Toronto Trump condo delays sale closing date amid buyer lawsuits
* Trump hotel developer Talon delays closing to Dec. 13
* Ontario Securities Commission probes sales contracts
* Disgruntled buyers suing to get out of contracts
TORONTO, Nov 26 (Reuters) - Developers of the Trump International Hotel in Toronto have pushed back the closing date for the sale of luxury condo units at the project, the latest delay in a venture plagued by bad press and lawsuits by and against disgruntled investors.
Talon International Inc, which developed the 65-story granite and glass hotel-condominium tower that opened this year in Toronto's business district, said it was pushing back the closing date by two weeks to Dec. 13 to respond to an investigation by the Ontario Securities Commission.
Unhappy buyers, who have complained the project has been far costlier and less profitable than the developers promised, asked for an investigation by Canada's top securities regulator, arguing Talon sold them an investment rather than a condominium.
While they may have bought into the glitzy Trump project to make money on condos that would be rented out to hotel guests, the buyers have struggled to secure mortgages on the units. Banks and tax authorities view them as commercial rather than residential properties, subject to far higher tax rates and riskier and more expensive lending rates.
"The extension (of the closing date) has been made to allow more time for Talon to respond to recent inquiries made by the Ontario Securities Commission," Talon said in a statement, adding it was cooperating fully with the OSC.
The project, one of a handful of luxury hotel-condominium hybrids managed by the Trump Hotel Collection around the world, hit the market at the same time as three other five-star hotel projects in Toronto. The city's red-hot condo market peaked early in the year, sparking concern about a bubble, but has since begun to cool.
A lawyer for some four dozen buyers said the delay is good news for his clients, who have struggled to find financing for the condominiums, many of which were marketed and sold years before the project's ribbon-cutting in April.
"I think (Talon) realizes that the investigation by the securities commission is a serious one and, under the circumstances, it might not be best to force people to close on Nov. 29," said Javad Heydary.
His firm has filed a claim on behalf of four clients who charge that Talon misrepresented the project in the sales process.
While Trump did not develop the property, which includes 118 residential condos and 261 hotel-condos that go into a rental pool, the Trump Hotel Collection manages the property.
Heydary said he is representing 13 other clients and in the process of being retained by 30 more as the backlash against the project gains steam and the deadline under which investors have to pay up or lose their deposits approaches.
"Their position is very simple - this project was structured as a condominium, whereas it should have been structuring as an offering of securities," Heydary said.
He said that, under the exemption granted to Talon by the OSC, the developer was not allowed to promise an investment return when it sold the units. But his clients claim Talon did just that, laying out projected profits for various hotel units depending on price and location.
Now, having each put deposits of some C$100,000 on the units, the buyers are finding it impossible to secure financing for the rest, with "every single Canadian bank" saying the units did not qualify for residential mortgages, Heydary said.
"I think the fact that Canadians banks, which have examined this project and have deemed it to be a commercial investment, speaks to the strength of the allegations by the plaintiffs," Heydary said.
But Trump Organization lawyer Alan Garten said the story is far simpler than an argument about securities law.
"It's buyers remorse 101," Garten said.
Whether the hotel is doing better or worse in terms of occupancy or room rates than was promised, he cannot say.
"To me it is totally irrelevant, because it doesn't give you an excuse to get out of your contract," Garten said. "It's a beautiful building; it's built, it's successful, it's gotten rave reviews."
Separately, Talon is suing several buyers who have filed notice they intend to back out of the deal because the terms of the contract changed during the long process between sale and closing.
A lawyer for one client being sued by Talon said the ripple effect of bad press and a buyer revolt may leave the hotel scrambling to sell units that now are publicly tainted, and struggling to meet its own costs.
"They're sitting on a bunch of units with very bad financial statements because these things can't make money. The value of the properties may go down severely enough to cut into profits and actual capital required to build this thing in the first place - particularly with the softening condo market in Toronto," said Michael Carlson.
"You're going to get a ripple effect and more people are likely to start walking away from their contract by any means possible to do so."
- Tweet this
- Share this
- Digg this