Hotel caught by timing of creditor protection
CBC News
Posted: Sep 23, 2011 9:15 AM AT
Last Updated: Sep 23, 2011 1:33 PM AT
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Homburg companies operate several buildings in downtown Charlottetown. CBCA case of bad timing has added an element of risk to the P.E.I. government's loan for the construction of a hotel in downtown Charlottetown.
The $16.3 million loan by the Crown corporation Island Investment Development Inc. was one of three made to Dyne Holdings, which is owned by Homburg Canada REIT, in 2008 for buildings in Charlottetown.
Both Dyne Holdings and Homburg Canada REIT remain solvent, but a third Homburg company, Homburg Invest, has applied for creditor protection, and Homburg Invest currently holds the loan for the Holman Grand Hotel.
The loan was transferred because Homburg Canada REIT is a real estate investment trust, and tax laws prevent REITs from owning properties under construction. The hotel is now completed, and would have been due to be transferred back to Dyne Holdings, but that had not yet happened when Homburg Invest filed for creditor protection on Sep. 9.
Despite the changed status of the loan, Innovation Minister Allan Campbell reiterated this week he is not concerned.
"We certainly still feel confident that the province's position is secure," said Campbell.
The province is the first mortgage holder on the hotel, but does not expect a default. The government is cautiously optimistic that either Homburg Invest or Dyne Holdings will operate the hotel and repay the loan in full. Payments on all three loans are currently up to date.
Opportunity cost
While the loans may yet be repaid, Homburg's financial difficulties have shone a spotlight on how deeply the province is committed to the Homburg companies.
Sunny Marche wonders what else that $30 million could have been spent on. CBCSunny Marche, a business professor at Dalhousie University in Halifax, has serious reservations about this kind of government intervention in real estate markets.
"Once you spend [that money] there is a cost that is not that obvious, and that is the opportunity cost," said Marsh.
"It means that that $30 million is not available to do something else in the community … What other good could this $30 million have done for the taxpayers of P.E.I."
Homburg Invest's court-appointed monitor is expected to give its next update on the company's financial position on Oct. 7.
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