As several of my readers pointed out, this should have been on the discussion list for last week!
Although there’s something so fitting about the “Monday Morning Quarterback” look back at the Urbancorp story, given we’re all just coming out of our Superbowl hangovers.
I’ve been slamming pre-construction as a whole for the better part of a decade now, and it’s stories like this one that might finally bring about the attention that naive condo buyers need in order to walk away from the bright shiny object…
Seat-belts save lives, right?
And yet we have to make it a LAW that they must be used?
Why is that?
You would think that people would automatically use something that saves their lives, and we wouldn’t need a law to force them.
But not everybody in society does what’s best for them, and what might seem routine, logical, and like a very simple decision.
Those of you that have been reading my blog for the last few years are well aware of my disdain for the pre-construction condominium industry. It’s not just the way developers routinely screw buyers, but also that there are few laws in place to protect consumers from the only entity worse than the developers: themselves.
It’s why we have laws that seatbelts must be used – because people need protection from their own poor decisions.
And in the pre-construction condominium industry in Ontario, where developers have found every loophole in a Condo Act that is almost two decades old, it’s the buyers of these condos that need to change, since we know the developers won’t.
It’s like my adage about the Toronto Maple Leafs, and why they’re terrible, and always will be. Fans will continue to go to games, despite the product on the ice, so management/ownership doesn’t need to build a better team.
So long as every single seat at the Air Canada Centre is sold, and there’s a lineup of people tens of thousands deep to get at those seats in the event they were empty, there really, truly is no reason for management to change culture, or conduct a top-down rebuild of the organization, that ends with the players on the ice.
I’ve always said the same is true of condominium developers in Ontario.
Until naive consumers stop lining up at V-V-V-I-P pre-sale parties to buy over-priced condo futures that may or may not be built, condo developers will not change the way they conduct themselves.
I’m not going to start all over and get into the “what” and the “why” of Toronto’s pre-construction condo industry, since we’ve covered this ad nauseam in the past.
Let’s jump right into the Toronto Star article last week, by Sue Pigg, that has all the makings of “just when you think it can’t get any worse…”
As the article explains, Urbancorp recently cancelled one of its condo projects, for which it had already pre-sold close to 200 units, and has decided to change the project into “rental apartments” instead.
The buyers of these units, some of whom put down their deposits in 2011, will receive those deposits back, with nominal interest, and they have no legal recourse against Urbancorp, since this is a scenario that is spoken for in the lengthy developer’s contract that all buyers sign at the time of purchase.
I have made my feelings about Urbancorp known in the past. In my opinion, as a Realtor, they are one of, if not the worst, condominium developer in the city of Toronto.
I dealt with them first hand, as my last pre-construction condo purchase, almost ten years ago now, ended up being a farce, and I documented the whole process on my blog.
I contracted to purchase a unit in 2005, for a project that was supposed to be finished in 2007, but wasn’t started until 2009, and wasn’t completed until 2010. It took two full years to register as a condominium corporation, and the result is one of the worst condos in the city.
You can read all three 2010 blogs here:
The comments from readers in all three posts show a slew of other buyers of Urbancorp projects that were also tremendously disappointed.
I’m pleased to say that based on these three blog posts, which show up in countless Google searches involving the name “Urbancorp,” I have probably received close to a hundred emails and/or phone calls in the past five years from prospective buyers that wanted my opinion on the developer. I’ll let you guess what I told those folks…
Despite all this, Urbancorp continued, and continues, to flourish, and the cancellation of King’s Club may or may not affect their reputation, and ability to continue working in the city of Toronto.
The fact that the project was cancelled comes as no shock to me.
When I first bought into West Side Lofts almost a decade ago, the original project was “cancelled,” and replaced with something new and different. Except, it wasn’t really new and different; it was just the same thing, at a higher price. Urbancorp basically tore up all our contracts, and then tried to sell us back our units at slightly higher prices.
They have a legal term for this, or something to make it sound like it’s not what it really is, but basically they exercised an option that they had at their disposal, and they were fully within their right to do so.
The situation at Kingsclub is no different.
Somewhere in that lengthy developer’s standard form, there’s a mention of this – possibly referred to as “Economic Viability,” and as the Toronto Star article explained, Urbancorp exercised that option.
