Having thoroughly read the article, i disagree that it is a "bombshell". Merely a sensationalized headline derived from one court case. the bottom line of the article is One guy successfully backed out on his purchase. is that enough to start the article with "Millions in deals could be on the verge of unravelling at the exclusive Trump tower"???? No. Its a total exaggeration and I am still of the opinion that it doesnt relate to the construction thread. Bombshells are when construction is put on hold or financiers back out or the building is deemed unsound....one guy backing out of his agreement isnt a bombshell, its a guy backing out of his agreement and a toronto star reporter glorifying it
That sounds like it has at least as much to do with the personal fortunes of the individual investors as it does with the actual market values of the units. Really, even if people do walk away from their deposits the developer could still potentially make money given what the real estate market is currently like (as opposed to what it was a few years ago when those agreements were signed)
Published On Fri Dec 16 2011
By Susan Pigg, Business Reporter
Millions in deals could be on the verge of unravelling at the exclusive Trump tower with just a few weeks to go until Toronto’s newest luxe hotel and condo development is slated to open its doors.
A number of condo purchasers — including Irish investors who reportedly bought a whole floor of the five-star project being built by Talon International Development Inc. — have tried to back out of deals inked pre-recession.
Recently a U.S. buyer — citing two years of delays in the 60-storey project and “financial difficulties” — won the right from the Ontario Court of Appeal to renege on his $709,000 condo/hotel suite purchase at the landmark Bay and Adelaide property.
The decision could have serious implications for Toronto’s overheated condo industry given the record number of condos — 43,000 units — slated for the GTA.
It may also give ammunition to investors, jittery about the state of the world economy and fearful Toronto’s condo market may be heading for a stumble, if not a fall.
“The lesson here is that developers have to be very careful to set a realistic (completion) date or unhappy purchasers may take advantage of the failure to complete and successfully terminate,” says Toronto lawyer Bob Aaron, who is representing a U.K. couple refusing to make final payments on an $830,588 Trump condo/hotel unit.
While not happy about the November 8 ruling, Talon has returned the $212,700 deposit to U.S. buyer Richard Schneeberg, who refused to sign off on further extensions.
Other buyers have tried the same tactic, The Star has learned, but as a way of getting out of deals no longer feasible because the purchaser has lost money on the stock markets or is fearful the economics no longer make sense.
Talon insists delays in the 261-unit project were unavoidable — 148 days were lost to weather alone — and that just a “handful” of buyers have tried to renege on deals penned five or six years ago.
“We have absolutely no intention of giving money back. And we are going to enforce the agreements to the fullest,” says Talon chief executive Val Levitan.
Second thoughts are “very normal” in condo projects, says Talon chairman Alex Shnaider, a Russian-born steel-industry magnate who raised eyebrows back in 2005 when he announced Canada’s first Trump tower at condo prices more than double everything else being built in Toronto.
“It’s up to purchasers to make an informed decision. They aren’t buying cupcakes. I would imagine these people are intelligent enough to go to their lawyer or investment consultant to discuss what they are buying.”
But the doubling of real estate prices across the GTA over the last decade, coupled with the hottest condo construction market in the world, has created a get-rich-quick mentality, say lawyers and realtors. Many buyers aren’t even running the complex contracts past lawyers first, as seems to have happened here.
“I have no doubt that the magic of the Trump name and the pictures of this fabulous tower in downtown Toronto had a certain appeal. People thought they could make a lot of money,” says Aaron.
One Toronto realtor has been working behind the scenes to help a “distraught” client who put $160,000 down on a 578 square foot unit in Trump and still owes more than $450,000 but can’t get bank financing.
The agent has considered rallying other buyers in a “mass walkaway” from deals.
Toronto realtors who specialize in the condo market have become concerned about the significant number of “assignments” being floated in the “underground market” right now — purchasers who are looking to unload Trump units before final financing is due.
While assignments are common in the condo industry — they are a form of flipping units where initial purchasers can often make big money before having to pay out ongoing costs like taxes and maintenance fees — this project is proving to be problematic for investors in another way.
