Condo controversy highlights need to research purchases: expert
Published Wednesday, November 28, 2012 9:46AM EST
With the Trump Hotel and Tower project in Toronto facing a multimillion dollar lawsuit filed by disillusioned investors, a local condo expert shares his tips on what you should know before signing on the dotted line.
The initial closing date for units in the downtown Trump Tower was to be Thursday, but project developer Talon International has postponed it by two weeks, extending the deadline to Dec. 13.
"The extension has been made to allow more time for Talon to respond to recent inquiries made by the Ontario Securities Commission," the company said in a brief statement announcing the extension on Monday.
That investigation was spurred by complaints from a group of investors suing Talon and other associated individuals -- including Donald Trump Sr. himself -- after they say banks refused to finance their purchases as residential condominiums.
Since the tower is part hotel, the banks are treating the project as a commercial enterprise, the condo owners say, which is contrary to assurances given ahead of their purchases.
The lawsuit also claims the sales pitch crossed a line drawn by the OSC, forbidding the developer from promising prospective buyers a return on investment.
Besides having to scramble for cash to cover their purchases and the higher commercial property tax rates, they also say the units are falling short of the hotel revenues expected after it opened doors to the public last spring.
None of the allegations have been proven in court.
Watching the project, local real estate agent and condominium developer Brad Lamb explained how the project was supposed to work.
More than 100 units in the 65-storey tower were sold as strictly residential units, while fewer than 300 others were sold as hotel-condo suites that would be managed by the Trump Hotel Collection.
"When you buy real estate like this, you're really not buying a home, you're buying a hotel room. And in buying a hotel room you're buying yield, you're looking for cash flow," Lamb told CTV's Canada AM Wednesday.
In his view, investors should have known that no hotel is full on day one.
"It takes two years to reach 70 per cent capacity," he said. "So it takes that time to get the cash flows to a point where that kind of investment makes sense."
Lamb believes buyers should have had a better handle on what they were signing onto.
"It never was residential and it never was going to be residential. And anyone who bought one of these, if they'd done the leg work, they would have known that," he said.
When asked what advice he would tell people considering investing in the condominium market, Lamb had one top suggestion.
"Hire an adviser," he said, acknowledging that's his line of work.
Although many balk at paying a broker's fees, Lamb suggests it's well worth the money. And it pays to find a good one.
"The reality is, the best real estate agent in the world is the same price as the worst real estate agent in the world."