Trump Towers: What’s The Deal?

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…

TrumpTowerHotel&Tower

 

$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

RELIEF SOUGHT:
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:

TrumpListing01

$949,000.

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…

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  1. […] Trump Towers: What’s The Deal? – … – 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 … […]

  2. stacey vieria says:

    fuck dude, id buy one just to live it in, if i wasn’t thinking of moving out of Canada. just to have the housekeeping would be worth it.

  3. stacey vieria says:

    i also didn’t get your valuations. the hotel is still worth 750k, just because you only have the capability or cap, of making 300k. its still a fucking house that you can live in….. in downtown toronto,,,,, in a hotel, with a crazy amount of amenities., you know what i mean, go to any high end condo downtown, and your going to pay that same price, almost for a unit. nothing’s changed. it’s simply and additive feature that you can also rent the rooms when your not staying in them.

  4. stacey vieria says:

    i dunno, the blog seemed a bit lop sided, reading it now in august 2015, the case is closed and talon!! won the case.. so i’d love to see what Dave would say about that. theirs no frieking way either, that the hotel had a guarantee on the amount of rooms that a specific unit would get in a year, their was minimum’s and max’s but those were simply projections. its one thing for people to laugh when richer people lose money, but they obviously tried to flip in a market that wasn’t for them. i dont understand why trump gets picked on so crazily when theirs 3 other high end hotels out their with the same fucking prices and maintenance fee’s. i mean who really takes a 170 thousand dollar loan from their parents to invest in a high end market, its fucking crazy. and the hotel staff said that the units aren’t investments, their simply hotel condo’s with a return on the end.

  5. AX says:

    My friend talked to me about this article today. After reading it, I think it is quite misleading for buyers interested in buying the residence units at Trump Toronto.
    This article was talking about the hotel unit, the high maintenance fee is very reasonable as it need to be in a good state to rent to travellers. The current maintenance fee for the actual condo units (32 floor above) is 0.71 cents, much lower than competing luxury condos.

  6. […] nearest place. Unfortunately for us the nearest place was the Suits bar in the Trump Tower. Yes, that Trump Tower. Neither of us had been before; I’d only tried Stock, the upstairs […]

  7. JP says:

    Funny how just about every Trump property has the same problem.

    The Trump in Las Vegas had pretty much the same issues. It started off as condos, then a condo/hotel and now contains time-shares as well.

    I’ve stayed there and it was nice (we got a big discount). Not great, but nice.

    I got a laugh out of the initial launch email that Trump sent out to Realtors. They spent all this money on glitzy photos, PR text etc…. the link you were supposed to use to RSVP was wrong.

  8. GB says:

    Why does the author, David Flemming, keep referring to the hotel units as condos? The residential condos and the hotel units are completely different and to my understanding, people are not suing the residences, they are suing the hotel. Although they were built by the same people (Talon), only the hotel is managed by Trump – and not surprisingly, that’s the part where people are not seeing returns and are suing. Sorry Mr. Flemming, I know this is only a “blog” and you’re not held to same standards as the National Post, but your article is misleading.

    With that said, it’s a shame the project wasn’t as successful as hoped. It would have been great for Toronto. Reading some of these comments, other readers seem very happy to see people financially hurt by a poor investment. That’s sad. But I guess that’s what happens when you add assumptions to ignorance and jealousy, stir-up a mob mentality and envelop it in the anonymity of the internet. You get an audience of cruel people who are happy to see other people loose their shirts because they made a bad call. Perhaps if this was a single mom investing her RRSPs in a fund that promised incredible returns, people would be sympathetic. But when you work hard to get 10 million instead of 10 thousand, people think you deserve to loose what you have. Sad. I wonder how people would feel if the Canadian millionaires at the Four Seasons lost everything? Would everyone still laugh?

    Either way, I think this project shows that Toronto might not be ready for luxury hotels. While the Shangri-La, Ritz and the Four Seasons’s residences sold well, are the hotels doing well? if not, this may be a sign. On the other hand, I tried to get a room at Trump when some oil conference was in town last March and they were completely booked. Is the Trump hotel doing as poorly as people think? Does anyone work at Trump and can write with authority about the occupancy rates and average daily rates*? (Questions that may not necessarily be answered here, but simply some food for thought).

    *I worked at the Gladstone, which is why I know these industry terms.

    1. ScottyP says:

      I, for one, love it when Canadian millionaires lose everything. From Robert Campeau to Conrad Black, it’s quality entertainment that can’t be beat.

    2. CBlack says:

      Same standard as the National Post? You are kidding, right? At least David tells you exactly what he is thinking (okay, maybe he needs a better filter, but I still like his thought process) without any interference or BS from shoddy fact checking or whisper campaigns.
      You need to have a better understanding of the condo/suite/hotel concept that investors are getting hosed on (great story on this in Toronto Life awhile back), because your comment about occupancy/and REVPAR (note the correct term and usage, REVenue Per Available Room) is the crux of the matter here.
      Hey, I can’t get a room in Vegas during March Madness, does that mean they’re always sold out? No.
      The only people who can ‘afford’ the rooms at Trump are the evil minions on corporate expense accounts who don’t have to justify their monthly bills.
      Or those young women with impossibly svelte figures, dazzling smiles, and CLoub shoes.
      Yeah. She’s my niece. What about it?

