The meeting with Klein Group signed owners this morning went very well. It was quite upbeat with a close to full house, along with 17 owners that had emailed Klein Group their wishes for voting on the proposed instructions from all the signed owners to Klein Group. After presenting a summary of the history of the AP assembly from the first meeting with the AP strata councils to today, and an update of market for downtown commercial properties, Klein Group also presented some information on the new assembly they are working on across Hornby Street from AP3.
About 18 months ago, that 87 unit strata was faced with the need to have substantial special assessments to maintain their building. There is only a single council involved, who appointed a building committee to help evaluate the options after they received their Depreciation Report. They analyzed the options and brought the matter to their AGM where the vote was 85% in favor of going to market rather than put in an awful lot of money into their 40 year old building. Klein had been shortlisted and then chosen to try to do an assembly. The legal review of the Klein Group Listing Agreement was completed in 3 business days. Over the course of the next 2 months, all council and building committee members signed with Klein.
Once that was completed, Council and Building Committee members assisted Klein Group in reaching out to owners, without spending any strata funds. Klein Group then contacted the owners and had 80% assembled and listed in 6 weeks.
The Klein Group Listing agreement there is identical in form and fees (including the incentive fees) to the Listing Agreement he is using at AP. There was one provision that differed based on an internal allocation on sale proceeds in their strata documents. So, at least one other strata in our immediate vicinity acted without hesitation and is moving forward to market in the first quarter of 2018.
Turning to our situation at AP, there are 3 stratas whose councils have historically never worked well together and were not willing to recommend any brokerage. That changed with the new AP3 council, which has recommended the Klein Group assembly approach.
Looking at where our overall ownership group is at the moment, it is splintered. On the one hand, there is the Sotheby's offer which has not yet completed on any units. The prospective purchaser has no experience in large strata acquisitions or developments, and does not appear to have the financial wherewithal to complete an assembly. Owners with Sotheby's contracts have not received any funds, to our knowledge. It was my guess at the beginning that they were likely in to try to flip units rather than actually purchase the AP site. This looks more and more accurate.
On the other hand, there is the APSC push to have owners sign with Michelle Yu Group. The APSC has received some kind of advice from Ed Wilson. In one document he says that agreement was reviewed by the APSC lawyer (which seems to be him). At the public meeting, he said that it was not his agreement, that he would have put additional provisions in it, but that it was based on another agreement he had done. He recommended owners sign it while at the same time telling owners that the assembly would fail, holdouts would get higher prices and to come to him for a Bill 40 windup in a year. Taken together, those various statements are not particularly clarifying.
There is a new managing broker and ReMax supervising MYG. The previous managing broker resigned two days after receiving the letter detailing problems in the MYG Listing Agreement that referred to Klein Group without permission and in a disparaging way. The new managing broker has confirmed that the offending paragraph was inappropriate and should not have been in the agreement. All MYG agreements will have to be re-signed or at least amended in writing.
There is another issue with the MYG agreement, relating to insurance. Ed Wilson's memo dismissed the insurance issue but it seems the Klein Group is indeed correct – the conventional insurance realtors have does not cover this kind of transaction. Additional insurance is required. Further, the insuror for realtors in BC confirmed that a transaction where two brokers “cooperate” as Ed Wilson's memo stated to be appropriate and no problem, is simply not insurable – just as Klein Group had stated.
We will have to see where this goes as to ReMax and MYG, but it appears that the information presented by Klein Group is again correct. The advice distributed by the APSC is incorrect. It was not checked or approved by ReMax lawyers prior to being promoted to APOG owners.
This brings us to the final question presented by Klein Group. Neither the Sotheby's purchase agreement nor the MYG Listing Agreements includes a requirement that there be a minimum percentage of units, even on a best efforts basis, to go to market. Therefore, Klein Group owners are at risk that one or both of those brokerages might go to market with a blocking position of 20% on the units. This blocking position might be sold at a premium, but whether it sells at a premium or not, it will diminish the value of the units owned by Klein Group listed owners as well as owners that have not listed with any firm.
Klein's proposal was to see how his listed owners wanted to proceed as he views his fiduciary obligation to the owners as paramount. He was quite clear that the best price will be reached, and the most effective approach is, by assembling 80% to 100% and then going to market. He was clear that there was a risk in doing nothing as the other brokerages approaches would likely undermine the value of units owned by those listed with him as explained above. Finally, he was emphatic that there was no certainty that there was a market at all for a 27% interest in the AP complex.
The question posed to his owners was whether or not they wanted to instruct Klein Group to proceed in parallel with 1) the primary instruction being to continue to seek to assemble 80% to go to market as originally contemplated; and 2) to test the market with the 27% now listed with Klein Group (plus whatever additional units join for the assembly going forward) when he goes to market with the property across Hornby Street.
The vote in person and by email instruction was unanimous. 100% of the units participating voted to proceed in parallel.
This means that for those that have yet to sign with Klein Group, a decision point is here - whether or not to participate in an assembly. For those that have signed with Sotheby's, this is important: Sotheby's represents the buyer, not the sellers. This means that those owners have no representation. They could sign with Klein Group right now.
Why should they? Besides getting representation, I have confirmed with Klein Group that they would exclude their fee from any currently signed Sotheby's offer to purchase, so that if Sotheby's client does complete on the contract, there would be no fees payable to Klein Group. If Sotheby's doesn't complete, they would be included within the Klein Group listed ownership group when they go to market.
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