Real estate investors in Toronto are getting nervous about the market’s future prospects, but few of them are as nervous as the investors behind the Donald Trump-branded hotel-condo tower that opened last year.
Here's an idea of how badly the glitzy project has been doing: Investors buying units in the building for the most part can’t even get a mortgage to cover what they owe.
And in a court document obtained by the Toronto Star, the developer of the Trump International Hotel & Tower hinted that fewer than 20 per cent of the investors in the hotel-condo project have closed on their units.
That suggests the investors’ revolt that began last year and led to lawsuits could be bigger than thought, and could put the entire project in financial jeopardy.
Talon International — the developer contracted by Trump to build the 65-story tower with 118 condos and 261 condo-hotel suites — is flatly denying there’s anything wrong.
The project “continues to be adequately financed, Talon continues to remain in control of the project with the full support of its lenders and there are absolutely no concerns whatsoever with respect to the financial condition of this project in any regard,” Talon said Friday.
But in documents filed in a lawsuit against Talon by investors, the developer noted that there is a condo corporation in place at the tower but it has no members yet because “Talon has not at this time transferred 20 per cent of the units in the corporation.”
That would suggest no more than 50 of the 261 hotel-condo suites have been fully paid for by investors, a year and a half after the building officially opened. That’s a very small percentage compared to just about any other development.
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The principal reason appears to be that the investors haven’t been able to get mortgages for the units, and those investors participating in the lawsuit — there are reportedly 38 of them — say it’s because of the way Talon marketed the project to them.
Talon reportedly struck a deal with the Ontario Securities Commissions that allowed it to market the project as residential, even though the majority of units are hotel suites that are being rented out, and those types of projects are typically considered commercial.
Investors say they bought the units on the understanding they would be classified as residential. But the Star reports banks are saying the units are commercial and refusing residential mortgages for the people who bought them.
Many of the investors may not have expected to have to pay the full price of the property, as they would have been expecting to “flip” the condos quickly for a profit. But Toronto’s slowing real estate investment market has made that difficult.
“One mortgage company asked me, ‘How could I give you a mortgage on a property that is losing money every single day?” an unidentified buyer told the press last year.
A law firm representing the investors suing Talon said last year the condo-hotel units are losing money at a rate of $175 per day, because rental prices are lower than expected and the occupancy rate is a paltry 10 to 50 per cent.
Talon says its finances are secure in part because it already has the investors’ deposits. But if the 38 investors suing Talon succeed, the company will have to return that money, along with $1 million per litigant. Talon counter-sued some of the investors last year, asking for payment in full and $750,000 in damages from each investor.
The law firm Heydary Hamilton, which represents the investors, has previously said as many as 100 Trump Tower investors have contacted it about potential legal action.