Let me tell you about surviving and adapting.
In March 2020, Simon Lee owned a six-story office building in downtown Calgary. Built in 1985. Good location. Strong tenants. 95% occupied. Valued at $12 million.
By December 2021, occupancy had dropped to 40%. Tenants had broken leases, downsized, or gone bankrupt. The building was hemorrhaging cash. The mortgage was in technical default due to debt service coverage violations.
Simon faced a choice: Walk away and let the lender foreclose, or fight to save the building.
He chose to fight.
The Property
The building was 42,000 square feet over six floors. Traditional office layout. Nothing special, but well-maintained and in a decent downtown location near the LRT station.
Pre-pandemic, it generated $840,000 in annual gross revenue from office tenants. Operating expenses were about $240,000. Net operating income: $600,000 annually.
Simon’s mortgage was $7.8 million at 5.2%. Monthly payment: $52,000 or $624,000 annually.
His debt service coverage was 0.96—just barely. But acceptable because occupancy was strong and the market was stable.
Then COVID-19 hit.
The Pandemic Impact
The initial lockdowns in spring 2020 seemed temporary. Everyone thought offices would reopen in a few months. Business as usual would return.
It didn’t.
By fall 2020, several tenants gave notice. “We’re going remote permanently. We don’t need office space anymore.”
By spring 2021, a major tenant—accounting for 30% of the building’s revenue—went bankrupt. Their space went vacant.
By summer 2021, another tenant exercised their early termination clause (pandemic-related), paying a penalty but leaving 8,000 square feet vacant.
By December 2021, Simon’s situation was dire:
- Total occupied space: 17,000 square feet (40% occupancy)
- Monthly revenue: $28,000
- Annual gross revenue: $336,000
- Operating expenses: $240,000 (didn’t decrease much with vacancies)
- Net operating income: $96,000
- Debt service: $624,000
He was running a negative $528,000 annually after debt service. He was covering this from personal savings and other business income, but he couldn’t sustain it indefinitely.
His lender notified him that he was in technical default due to debt service coverage falling below required minimums. They weren’t foreclosing immediately, but they wanted a plan.
The Analysis
Simon called us in early 2022.
“I need to figure out if I should keep fighting or just hand the keys to the bank,” he said.
We evaluated his situation:
Option 1: Walk Away
Let the lender foreclose. His personal guarantee meant he’d still owe the deficiency (whatever the lender lost in foreclosure), but he’d be done with monthly negative cash flow.
Financially painful. Credit impact. But it would end the bleeding.
Option 2: Traditional Office Re-Leasing
Keep marketing the space as office and try to find new office tenants to fill the vacancies.
Problem: Calgary office market was oversupplied. Remote work had reduced office demand permanently. Finding traditional office tenants for 25,000 square feet of vacant space would take years, if it was even possible.
Option 3: Repositioning
Convert some or all of the building to different uses. Adapt to new market realities rather than hoping the old market would return.
This would require capital and creativity, but it might be the only path to survival.
The Repositioning Strategy
After researching market demand, Simon developed a repositioning plan:
Lower Floors (1-3): Retail and Service Commercial
Convert the ground floor and second floor from office to retail and service commercial. The location near LRT made it viable for coffee shops, restaurants, medical clinics, fitness facilities, and service businesses.
Middle Floors (4-5): Flexible Workspace and Small Office
Convert to flexible workspace and small offices for startups, consultants, and small businesses who didn’t need traditional office leases. Short-term agreements, shared amenities, flexible terms.
Top Floor (6): Residential Conversion
Convert the top floor into residential condos or apartments. Calgary had approved some downtown office-to-residential conversions to address housing needs.
This was radical. He’d be transforming a traditional office building into mixed-use property.
The Budget:
- Lower floor retail conversion: $400,000
- Middle floor flexible workspace build-out: $250,000
- Top floor residential conversion: $600,000
- Marketing and leasing: $80,000
- Reserves: $70,000
- Total: $1.4 million
Simon had about $200,000 in available capital. He needed $1.2 million more.
And he needed his existing lender to agree to the plan and not foreclose while he executed it.
The Lender Negotiation
Simon approached his lender with the repositioning plan.
“I know I’m in technical default,” he said. “But I have a plan to stabilize this property. I need time and I need you to work with me.”
He presented detailed analysis: market research showing demand for flexible workspace and downtown residential, architectural plans for the conversions, financial projections showing how the building could return to profitability, and a request for 24-month workout period with modified loan terms.
The lender had a choice: Foreclose now and take a significant loss, or give Simon time to execute his plan.
They chose to work with him.