      1. @ CBlack

        Thanks.

        I didn’t respond to her comment because she seems to have no clue what the lawsuit is about, and what the issues are.

        Moving on…

  9. Rob Fjord says:

    If you want to pick on backgrounds, at least get it right…schnaider is jewish (oooohh did i say a bad word!?) not russian

    1. Philip says:

      Pick on backgrounds? What? Have you met him? I have. He’s a Russian Jew. So what.

      How was saying someone is a Russian gangster ‘racist’?

      Jesus christ you PC people are so pavlovian conditioned to be offended by anything….the downfall of modern society…

      1. ScottyP says:

        So that’s why upon hearing the term “Russian gangster”, I felt a glob of drool drip down my chin….

  10. AndrewB says:

    As nice as it is supposed to be a condo hotel, I don’t see people exactly lining up to spend 300+ per night to lodge in the place.

  11. FGump says:

    Stupid is as stupid does.
    Every single ‘owner’/’investor’ in this project deserves every mile of bad road that they’re experiencing.
    The ultimate in douchebaggary…and they fell for it. Hook. Line. Schnaider.

    No sympathy from the peanut gallery.

    1. ScottyP says:

      You can always depend on the peanut gallery for a good roast. Always there to rub salt in the wound. Be careful of the peanut gallery, or you just might get shelled.

      (Sorry….)

  12. G___ says:

    David,

    Of note regarding the lawsuit, Mr. Heydary of Heydary Elliot (and a few other firms) disappeared with ~$3MM of trust funds destined for the plaintiffs in an action (not his clients, they won, he got the $ in Trust to pay the judgment). A body turned up purporting to be his (repatriated from Iran) and the Law Society of Upper Canada has declared him dead and is running his firms. He is the only lawyer now listed at many of the firms.

    Read all about it: http://business.financialpost.com/2013/12/17/law-society-80-sure-missing-lawyer-javad-heydary-has-died-weeks-after-millions-went-missing-from-trust-account/

    https://www.google.ca/search?q=Javad+Heydary&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a&channel=rcs&gfe_rd=cr&ei=J-vNUuWOF-eM8QeX5YCgCg#channel=rcs&q=Javad+Heydary&rls=org.mozilla:en-US:official&tbm=nws

  13. Alex says:

    Philip, please don’t start picking on people’s backgrounds. Keep in mind that Schnaider immigrated to Canada when he was four (4) years old, graduated from Canadian school and attended Canadian university.

    1. Philip says:

      You;re joking right? You know how he became a billionaire right? Google Midland Resources in the Ukraine, and how a number of his business associates were assassinated in the 1990’s. One of his execs’ car blew in Montenegro not so long ago. Wake up, you cross this guy and wake up never.

      http://www.forbes.com/forbes/2005/0328/132.html
      http://www.theglobeandmail.com/report-on-business/industry-news/the-law-page/police-bribe-paid-from-moscow-safe-court-told/article10911262/#dashboard/follows/

  14. Philip says:

    That;s what happens when a Russian gangster (Schnaider), literally, runs a project.

  15. BillyO says:

    Besides the ridiculous prices and the stupid buyers who purchased hoping to flip for big bucks (who are now trying to sue) is the bigger issue of Talon, the developer (remember, it’s Trump only in name). The building is still not finished yet! Go to UrbanToronto forum and see the construction photos, the ‘P’ in Trump isn’t even up, the hotel has been TRUM for the longest time, the P is just sitting on the roof with some other equipment and debris. Rumour is the money dried up and any pending construction work is on hold. The light feature is still not in use either. Yes inside the hotel looks great and the reviews on Trip Advisor have it as the #1 hotel in TO but the exterior looks like trash (uneven floors, same crappy green glass of run it the mill condos) and is still incomplete and will remain so for who knows how long.

    This is definitely the worst big scale project we’ve had during this boom.

    1. @ BillyO

      If only the city councilors and OMB members reviewing the Mirvish-Gehry proposal would take note…

      1. BillyO says:

        I have a little more faith in M-G but yeah, there could be huge problems too if it isn’t done right. Thankfully Adam Vaughan and co are taking a more balanced approach (though M-G is still going through the OMB just in case – the pre hearing was Jan 6). I’m confident a solution will be found, most likely a little bit of a height decease and a ton of section 37 contributions for the John St cultural corridor, Vaughan’s pet project for his ward

        However, Mirvish will have to team up with a reputable developer, otherwise the project could end up unfinished/cheapened like Trum. Even selling Honest Ed’s for $100 mil is a mere fraction of the costs it’ll take to execute a project of this scope. For comparison sake, the three tower mixed use development now underway at York/Harbourfront (35 storey office, 66 and 52 stories residential) is a $550 mil project.

        1. FullMetalJacket says:

          Adam V. should pay more attention to the neighbourhood he’s supposed to be representing. The proliferation of graffiti and massage parlours over the last couple of years is rapidly turning a tourist destination into another .

  16. Pragmatic says:

    Actually, I think it’s worse than the calculation you provided, since cap rates are based on net operating income, rather than revenue. Since maintenance costs are about $30,000 per year – when revenue projections were revised (reduced) from $75,000 per year to $30,000 per year, it also means that net operating income is reduced from $45,000 ($75,000 – $30,000) to $0 ($30,000 – $30,000) per year. That’s quite a drop!

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