“These are a new beast in the city,” as the first condo/hotel development where buyers are purchasing their own key to what is really a hotel unit, says Jason Friesen, a mortgage underwriter with The Calum Ross Team.
“None of the “A” lenders will touch these things,” says Friesen.
Levitan disputes that but concedes this project is more complicated than most because the condo units are considered commercial rather than residential, subject to higher down payments, interest rates and even municipal taxes.
The U.K. couple has now walked away from their $265,000 deposit, which Shnaider says isn’t all bad.
“A lot of them bought a long time ago at very cheap prices. We are going to resell (the reneged units) at higher prices. It’s actually good for us.”
Exactly. The Star was trying to create some type of sensational article, but the simple truth is, she was speaking about two out of over 270 purchasers. In any development project, there will always be a handful of buyers who back out, are unable to honor their agreement, etc. And, as they are contractually obligated, they will look for anyway they can to get out of a contract. It's nothing out of the ordinary. For whatever reason, she chose to single out Trump Toronto--which I guess is a better headline and gets more readership?
The truth is, we have lost an enormous amount of days to weather delays. Unfortunately, the full extent of this was not fully detailed in the article. Because the building is small, with a single hoist and crane on the building, weather delays were a real issue (windy days especially). I believe there were a good couple of months budgeted in there, but last Winter in particular, was difficult for us. The safety of the crew is very important to all involved.
The property has been under construction since early 2008 and will be completed in 2012--about a year longer than we had hoped for (we had originally estimated 3 1/2 to 4 years). That's just the realistic nature of construction. The vast majority of our purchasers have stuck with us, signed their extensions and are eagerly awaiting taking ownership of their suites.
Alice Batista readily admits she was blinded by dollar signs and slick advertising when she dialled up the Trump hotel and condo sales office back in 2006.
The single mother of three became convinced that $50,000 was a small price to pay to get in on the ground floor of what was, at the time, the glitziest new high-rise planned for downtown Toronto — the five-star Trump International Hotel & Tower.
In fact, Batista, 49, became so swept up in the hype, within a few weeks she’d put $165,000 deposits on two units worth $2.4 million.
Only as the Kitchener-area woman signed the legal documents would she find out that one of the suites — a one-bedroom condo with library on the 45th floor — was owned by the director of sales for the project.
Legal documents obtained by the Star show that sales director Adina Zak bought the preconstruction condo for $948,100 in 2006 and flipped it to Batista six months later for $350,000 more.
That $1.3 million flip of an unbuilt unit to a new buyer violates a key condition in sales agreements, imposed on most buyers by developer Talon International Inc.
That condition stipulates that units can’t be sold until completion.
Zak refused to comment when reached by the Star: “We’re on vacation and she’s not taking any calls,” said her husband.
But her boss, Talon chief executive Val Levitan, defends the sale, saying he had a “moral obligation” to let Zak — “and a few other customers” — buy a unit and flip them for their own profit.
“Adina has been with me for 11 years. She is a very dedicated person who I wanted to do a favour for . . . Sometimes you make an exception. The world is not black and white.”
Batista’s story is more than just a cautionary tale. It provides a rare glimpse into a high-profile luxe project, led by rookie developer and Russian billionaire Alex Shnaider, that is slated to open Jan. 31 and has perplexed many condo developers from the start.
Many of the Trump units are hotel rooms with kitchenettes, designed for investors who will never live in them.
Recently, the Star revealed that some buyers have been trying to get out of costly deals, citing two-year delays in the 60-storey project, fallout from the recession or concerns the pricey condos are no longer wise investments.
Talon insists just “a handful” of purchasers are suffering buyers’ remorse, saying that isn’t uncommon.
One U.S. buyer, citing delays and “financial difficulties,” has already won the right from Ontario’s appeal court to renege on his $709,000 condo/hotel suite and get back his $212,700 deposit.
Another buyer is considering legal action. Some, like Batista, have struggled to meet deposit schedules and say they were under the impression they could sell off units before the building opens and have no intention, or ability, to make final payments.
