* Trump hotel developer Talon delays closing to Dec. 13
* Ontario Securities Commission probes sales contracts
* Disgruntled buyers suing to get out of contracts
By Andrea Hopkins
TORONTO, Nov 26 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
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,"
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
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
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."