At the January 27th, 2015 Special Shareholder’s Meeting where the Letter of Intent (LOI) with Tribute was ratified, explanations were offered as to how assets would be handled and how three neighbouring properties would add support to EM2 redevelopment.

When the Estonian House Ltd (EHL) board was asked by one of its shareholders “How is ESK being compensated for their properties?” the answer provided by Raivo Uukkivi was: “They are selling their properties to the Estonian House for fair market value.” As was noted in the meeting minutes, that general plan was confirmed by the Estonian Foundation of Canada (Eesti Sihtkapital Kanadas – ESK):

“Eva Varangu, the Vice President of ESK addressed the shareholders, in order to explain their position regarding the ESK properties. She stated that the ESK agrees with the proposal presented by the Estonian House to its shareholders. She stated that all three adjacent properties, currently owned by ESK, would be made available (to) the Estonian House Redevelopment Project. It is ESK’s belief that it is in the best interest of the Estonian community to consolidate activities wherever possible and to cooperate as much as possible. Because ESK is a registered charity, it cannot become a partner with the Estonian House or enter into a Joint Venture with a for-profit firm. She recounted that the first two properties were purchased by ESK in 2007 when they became available for sale in order to form a strategic asset for the Estonian community. In 2011, the Chester Hill property was bought for the same reason. She reminded shareholders that ESK has helped fund the redevelopment project in the past but that ESK has not been an active participant in the project since 2012. An MOU was signed in 2012 between ESK and EM to include ESK properties in the RFP/RFQ process. As a result, the Estonian House has first right of refusal if ESK decides to sell the properties. In return, ESK will require a return of its initial investment plus a fair ROI. At this date, the final agreement has yet to be formed.” (Quoted from the Minutes dated Tuesday, January 27, 2015 recorded by Markus Alliksaar, Secretary)

Having 4 properties bundled under a single transaction with the eventual developer is practical solution. All combined, the Estonian House (958 Broadview), the ESK office (956 Broadview), the second half of the semi-detached (954 Broadview) and the house along the laneway (72 Chester Hill) offer a developer a sizeable area in a neighbourhood primarily composed of 20 to 40 foot wide lots that range between 80 to 100 feet deep. As long as EHL and ESK come to a fair valuation for these assets, then all should be fine for the developer going forward. So far, that final valuation has yet to be declared.

To create that single bundled transaction, a number of details need to be taken care of. For one thing, the 3 neighbouring properties are currently owned by multiple parties. When the semi-detached properties of 956 and 954 Broadview became available in 2007 they had one owner. On the date of purchase, ESK bought 956 Broadview but its sister-semi #954 was purchased by 6 individuals as tenants-in-common. (Use links below to access the Service Ontario title search documents.)

954 Broadview Ave, Service Ontario Record
Purchase date: August 10, 2007
Price: 305,000.00
Seller: Karimalis
Purchaser/ Owner: 6 individuals, tenants-in-common (current and former ESK Board members)
Usage: Rental Income

956 Broadview Ave, Service Ontario Record
Purchase date: August 10, 2007
Price: 305,000.00
Seller: Karimalis
Purchaser/ Owner: National Estonian Foundation of Canada
Usage: ESK Office

In 2007 ESK was regulated, in part, under Ontario’s Charities Accounting Act and as explained in Carter’s Law Bulletin # 192:

(Charities Accounting Act) section 8 restricted ownership of real estate by a charity in Ontario by requiring that a charity that holds land for a charitable purpose could only hold such land for the purpose of its actual use or occupation for that charitable purpose. A charity which held land for over three years, and during those three years had not used or occupied that property for the charitable purpose, nor was likely to do so in the immediate future, faced the prospect of having the Public Guardian and Trustee vest that property in itself in order to sell it and use the proceeds for the charity’s charitable purposes. http://www.carters.ca/pub/bull...

In short, Section 8 meant that ESK couldn’t justify owning 954 Broadview as a real estate investment unless it was intending on using 954 for its own operations. That ownership restriction ended in 2009 with the passage of Bill 212, the Good Government Act (“GG Act”). The GG Act allowed charities to own real estate like any other investment and allowed charities to own those investments for as long as they brought value to the charity. As early as 2010, ESK could have taken ownership of 954 Broadview from the 6 well-intentioned, current and former Board members.

In 2011, 72 Chester Hill came on the market. There was a definite benefit for the Toronto-Estonian community to gain that asset. For one thing, bordering the Eesti Maja parking lot as it does, the location enhanced the potential of expanding Estonian activities on Broadview. Considering how real estate prices were growing and have grown since, any “prudent investor” with cash would have made that investment. But this particular ESK investment wasn’t made with excess cash in hand. A financing package provided by Estonian Credit Union (ECU) was significant, and it meant that ESK had to pledge 956 Broadview as collateral for the loan that supported the purchase of 72 Chester Hill. (Use links below to access the Service Ontario title search documents.)

