Emergia Inc. has signed a letter of intent to merge with Kraken Holdings as the Dorval, Que.-headquartered company continues a reorganization of its commercial real estate portfolio and operations.
Emergia owns, acquires, operates, manages and develops retail, multifamily, industrial and office buildings — as well as land for immediate developments — primarily in Quebec and Ontario.
New directors have replaced four others who resigned from Emergia’s board at the request of shareholders in April.
Co-founder and former chairman Hasan Al-Shawa, who took the company public and then resigned to focus on other businesses, has returned to the board as an independent director and has been working to resolve some of Emergia’s issues.
These include a cease trade order for the Canadian Securities Exchange that was issued last year because Emergia failed to file audited financial statements for the 2022 fiscal year.
Trading could begin again in August
Emergia has engaged a new auditor and Al-Shawa is hopeful its statements will be filed and its shares will begin trading again by the end of August.
“It’s going to take a whole year to clean everything up and get to where we should be, and we’ll move on from there,” Al-Shawa told RENX during an interview that also included Faraj Nakhleh, who has been serving as an independent director since June 2022 and was appointed the new board chair in April.
“The board took charge of the whole company. We signed right away with Palos Capital to invest $10 million in convertible debentures, and they’re doing their due diligence right now.”
Al-Shawa said Emergia has spoken with a large, Toronto-based firm that’s looking at refinancing all of the company’s debt and raising more money in addition to the $10 million from Palos Capital. He declined to identify the potential financier.
Merger with Kraken
Kraken is a real estate developer and operator in the Abitibi-Témiscamingue Region of Quebec with a current portfolio valued at $121 million that includes multifamily, storage facilities, strip malls and shovel-ready land that is available for development.
“There’s a gigantic shortage of housing there,” Al-Shawa said of the area, which is rich in gold, silver, copper, lithium and other precious metals.
“This group is coming in through a share merger, which is great for us. They’re bringing their team. We’re going to raise money and we’re going to expand in that region through development.”
The goal of Kraken principals Yannick Richard and Jonathan Bourgelas-Nicol is to have a multiresidential portfolio of 2,500 units — including more than 1,000 in Abitibi-Témiscamingue — worth more than $400 million by the end of 2030. A partnership with Emergia could enable it to reach 4,000 units worth more than $650 million over the same period.
“They’re going to end up owning a majority in the company,” Al-Shawa said. “I spoke to most of our shareholders and they’re okay with that.”
Alliston, Ont. land sale nears completion
Emergia’s original business model was based on owning a portfolio of 70 per cent income-producing properties and 30 per cent development assets, but Al-Shawa said it ended up being 70 per cent land and 30 per cent income-producing properties.
While Emergia’s land is well-located, it has high carrying costs and isn’t yet close to being developed. Al-Shawa said Emergia wants to remain in the development business, but get out of the land business.
Emergia is close to selling 100 acres of light industrial-zoned land at 6485 14th Line in Alliston, Ont., about 100 kilometres north of Toronto.
“We could have started building on it right away,” Al-Shawa said. “It could have been a huge cash flow-generating asset now, especially with the big demand for industrial, and it’s right across the street from the Honda factory which announced a $15-billion investment.
“But the previous board wanted to turn it into residential. We’re five years into this and we’re getting nowhere. Meanwhile, we’re carrying it at a gigantic cost every month. So it had to go, unfortunately.”
Disposition of other properties
Emergia is looking to sell a site that encompasses 17 million square feet – with about 10.6 million being developable – in the Eastern Townships town of Bromont, Que.
Emergia’s biggest creditor, which holds about $32 million of debt on the site, has agreed to give the company a two-year extension. Nakhleh is confident that four other lenders owed smaller amounts will do likewise.
“We would be very open if a joint venture partner comes in, retires the debt, takes care of the carrying costs and we remain with them on equal terms,” Al-Shawa explained. “Or we could contribute it to a land bank.
“These options are still on the table. The main thing is we are not going to own large amounts of land with expensive debt for the long term.”
Emergia is also looking to sell 53,000 square feet of land zoned for commercial development in Blainville, Que., just north of Montreal.
“It’s a small part of our strategy,” Nakhleh said. “The big parts are Alliston, which is almost done, and Bromont.”
Seeking to increase share in retail plaza portfolio
Emergia has a 30 per cent ownership stake in six Ontario retail plazas in North Bay, Pembroke, Owen Sound, Brantford, Niagara Falls and Cornwall as part of a limited partnership.
“Our goal is to buy the rest of the portfolio,” Al-Shawa said. “It actually fits perfectly with what we want to do. They’re all leased to AAA tenants and with land for development for an upside.”
Emergia owns 25 per cent of a six-storey, 54,150-square-foot office building at 185 Dorval Ave. in Dorval that has approximately 45,000 square feet of land that can be used for future development — likely a purpose-built rental apartment with retail at grade. The existing building is home to Emergia’s head office.
The Quebec government recently leased office space and has been paying for leasehold improvements at a small office and retail space owned by Emergia on Lepine Avenue in Gatineau, Que.