Modified Loan Terms (Temporary Workout Agreement):
- Interest-only payments for 24 months
- Reduced payment to $34,000/month (interest only on $7.8M at 5.2%)
- No foreclosure action during workout period if Simon met milestones
- After 24 months, return to full amortizing payments
- Extension of loan term by 2 years to account for the workout period
This reduced Simon’s monthly debt service from $52,000 to $34,000, giving him breathing room while negative cash flow continued during repositioning.
The Refinancing for Conversion
For the $1.4 million in conversion capital, Simon needed creative financing.
Traditional lenders weren’t interested. The property was in default. The conversion plan was unproven. Too much risk.
We structured this:
Component 1: Mezzanine Financing
A private lender provided $600,000 in mezzanine debt secured by a second position behind the first mortgage.
Rate: 12% interest-only for 2 years. High rate, but this was risky capital on a distressed property.
Component 2: Calgary Downtown Incentive Grant
Calgary had programs encouraging downtown revitalization and office conversions. Simon’s residential conversion on floor 6 qualified for a $250,000 grant.
Component 3: Government-Backed Conversion Loan
The Alberta government had launched programs supporting downtown Calgary office-to-residential conversions. Simon qualified for a subsidized loan of $350,000 at 4% interest over 10 years.
Component 4: Simon’s Capital
Simon contributed his remaining $200,000.
Total Capital Raised: $1.4 million
This was complex financing—a workout agreement with his first mortgagee, mezzanine debt, government grants, subsidized loans, and personal capital. But it gave him the resources to execute.
The Conversion (2022-2023)
Construction and conversion took 18 months.
Ground Floor Retail: Completed by fall 2022. Leased to a café, a medical clinic, and a fitness studio. Long-term leases at market rates.
Second Floor Service Commercial: Completed by winter 2022. Leased to a dental practice and a physiotherapy clinic.
Middle Floors Flexible Workspace: Completed by spring 2023. Marketed as “Hub Downtown”—flexible workspace for small businesses, startups, and consultants. Short-term agreements, month-to-month options, shared amenities.
Top Floor Residential: This took longest. Completed by summer 2023. Four residential units. Sold as condos to young professionals who wanted downtown living.
The condo sales generated $1.1 million in proceeds (after sales costs). This paid off the mezzanine financing and returned capital to Simon’s reserves.
The First Year Post-Conversion (2024)
By early 2024, the building was stabilized in its new mixed-use configuration.
Revenue Breakdown:
- Retail tenants (floors 1-2): $320,000 annually
- Office tenants (remaining traditional office, floor 3): $120,000 annually
- Flexible workspace (floors 4-5): $380,000 annually
- Residential condo fees (top floor, now separately owned): Not applicable
- Total gross revenue: $820,000 annually
Operating Expenses:
- Now slightly higher due to mixed-use operations: $280,000 annually
Net Operating Income: $540,000
Debt Service:
- First mortgage (back to amortizing after workout): $624,000 annually
- Government conversion loan: $42,000 annually
- Total debt service: $666,000 annually
Cash Flow: -$126,000 annually
Wait—he was still negative cash flow?
Yes, but dramatically improved from -$528,000 annually. And the trajectory was positive because flexible workspace occupancy was still building.
The Current Situation (2025-2026)
By 2026, the building has reached full stabilization.
Current Revenue:
- Retail and service commercial: $340,000
- Traditional office (floor 3, now fully leased to tech startup): $140,000
- Flexible workspace (now 85% occupied): $425,000
- Total: $905,000 annually
Operating expenses: $290,000
Net operating income: $615,000
Debt service: $666,000 (first mortgage + conversion loan)
Cash flow: -$51,000 annually
Still slightly negative. But the building is essentially stabilized. And Simon is now exploring refinancing the first mortgage.
The building is currently valued at approximately $10.5 million based on mixed-use revenue. He owes $7.2 million on the first mortgage (paid down from $7.8M) plus $290,000 on the conversion loan. Total debt: $7.49 million.
His equity: $3 million.
When he was facing foreclosure in 2021, his equity was effectively zero. He’s recovered $3 million in equity by fighting to save the property.
What Made This Work
Several factors contributed to Simon’s successful recovery.
Willingness to Adapt: He didn’t cling to traditional office model. He recognized market had changed permanently and adapted.
Lender Cooperation: His first mortgage lender could have foreclosed. Instead, they worked with him. This was crucial.
Creative Financing: He assembled capital from multiple sources—mezzanine debt, government grants, subsidized loans—when traditional financing wouldn’t work.
Government Support: Calgary’s downtown revitalization programs and Alberta’s conversion incentives provided critical capital.
Market Timing: He repositioned during early recovery when conversion programs were available and demand for flexible workspace was emerging.
