Trump Tower Developers Suing Investors for Backing out of Toronto Mortgages
There’s a lot of trouble currently happening with Toronto’s Trump International Hotel & Tower, and it’s gotten litigious. Investors are having trouble securing a Toronto mortgage, meaning that they can’t close on those units. Because they can’t close on those units, but have committed to buy them, the developers of the condo, Talon International Inc., are now suing those investors, trying to get them to close. But, some of those investors are fighting back; and counter-suing the developers. In the end, it all adds up to a big mess happening right now at Toronto’s Trump Tower.
One of the investors is a doctor from London, Ontario. He claims that there was a “misrepresentation” of the condo units at the time of purchase in 2009, and he’s now seeking $750,000 in damages. He is willing to drop the suit if the developers will refund the deposits he’s already placed down on the units.
The London doctor is not alone. An entire group of investors, dozens in total, are now trying to get their deposits back. And they also don’t want to, or can’t, make the final payments which average about $500,000. Those payments are due on November 29. And if they’re not made on time, Talon’s prepared to go to court.
But the problem may not be just stubbornness on the part of the investors. It may be that because of the overheated market – especially the condo market – that’s occurring in the city right now, they simply can’t get approved for a Toronto mortgage.
“One mortgage company asked me, ‘How could I give you a mortgage on a property that is losing money every single day?” said one investor, who has already borrowed $175,000 from his family to buy the condo; and who still owes $750,000 come the 29th.
The problem, it seems, stems from both sides of the argument. Many of the investors purchased at the height of the Toronto condo boom in 2009. It was a good investment at the time, especially for investors that would scoop up the properties only to flip them very quickly on resale. And make huge profits in the meanwhile.
But, it’s not 2009 anymore; and the Toronto condo market has changed drastically in the last three years. Buyers simply aren’t as prominent as they once were; and those investors are going to have a very hard time finding a buyer for these luxury suites.
Of course, developers should never be held responsible for dreams held by an investor, whether they ever come to fruition or not. But there’s a problem on the side of developers, Talon International, too. And it’s this problem that investors are suing over.
They claim that Talon was dishonest in projections regarding maintenance fees, property taxes, and other expenses; and that these expenses are actually much higher (and much more unaffordable) than Talon had originally expected.
Another doctor, Ganesh Ram, says that this is the exact problem he’s facing with his unit in Trump Tower right now. His lawsuit states that in property taxes alone his fees are going to be 40 per cent more than Talon had originally indicated.
While Talon had initially stated that the profits from the hotel portion of the building would be able to absorb some of these costs, buyers say that hotel occupancy is only between 10 and 50 per cent; and that the rooms will average about $300 a night. That’s only half of the $600 and more that investors were told the rooms would go for; and thereby offset some of their costs. With a reduction of 50 per cent in room prices, the profit is simply no longer there to take on those costs.
Within the investors’ lawsuits, they claim that these changes are “material changes,” as stated under the Condominium Act. Talon’s lawsuits, argue that point saying that no “material changes” were made.
Talon would not speak publicly about the lawsuits, but they did send the Toronto Star an email which stated,
“Purchasers that entered into agreements of purchase and sale with Talon are not amateurs. The purchasers made these commercial investments in the light of day and presumably on the advice of their legal counsel,” said Talon’s email.
“We have full confidence in the court’s wisdom to interpret and enforce the terms and conditions of the agreements that were entered into by those few purchasers which have chosen to resile from their binding obligations to Talon.”
The problem is unique to the Trump Tower, because it’s designated as a commercial property rather than residential. Most of the units in the building, 261 to be exact, are actually hotel rooms; while only 118 of them are residential condos. The 261 rooms are rented out, per night, and the profits go into a rental pool.
Because the building is more commercial than residential, owners of suites have to pay $87 in taxes every time someone sleeps at the hotel. Promotional material for the project promised that these fees would be offset by that revenue coming from the rental pool.
Unfortunately, those profits just aren’t there yet. And this is mostly what’s causing buyers to renege on their agreement.