A new listing for a unit at 325 Bay Street hit the market on Tuesday; a bachelor unit of 600 square feet, with $2,700/month maintenance fees, for a cool $949,000.
There’s a listing for a 1-bedroom that has now been on MLS for 314 days – unsold, with two price reductions.
WHO is going to buy this stuff? What kind of market is there for units at Trump Towers?
If you’re not aware of the litigation going on, you’ll want to read the following…
$2,000 per square foot.
That’s what some of the units at Trump Towers were priced at during the pre-sale phase of the project two years ago.
I remember in 2011, calling the head salesperson, feigning interest in the project, just to get a price list of what was still available. I couldn’t believe that of the thirteen units they were offering for sale, the lowest price per square foot was $1,781.42, and prices went almost as high as $2,000 (highest was $1942.56 to be exact, but I like to round up!)
It didn’t make any sense.
I understand the idea of “brand value,” but most of these units were being marketed as “investments,” which clearly, these things are NOT.
The idea behind these units, for those prospective purchasers that were NOT billionaire oil kings from the Middle East, was that the units would be used as hotel rentals, and the owner of the unit would be guaranteed a certain number of nights per year, at a certain price per night.
As the subsequent lawsuit would soon prove, the projections for number of nights and price per night were soon revised (read: reduced), and it threw the whole “investment” equation out of whack.
Ask any stock broker or financial advisor to price a stock, based on earnings, dividend yield, etc., and then see what happens when the earnings and/or yield changes. If a stock is trading at twenty times earnings (say earnings are $1/share, and the stock is trading at $20), and suddenly the company crash and burns and earnings drop to $0.50/share, then at that valuation, the price of the stock would drop to $10.
So use this same methodology to price a condo, whereby a certain cash flow is projected.
Let’s say, just as an example, that investors at a condo/hotel are promised 250 nights per year, and $300 per night. That’s $75,000 in yield. And let’s assume that condos are priced at ten times the projected yield, so this condo is worth $750,000.
Now let’s say that projections are “revised,” and suddenly investor/owners are only given 150 nights per year, at $200 per night. That’s $30,000 in yield, and by the same evaluation, at ten times earnings, this condo is worth $300,000 instead of $750,000.
Again, this is just an example, and condos don’t really trade at “price times earnings” like stocks. However, investment properties often trade at prices that are a function of the desired capitalization rate. For example, if a property generates $90,000 in yearly income, and the prevailing cap rate in that area for that type of property is 5.00%, then the property is valued at $1,800,000. If the income goes up or down, or if the prevailing cap rate changes, then so too does the value of the property.
This is what a lot of the issues relate to in the Trump Towers lawsuit.
Heydary Elliott PC is the legal firm handling the lawsuit, and from their website, http://www.heydary.com/tlawsuit/about.html, you can ready the following summary of the suit:
Summary of Claim
The following is a brief summary of the claim issued against the Trump organizations and Talon International organizations in relation to Hotel Units purchased in the Trump International Hotel & Tower (“Trump Hotel”).
The information provided here is of a general nature, and is not intended to be relied upon as legal advice. If you have any questions about the information contained in this webpage, please contact us.
All allegations described herein, and in the claim itself, are unproven until determined by a court of law.
Kim et al v Trump et al, Ontario Superior Court File No. CV-12-468175
DEFENDANTS TO THE ACTION
1. Donald John Trump Sr.
2. Trump Hotel Management Corp.
3. Trump Marks Toronto LP
4. Talon International Inc.
5. Talon International Development Inc.
6. Val Levitan
7. Alex Shnaider
8. Toronto Standard Condominium Corporation 2267
1. Winding up of Toronto Standard Condominium Corporation 2267
2. Rescission of the Agreements of Purchase and Sale
3. Return of all money invested, plus interest
4. Consequential damages in the amount of $1,000,000.00 per Plaintiff
5. Damages for misrepresentation in the amount of $1,000,000.00 per Plaintiff
6. Damages for conspiracy in the amount of $500,000.00 per Plaintiff
7. Exemplary and punitive damages in the amount of $100,000.00
Summary of Plaintiffs’ Position:
The Plaintiffs allege that they are each victims of an investment scheme and conspiracy, based upon reckless and negligent misrepresentations by the Defendants to induce each of the Plaintiffs to purchase one or more Hotel Units in the Trump Hotel.
In particular, the Plaintiffs allege that the Defendants made misrepresentations to the Plaintiffs, and other prospective investors, by providing false or misleading information regarding financial projections and mortgage financing related to the Hotel Units and their participation in the Reservation Program, which was in breach of the Ontario Securities Act and a ruling by the Ontario Securities Commission.
The plaintiffs allege that Talon International Inc. made misrepresentations to the Ontario Securities Commission to obtain exemptions from registration and prospectus requirements under the Securities Act, which requires the production of information that likely would have deterred the Plaintiffs and other prospective investors from purchasing the Hotel Units. Accordingly, the Defendants failed to provide full, true, and plain disclosure regarding the Hotel Units and Reservation Program, as required under the Securities Act.
The plaintiffs also allege that the defendants engaged in conduct which was oppressive and unfairly disregards the interests of the Plaintiffs as stakeholders in the Trump Hotel, as owners of the Hotel Units, and as participants in the Reservation Program. The alleged conduct includes providing preferential treatment to the Defendants’ Hotel Units rather than the Hotel Units of the Plaintiffs, with respect to the Reservation Program. Further, the Defendants failed to provide the Plaintiffs with accurate or complete financial reporting with respect to the Hotel Units and the Reservation Program, as they were obligated to do.
Finally, the Plaintiffs are also claiming that the Defendants failed to provide the proper disclosure as required under the Condominium Act, by failing to notify the Plaintiffs with respect to a number of material changes in the claim, including several other legal proceedings before the Ontario courts involving Talon International Inc. and the rights and obligations of investors, including those of the Plaintiffs.
Toronto Star columnist, Sue Pigg, has been tracking this story from the beginning, better than any journalist in the city.
Here are a handful of her entries, and it’s interesting to see how the climate around Trump Towers changed as time went on:
1) December 16th, 2011: “Investors Fight To Back Out of Trump”
2) December 30th, 2011: “Angry Trump Condo Buyer Wants Out”
3) November 19th, 2012: “Trump Tower Developer Suing 7 Disgruntled Investors”
4) November 26th, 2012: “Trump Hotel Condo Buyers Seeking OSC Probe”
5) August 10th, 2013: “Toronto Trump Tower Investor Revolt Bigger Than Thought”
As for the listing I mentioned at the top of this blog post, have a look:
That’s $1,582 per square foot.
It’s unbelievable. $949,000 for a 600 square foot condo, no view (sorry – I have to block the unit number, but it’s on a low floor), no parking, $2,720 per month maintenance fees, and yet it’s being sold as an “excellent investment opportunity.”
“Act now, folks! This one won’t last long!”
So what becomes of Trump Towers? Well, I’m sure that the spin-doctors in Trump’s public relations stable will somehow find a way to convince the masses in the next few years that this project was a “landmark” or something of that sort, but when you consider how stupid the masses are to begin with (look no further than the reality TV shows they watch, and the b-list celebrities they follow online), it won’t be very hard to convince a celebrity-obsessed society that this sham of an “investment” was a rousing success.
In that case, maybe there’s already a buyer for this $949,000 condo…