Execution Quality: The conversions were well-designed and professionally executed. Poor execution would have wasted the capital.
Persistence: From late 2021 to early 2024, Simon operated at significant negative cash flow. He had to cover these losses from personal resources and other business income. Many owners would have given up.
The Lessons
Simon’s case study offers lessons about pandemic recovery and property repositioning.
Markets Change Permanently: COVID-19 permanently changed office demand. Waiting for the old market to return wasn’t a strategy. Adaptation was required.
Mixed-Use is Resilience: Diversifying uses (retail, office, flexible workspace, residential) created resilience. Single-use properties faced higher risk.
Lender Workout is Possible: Lenders often prefer workout agreements over foreclosure. Bring them a realistic plan, and many will cooperate.
Government Programs Matter: Multiple government programs made Simon’s repositioning financially viable. Without grants and subsidized loans, the math wouldn’t have worked.
Capital is Required: Even with grants, Simon invested and borrowed $1.4 million. Recovery requires capital, not just hope.
Timeline is Long: From recognizing the problem (2021) to stabilization (2024) took three years. Property recovery is not quick.
Location Saved Him: The building’s location near LRT and amenities made mixed-use conversion viable. A suburban office property wouldn’t have had these options.
The Risks He Took
Simon’s path was risky.
He invested or borrowed $1.4 million to reposition a property that was already in default. If conversion had failed, he’d have lost everything plus owed the mezzanine debt.
He operated at substantial negative cash flow for three years. This required him to have other income sources to cover losses. Not everyone can do this.
The residential conversion could have failed to sell. If those condos hadn’t sold, he wouldn’t have been able to pay off the mezzanine debt.
The flexible workspace model was unproven in Calgary’s market. If demand hadn’t materialized, that revenue wouldn’t have appeared.
These risks were real. But the alternative—foreclosure and deficiency judgment—was guaranteed loss.
The Alternative History
What if Simon had walked away in 2021?
The lender would have foreclosed. The property would have sold at distressed pricing, probably $6 to $7 million given market conditions. The lender would have lost $1 to $2 million.
Simon would have faced deficiency judgment for the lender’s loss, possibly $1 to $1.5 million. His credit would have been destroyed. His reputation in Calgary real estate would have been damaged.
Instead, he fought. He adapted. He found creative financing. He executed a repositioning strategy.
Today, he owns a stabilized mixed-use property worth $10.5 million with $3 million in equity. He preserved his credit. He maintained his reputation.
The fight was worth it.
Your Recovery Opportunity
Maybe you’re reading this and facing your own pandemic-recovery challenge.
Maybe your commercial property hasn’t recovered to pre-pandemic performance. Maybe you’re struggling with vacancies, reduced rents, or debt service coverage violations.
Maybe you’re wondering if you should keep fighting or walk away.
Simon’s story shows that recovery is possible. Not easy. Not quick. Not without capital and creativity. But possible.
What We Do
At Creek Road Financial Inc., we specialize in workout financing and property repositioning.
We work with lenders on behalf of borrowers to negotiate workout agreements. We structure mezzanine financing, government grant applications, and creative capital stacks for repositioning projects.
We’ve helped property owners navigate pandemic recovery across Canada: office conversions, retail repositioning, mixed-use transformations, and tenant mix changes.
Sometimes we tell clients their situation isn’t recoverable and they should consider orderly exit strategies. Better honest advice than false hope.
More often, we find paths to recovery that property owners didn’t see. Creative financing. Government programs. Repositioning strategies. Lender cooperation. These tools exist. Most property owners just don’t know how to access them.
Simon’s Advice
I asked Simon what he’d tell other property owners facing similar situations.
“Don’t wait until you’re in crisis to act,” he said. “I should have started repositioning in 2020, not 2022. Waiting cost me money and made everything harder.”
“And don’t be afraid to change the business model. I was emotionally attached to running an office building. But the market didn’t care about my attachment. The market wanted something different. Adapt or die.”
He paused. “Also, talk to your lender early. I thought they’d foreclose immediately if I admitted problems. But they wanted solutions, not foreclosure. Bringing them a plan early would have been better than waiting until default.”
That’s wisdom from someone who navigated near-foreclosure back to $3 million in equity.
Four years ago, Simon was facing financial ruin from a property that had gone from strong performer to distressed asset through no fault of his own. Today, he owns a stabilized mixed-use property that survived and adapted to a changed world.
Not because the market recovered. Because he changed what the property was and found financing to make that change possible.
Facing post-pandemic recovery challenges with your commercial property? Contact Creek Road Financial Inc. today. Let’s discuss your situation, explore repositioning strategies, and find financing solutions. Because property recovery is possible. But only if you adapt, find the right financing, and execute with determination.