A U.K. couple has walked away from their $265,000 deposit after they bought from a third-party company, Worldwide Property Portfolio, which was assigned four floors from Talon at a discount and flipped them to overseas investors at significant markups.
Realtors and condo developers who thought the Trump units were far too high priced and its hotel/condo units too novel for the Toronto market are now just shaking their heads. And Batista is kicking herself for getting so caught up in the condo craze and Trump name.
“I don’t belong in Trump tower,” says the woman who has bought, renovated and rented out several homes, but never condos. “I thought I’d be able to get a Trump tower suite for less than everybody else. I didn’t think I’d get rich. I just thought I’d make a little money and maybe have a place to retire someday.”
Instead, Batista has found herself in a precarious situation with $420,000 committed to the Trump tower, so far. She had planned to “assign” (sell at a profit before closing) the smaller hotel/condo unit to help pay off the bigger one-bedroom before final payments of $1.98 million are due in January.
Batista never imagined that would be an issue since she bought an assignment from Zak. She’s since found out the developer forbids such selloffs. Despite that, she’s listed the unit with a realtor — as have other Trump buyers — knowing Talon could veto any sale.
Getting rid of the units can be tough, partly because banks are skeptical that hotel/condo suites are sound investments. (Such units account for 118 of the 261 Trump suites; the rest are more conventional condos.)
The hotel rooms are considered commercial properties, making them costlier to keep and riskier for making money.
Complicating things has been the Bay and Adelaide site itself. It’s crammed so tightly between commercial high-rises, crews lost almost five months just to high winds, which made hoisting materials risky to neighbouring offices.
“I can’t close on those units. A lot has changed in four years,” Batista says of the recession and global economic instability that has impacted her income since her 2007 purchases.
“That $420,000 (in deposits) is everything to me. It’s the difference between being ahead of the 8-ball or being behind it.”
Batista had a lawyer review both offers first. Most condo buyers don’t. No one seemed to notice that floor plans lacked square footages or even room measurements.
It was only in November, when Batista listed the hotel/condo suite with a realtor, that the agent discovered it was just 856 square feet, not the 1,000 square feet Batista says she bought in 2007.
Back then, when Batista noticed Zak’s name on the assignment agreement, she says she challenged her.
“I asked, ‘What is going on? How do I know I got the best deal when it’s your suite?’ ” she says.
“(Zak) said all the other units left were more expensive. That I’d make a lot of money. I went ahead anyway, even though I was a little leery of the whole thing.”
Even savvy investors appear to be having issues.
A U.K. multimillionaire, who refused to be named but gave his lawyer permission to speak, is in “a Mexican standoff” with Talon, whose CEO has vowed “we have absolutely no intention of giving money back.”
He and his wife walked away from $265,788 so far — $125,000 of which was paid to Worldwide Properties Portfolio, their lawyer, Graham Hunter, said.
“There were a lot of things said that were in conflict,” said Hunter in a telephone interview from Newcastle upon Tyne. “He (the purchaser) recognizes that essentially he made a bad investment decision and he’s written it off.”
The couple still owes $690,000.
Worldwide changed its name in 2007 to Resort Group PLC. Its “honorary chairman” is Rob Jarrett, a multimillionaire who orchestrated the sale of Trump Toronto units, largely to British and Irish investors.
The Star was unable to reach Jarrett, despite repeated attempts.
Levitan refuses to discuss Talon’s deal with Worldwide, other than to say Worldwide approached Talon and bought units at a discount.
In a recent interview with the Star, Shnaider, the Russian steel magnate and Talon chairman, insisted it’s up to investors to do their due diligence before signing binding legal documents.
“They aren’t buying cupcakes,” Shnaider said.
“We want to have happy customers, as any developer would like to have,” he added.
“But, in every single project, there are going to be people who bought for their own reasons and their financial situation changes . . . Everybody has their own reasons (for reconsidering), but we don’t feel there is a problem.”