72 Chester Hill Rd, Service Ontario Record
Purchase date: July 08, 2011
Price: $715,000.00
Seller: Chyung
Purchaser/ Owner: National Estonian Foundation of Canada
Usage: Rental Income

The purchase price of 72 Chester Hill was $715,000.00 and on the day ESK bought the property they were furnished with a loan of $1,000,000.00. Since ESK borrowed more than the cost of Chester Hill, they had to provide their office property as collateral for approximately $285,000.00 of debt. When that purchase of 72 Chester Hill was being financed it might have been the right opportunity to reorganize the ownership of 954 Broadview. But that opportunity wasn’t taken, so 954 couldn’t be used as collateral. To understand why real estate purchases might have been structured the way they were, you might also want to refer to:
Ontario’s Trustee Act https://www.ontario.ca/laws/st...
Responsibilities of directors of charities as outlined by the Attorney General of Ontario https://www.attorneygeneral.ju...

Following the original plan Raivo Uukkivi outlined in 2015, if Estonian House Limited (EHL) were still going to buy the neighbouring properties and bundle everything into one piece for a developer, then EHL has 2 negotiations to complete. EHL will have to execute 2 purchase-sale agreements with ESK for 956 Broadview and 72 Chester Hill, and then a separate agreement with the 6 current and former ESK Board members for 954 Broadview. When 72 Chester Hill and 956 Broadview are sold, and after ECU’s mortgage is paid, there should be a fair amount of equity benefiting ESK activities. How the sale of 954 Broadview adds equity to the Madison Project will be seen in the future. Do the 6 well-intentioned owners declare the investment income at time of sale, pay the capital gains tax, then gift the remaining proceeds to ESK and get a tax receipt to complete the transaction?

Bundling these properties today seems more complicated than it needed to be. Estonian House Limited by its own charter was established to own property for the benefit of Estonian-Canadians. Perhaps it would have been more pragmatic for EHL, or some type of holding company, to purchase neighbouring properties over the years. EHL could have manage those assets, generated rental/lease income and made itself more sustainable, perhaps even remained profitable. Certainly, EHL would have been more valuable. Moreover, from a loan-to-value perspective Eesti Maja could have provided ECU greater collateral for financing the purchase of 72 Chester Hill. Even if the property values of 954 and 956 were combined as collateral, Eesti Maja was still more valuable in 2011. In retrospect, if EHL owned the other properties today then the plan to sell to a developer would have been much less complicated, required far less legal work and, thereby, provided more equity to the community at large.

The Madison Project has apparently advanced to the point where funding is in place, staffing for the project continues to increase, processes are moving forward with Build Toronto and cheering Annex residents are being told that shovels could be ready to go into the ground next fall. It might seem like an understatement but if these 4 East York properties aren’t already bundled for a developer, someone has to get a move on. The Madison Project is supposed to be funded by the 4 Orgs with one of the Orgs providing the brunt of the investment. EHL has to buy 3 properties, choose a developer/buyer from a bidding process and get an advance on some of that purchase price well before next fall.

Liken all of this to a board game. One player, the Scottie Dog, has St. Charles Place and Virginia Avenue. Player 2, the Racecar, is a quiet player and only has States Avenue. That purple corner looks like three solid properties that should have red hotels on them, but since they’re split up between two players, the rent continues to be cheap. You’re the Wheel Barrow holding on to the pair of Baltic and Mediterranean. You put hotels on the properties early on but you’re not raking in cash because the other players jump over your properties with every roll of the dice. The 4th player, Top Hat, is quietly sitting on some houses over on Atlantic Avenue, Ventnor Avenue and Marvin Gardens. Everyone is a bit tight with cash so even the greens, Park Place and Boardwalk haven’t been spoken for. Top Hat knows he’s got the most expensive rents in the game thus far. When anyone lands on yellow, Top Hat will just scoop up what they own and take them out of the game.



Allan Meiusi
EWR Contributor
Related: Toronto Eesti Maja tulevik
Madison Project “Due Diligence” Part 1
Madison Project “Due Diligence” Part 2
Madison Project “Due Diligence” Part 3 – School Season Neighbours
Déjà vu all over again - Part 4
Part 5 – "Cash out, but will it cash in?”
Part 6 – "11 Madison: Check the box.”
Part 7 – "Tired, but still solid.”

Eestlased Kanadas

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