that was approved by the courts but needed to be repaid. When it became clear that no buyers were forthcoming, the insolvency monitor, KSV Consulting Inc., proposed a credit bid process, whereby those with secured first position mortgages had first crack to convert what they were owed into an ownership stake. The only hitch was that extra debt racked up during the CCAA was going to be split up and tacked onto the price of bidding for each property. In many cases that meant lenders who were owed hundreds of thousands of dollars in mortgage debt had to put in tens of thousands more in cash just to get a chance at recovering their outstanding loans.
But Mr. Uszynski and others on the lending committee had been formulating an alternative that would become BIG North Capital: in return for covering the extra costs of making a credit bid, lenders would transfer the ownership of the homes into the new company and receive shares on a 1:1 basis of the value of their credit bid properties.
When it was all complete in late December, 2024, BNC held 185 properties worth roughly $44-million (current market prices according to Mr. Uszynski). Now BNC’s leadership is formulating a plan to rapidly rehab and rent out the approximately 30 per cent of the rental units in the portfolio that have been vacant for months, if not years.
“We have maybe 25 properties that are really in distress, maybe 10 are totally dilapidated … to the point we have to go to the studs and rebuild them,” John Alegrias, vice-president of real estate operations, who has inspected more than 75 of the vacant units so far this year. “I’m a very fast mover: by mid-February I should have 40 units possibly on the market.”
Mr. Alegrias retired three years ago from a family construction business and before the CCAA he’d built up more than a million-dollar stake in private mortgages with Ms. Drage’s borrower clients over seven years. He was close enough to get an invite to her brokerage team’s Christmas party in 2023, just weeks before the insolvency crisis would put most of his retirement funds in jeopardy.
“She announced she was going to expand to $500-million in assets,” said Mr. Alegrias. “There was some rumours going around while we were there; people asked me how do you feel about Claire? I honestly believed she was true to her word.”
Mr. Alegrias has found that in some cases money borrowed by Mr. Clark was spent on renovations, but in many cases the work was substandard and now needs to be redone.
“There’s three layers of floors, putting plastic over ripped out tile on the washroom. … Crazy renovations: you have a 12.5 inches [entryway] to get into the washroom, that’s not even legal,” he said. “It was weird how they decided to do renovations here and there; it was not consistent. They’d fix one on a street, and three more [on the same street] were not fixed.”
But BNC is not intending to be simply a real estate investment trust where investors might expect an annual return of perhaps 10 per cent. Rob Morrell, vice-president of business development for BNC, said the company is planning to invest in a diverse array of businesses using debt and equity.
While they are not ready to disclose details yet, Mr. Morrell referred to one term sheet for a $70-million deal and the company is looking beyond rental properties into agriculture and other sectors to diversify its holdings.
Some of these deals will take 12 to 18 months to begin to show returns, a potentially scary prospect for a group of investors who have already spent a year or more with non-paying investments. Mr. Morrell, who has spent 25 years working on strategy and brand management in the alcohol and cannabis industries, said that one of the first things BNC did was try to figure out the appetite for risk and the timeline of its shareholders with a survey.
“We asked: ‘What’s your financial interest; did you get in because it’s the fastest way to get out?,’” he said. “Five per cent of shareholders are looking to get out as soon as possible. A third of our investor group say, ‘I’d like to stay in, but I’m going to need some money.’ Two-thirds said, ‘I’m really interested and ready to invest more.’”
He acknowledges some irony in the reality that the equity foundation of the new company is the same Northern Ontario rental market that Mr. Clark bet on, to disastrous results.
“The opportunity Robby was going after was real. How he went about that model was untenable,” Mr. Morrell said.
Mr. Uszynski also believes, with its hard-won experience, BNC might be able to take on more real estate assets, particularly if they are connected to other private mortgage lenders facing a potentially frustrating and lengthy civil court process with insolvent borrowers. “We think we can guide people through CCAA … let’s try to reduce the pain other people might be incurring,” he said.