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Who’s Right in this Commercial Mortgage Debacle?

17 July 2013

It started off as a commercial mortgage case, and now has turned into so much more.

Who could forget the horrific collapse of the Algo Centre Mall in Elliot Lake last June? Occurring during peak shopping hours, part of the mall literally just fell down, and it killed two women and injured several more. While a tragic accident, it’s now being heard in court who’s to blame for it, and the owners are claiming that they were stressed, naive, and desperate to get rid of the building. The question is, does any of that matter?

RBC is the bank that held the commercial mortgage on the shopping mall and in 2010, they had an inspection performed. It turned out that several structural deficiencies were present, including rusting steel support columns and a deck that had not been properly repaired the first time around. There were also water penetration problems that were so bad they’d cost $3 million to fix. RBC was about to pull the mortgage of $4.65 million, but the owners claim they had no idea of any inspection.

Those owners are Bob Nazarian (the original owner,) and his son, Levon Nazarian.

Levon took over the mall and much of the case after managing the mall had “put his father on insulin.” He claimed that he “just wanted to get rid of it,” and that he was planning on selling. The problem there is that the sales brochures he had put together portrayed the building as strong and stable, and in pretty good condition.

But it takes more than a nice brochure to sell a building. After numerous buyers showed interest and then had their sales fall through, either after further inspection or because they were unable to obtain financing for a commercial mortgage, the Nazarians were left back at square one.

Levon told the court that his brochures were never meant to mislead or misguide, only that they were the result of property naivete.

But it wasn’t naivete that caused Levon to accept two offers for the building on the exact same day in 2011. When that fact was brought up in court, he admitted that was an unethical move, but also pleaded with the court that he was “desperate” to get rid of it.

Still, if that was the case, why wouldn’t they sell it to the previous owners – Elliot Lake Retirement Living – who had owned the mall before and were interested in buying it back for $3 million. It seems as though Levon Nazarian was “desperate” to save his father the stress of the building, but only if it came at the right price.

They also seemed to be penny-pinchers throughout the entire ownership, with one consultant placing a lien on the building after he wasn’t paid for his work. Levon said that the man had “done too much work,” even though many parts of his building were falling away.

The case isn’t over yet, so no verdict has been handed down just yet. Levon will continue taking the stand today, while his father will likely testify next week.

Who do you think is to blame for the collapse of the mall that killed two women? And how do you think this case will turn out?

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