An 85-storey project in the Yonge and Bloor area of Toronto, billed as the tallest residential tower in Canada.
will probably also be known for one of
until final completion, deadlines
should be worried.
Developer
bought the land in 2014, and by 2017, pre-sale buyers were snapping up properties at prices that, in retrospect, seem like bargains—even after
in some places this figure has dropped by about 25 percent.
These early birds are now learning what happens when a megaproject fails.
A court-appointed receiver stepped in last year to save the $2 billion tower after the developers ran out of money. Last week, a judge approved a proposal that would void nearly all of the 329 sales agreements. Alvarez & Marsal, the controlling company, believes it can resell the devices for nearly $200 million more than the original price, even in today's battered market.
The goal is not to be fair; The goal is to extract as much money as possible from the site to pay off the $1.6 billion in debt owed to creditors.
And part of this amount will come directly from investors' paper profits, which is one of the most glaring lessons of failed speculation in
.
Regulators generally hate cancellations. But a bankruptcy expert familiar with the deal says this time buyers were given a choice: take their deposit back or get the same apartment back at a lower price.
that you would laugh at in 2017.
The deposit insurer must now pay back every dollar, plus interest. But how much profit have these buyers made over the past eight years? Left.
And it's all perfectly legal, all part of the typical fine print in the pre-sale market, where “years to completion” can quietly turn into “never.”
Pauline Lierman, Vice President of Research
Zonda says it straight: these 2017 apartments will sell for more today because developers are still finding buyers for luxury items, even in this wet market.
Five of the eight launches this year were high-profile, she said.
What about the rest of the market? This is where the bruises appear. About 7,300 device sales were canceled last year, often because developers failed to meet their pre-sale goals.
The pandemic-era peak of the first quarter of 2021, when average prices reached about $1,700 per square foot downtown and $1,200 in the suburbs, is long gone. Today, projects should be priced close to resale price, around $1,100 or less, and even then, developers have incentives.
Back in 2017, pre-sales for downtown apartments were $600 to $700 per square foot, Lierman said. It was a record year, but before construction costs skyrocketed and cancellation notices became more frequent.
Ben Myers, president and owner of Bullpen Research and Consulting Inc., said projects continue to fall like dominoes. When the numbers stop working, the taps stop moving. Some projects are quietly transformed into rentals. Others are postponed.
“Few developers will do a project at a loss,” Myers said.
Project cancellations are covered by the Housing Regulation Authority. The reasons for returning the deposit to the buyer are set out in the purchase agreement, said attorney Bob Aaron.
“It depends on what the consumer signs, but often there are clauses in the agreements that allow the developer to terminate the contract,” Aaron said, adding that the Mizrahi project is a different case because the developer went bankrupt.
Before you feel sorry for condo buyers, let's not forget that many buyers are pure investors who are ultimately looking to make a significant profit with a very low down payment.
For years, it was a simple matter: put aside a few percent, watch the market rise, and then turn over the paper. Assignment provisions made things easier until the latest crash, when regulators and developers tightened the rules. Now assignment fees, percentage of sale clauses and reversion clauses make a simple flip not so simple.
But the market was liquid enough to absorb all the transferred apartments. Not anymore. Keep in mind that not all assignment provisions are the same, and some have language that allows the developer to go after the original purchaser unless it is an absolute assignment without recourse.
One of the lessons here is to buy from trusted builders, which makes it ironic that Tridel, one of the big names in the business, was brought in to rescue the sales program at the newly renamed One Bloor West.
“After successfully delivering over 90,000 homes, the completion of this iconic masterpiece is now entrusted to Toronto's most trusted and experienced condominium home builder,” the company boasts, offering to resell the same units received from investors this week.
“The rule,” Aaron said, “is to buy from a builder you know. From a developer who built 100 buildings.”
It's a hard lesson, but one buyer of condos in Toronto's now-infamous tower knows it. Getting your deposit back is great, but how would you feel if you were invested in the TSX Composite Index for the last five years and someone took 80 percent of your profits back? Because that's exactly what happened.
The profit was real right up until the moment it was gone. This is how a tower sometimes falls in the apartment market.
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