Totally fair, legally speaking.
But there are three items that I think we need to discuss, based on the Toronto Star article:
1) Urbancorp “borrowed money” from buyers.
This makes me laugh.
The story explains that one buyer is receiving $1,085 in interest, for his $40,000 deposit, that Urbancorp has been keeping for over three years. It’s less than 1% interest, and depending on exactly how long the buyer’s deposit has been held, it could be as low as 0.75%.
Here’s a question: what would a bank charge a condominium developer if they wanted to borrow money?
Would commercial rates apply?
Would this be an unsecured loan?
I think it’s fair to say that if Urbancorp, or any condominium developer back in 2010-2011, wanted to borrow a whack of cash from a bank, it might cost them between 5-8% to do so.
Instead, they sold condos (not really condos – more so “pieces of paper”) to investors, took their deposits, and then in 2015, paid them back their money at 0.75% interest.
It’s absolutely genius.
This is hindsight, of course, and even the biggest cynic (ie. me), isn’t going to suggest that this was in any way “the plan,” but you still have to applaud Urbancorp’s result, which is the fact that they essentially borrowed money for free to finance this project.
2) Kingsclub buyers can purchase “what’s left” at Edge & Epic.
When I worked as a bus-boy at a restaurant back in 1998, I remember there was this dishwasher in the kitchen that used to eat whatever was left on the plates when we brought them back from the dining area.
I’d clear a table, stack dishes on top of each-other, and put them in a plastic tub in the kitchen.
The dishwasher would have no problem picking through the dishes, finding a slice of pizza with a bite out of it, or a piece of untouched garlic bread, and eating it with glee.
That’s basically what Urbancorp has offered to the shunned buyers at Kingsclub, by allowing them to purchase “what’s left” at Edge & Epic.
“What’s left” is basically the crap that nobody else wanted to buy.
This is a huge slap in the face to the buyers at Kingsclub, in my opinion. It’s truly like saying, “If you want to eat dinner tonight, then take whatever is left on the table when that group of German tourists finishes their meal, and leaves the restaurant.”
Anything that wasn’t sold at Edge or Epic likely wasn’t sold, for a reason. Those projects have been thumbed through by everybody from astute investors to naive wanna-be players. And Urbancorp has now offered these units to the buyers at Kingsclub who are still stinging from the betrayal.
3) The “rental apartments” are STILL condos!
This is the most important part of the story, and it helps show this situation for what it really is.
As the Toronto Star article explains, this “rental apartment” is still going to be registered as a condominium, and Urbancorp will likely own all the units.
So what really happened?
Urbancorp cancelled this project, and said that instead of building and selling condos, they’re going to “build towers of rental apartments.”
But let’s not get bogged down in terminology here.
A “rental” can be a condominium or an apartment.
So the fact that Urbancorp is going to be “building rental units” needs to be investigated further. Are these rental units, in fact, part of an apartment building?
No, they’re not.
They’re part of a CONDOMINIUM!
So basically, Urbancorp cancelled a condominium, to build a condominium.
The only difference between the former and the latter is that the former was set to be owned by hundreds of individuals who had contracted to purchase the units years ago, and the latter is set to be owned by, you guessed it, Urbancorp.
So basically, Urbancorp has “taken back” all their condo units, and they will now own them, rather than the buyers who contracted to purchase them.
Time will tell what Urbancorp does with the units. Maybe they keep them all and manage them long-term. Maybe they sell the entire complex to another entity. Or maybe, just maybe, they sell off the condo units one at a time.
And what if they did that?
What if they started to sell these units in 2017?
Wouldn’t that be ironic.
It would be as though they borrowed money from potential condo buyers at 0.75% interest, to finance construction of a condominium project, and then tore up those buyers’ contracts, took the condos back, and resold them years later after they’d gone up in price substantially.
Who knows how this will all play out, or how we even got to this point.
But after Emerald City Condominium was completed without direct subway access as promised by the developer, and after Centrium Condo’s lawyer and developer conspired to steal buyers’ deposits, perhaps this recent story about Urbancorp is the third strike that was needed to help naive pre-construction condo buyers turn around, and say, “Nah, I don’t think so.”