(Bloomberg) -- Canada’s Groupe Mach Inc. is acquiring residential properties with close to 2,000 units as part of a deal that will see it take over $415 million of mortgages from a crumbling real estate entity.
The buildings were part of Groupe Huot, a Quebec-based diversified company that faced a liquidity crisis because of rising interest rates this year and saw a number of its businesses placed into a bankruptcy process. The company, controlled by Stephan Huot, owned residential and commercial properties, a medical transportation service and even a manufacturer of space-ready technical clothing.
The Huot empire’s debts totaled about C$1.2 billion ($886 million), a number first reported by the Journal de Quebec newspaper and confirmed by Bloomberg News.
Montreal-based Groupe Mach will buy about half of the outstanding debt and underlying assets. An agreement was reached with first-rank and second-rank creditors, mainly banks and institutional lenders, and approved by the Superior Court of Quebec on Friday.
Some private investors will lose the millions of dollars they had placed with Groupe Huot, but Groupe Mach has agreed to give them a minority stake in the assets as an act of good faith.
“We will have to refinance this portfolio,” Groupe Mach President Vincent Chiara said in an interview. “The portfolio’s average rate is not far from 10%, whereas the market may be at 5% or 6%. Out of C$600 million, that’s C$24 million a year that goes down the drain. We need to stop this.”
Founded in 2000, the company has expanded to over 250 properties, representing 42 million square feet, more than three times what it owned a decade ago, according to the firm.
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It’s not the first restructuring of a large Quebec real estate business this year. Groupe Selection, based near Montreal, has been sold in parts after filing for creditor protection. The company had more than 60 residential buildings, mostly retirement homes, and land properties in Canada.
Stakes in assets worth close to C$4 billion ($3 billion) were sold off in the restructuring process, according to Christian Bourque, a partner at PricewaterhouseCoopers LLP, the court-appointed monitor.
“The canary in the mine of a recession, it’s always a real estate tycoon that goes down,” said Bourque. “The first victims of rising interest rates are often real estate developers, who were also exposed to non-performing real estate sectors such as retirement homes.” The restructuring left Selection’s Real Bouclin with almost nothing of the empire he had built.
--With assistance from Paula Sambo.
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