Monday Morning Quarterback: Did Urbancorp “Steal” Their Condos Back?

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:

Welcome To My Nightmare: Part 1
Welcome To My Nightmare: Part 2
Welcome To My Nightmare: Part 3

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.

That’s rich.

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.”


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  1. River says:

    Living the nightmare now with Urbancorp. They are liars, scammers and still get to keep building in the city. Horrible experience. many of the buyers will move forward on a class action suit, and possibly go after Tarion for not doing their job to protect the buyers.

  2. Also says:

    While David has a negative personal experience as an alibi, i’m certain most real estate agents like to harp on pre-con because it takes potential sales from re-sale market where they earn their commission.

    Yes it is true that there can be all sorts of issues with a pre-con, but its similar to how sellers try to pawn off problem properties in the re-sale market by simply masking the issues. Difference is that between the two cases, someone(well, some two) get commission.

    Trusting a salesperson to be honest about a product they sell, versus what the competition has, is probably naive to say the least.

    1. Devore says:

      I thought agents earn huge commissions on pre-construction condo sales.

  3. srsly says:

    I’m pretty sure that the dishwasher in your story is also a real estate agent nowadays.

  4. Seeya says:

    They should be happy they got their deposit back unlike those poor souls at the yonge finch development in the summer. Condo market is overpriced and full of crappy construction all over Toronto. Now they get to avoid the massive real estate correction for these junk units.

  5. Hans Masren says:

    They should consider themselves lucky that they are now off the hook. Near miss I say.

  6. Steve says:

    I believe the banks now need 70% pre-selling before they agree to finance a project. If I remember correctly, the last condo bust (1989-90) left a huge tangle of a mess and the banks declared “never again!”.

    A note here regarding the long term prospect for one bedroom units downtown. Demographics suggest Millenials will be getting older, marrying, and starting families soon, so we may live to see another exodus to the suburbs where more space is available for less. It could be that condos are already overbuilt.

    1. jeff316 says:

      I’ve always felt that the perception of millenials preferring the “downtown” lifestyle has always been overstated. This idea that millenials have given up on the suburbs is only around because most of them haven’t gotten to their childbearing years.

      But the problem with the “impending race to the burbs” narrative is that the suburbs are increasingly expensive. They may be better value, but for many the space they desire is still out of reach.

      If millenial demographics cause a problem, it is less likely to be that condos are overbuilt, and more likely that young families end up stuck in their condos.

    2. Kyle says:

      Agreed with Jeff, the notion that Millennials will (or can afford to) move to the burbs en masse is unfounded. What is founded however is that many Baby Boomers are moving from the burbs to be closer to downtown.

  7. Mike says:

    This condo was a approached by an investor who offered to buy all the units and convert to a rental, because rents in the city are high and the prospects for a secondary resale market are looking shaky.

    The need to label pre-sale condo’s for what they really are, European Put Options. You’re buying a contract to purchase an item at a future date at an agreed upon price. The kicker is the date is not defined, its a general period, with the ability to change with no input or consideration (the monetary kind of consideration) of the purchaser. Even what you’re buying is loosely defined and doesn’t exist. This would be fine if it was a Call Option but it’s a Put option (difference between Put and Call: Put Option seller has the right (not obligation) to make purchaser buy Call Option purchaser has right (not obligation) to make the seller sell). We all seen what derivatives (which options are) did to the financial market did in 2008. Could the same happen with pre-built condo sales, no, but that doesn’t mean that unsophisticated investors (or buyers if you will) are not going to get harmed. If it turned out that the builder of this condo was named Goldman Sachs or JP Morgan people would be screaming about the abuse of the “little guy”.

    You can buy stocks of your stock broker but if you want to buy Stock Options your broker needs to hold a special license to sell them to you. As an investor you need to have a level of sophistication in order to be able to trade options and even then you are provided with extra levels of disclosure on the risks relating to options. None of this exists in real estate.

    Pre-sale condo’s should be taken out of the hands of OREA and put into domain of the Ontario Securities Commission (OSC) because that is what they are.

    1. Chroscklh says:

      Make no confuse with Eastern European Option – “Share or Bear” – stock is sold forward, must deliver share at agree time or provide bear, prefer trained or at least sedate

    2. Libertarian says:

      Mike – well said!

      Didn’t the investors of the Trump Tower make that same argument in their lawsuit? Or perhaps, they approached the OSC to report the developer for selling investments without a prospectus and/or for not being registered as an investment dealer.

      It is the wild, wild, west out there. The safest thing for the average joe to do would be to avoid it completely, as David has been stating for the last ten years.

      1. Mike says:

        The OSC investigated the sales at Trump because investors said that they were promised a rate of return on the condo/hotel units which would have made them very similar to LP’s sold in the 80’s

      2. jeff316 says:

        It isn’t the wild west at all. It is just not without risk.

    3. Appraiser says:

      @ Mike: I’m having a tough time buying your analogy to Put Options, as tortured as it is. It could be argued that virtually all real estate transactions involve, ” buying a contract to purchase an item at a future date at an agreed upon price.” That includes low-rise homes, condos and even re-sales where in essence all you have purchased is paper until the closing date.

      I’m also having difficulty in comprehending how you have surmised that the Ontario Real Estate Association (OREA) is somehow in control of the sales of a private developer.

      1. Mike says:

        @ Appraiser- real estate transaction, under normal circumstances would not be akin to a derivatives transaction because neither party has an option. You have a binding contract to buy and to sell, enforceable by either party. You have an obligation not a option.

        In pre-sales, you are buying the “right” to buy a property that may or may not be developed in the future. On contract signing that asset does not exist, yet you’ve made a down payment on what is essentially the obligation to buy that condo, when and if that condo is built. The payment is a requirement because banks make it a requirement in order to fund the construction financing.

        The purchase of an existing condo or house involves a contract and a consideration to make the contract binding. The consideration exchanged can be a dollar (and often is in higher end and commercial transactions) however more often than not, comes in the form of a deposit of 5-10% of the purchase price here in Toronto. That said, there is no requirement for a deposit beyond consideration.

        As for your question about OREA; I mixed up RECO and OREA it’s my understanding and I may be wrong, that developers hire real estate agencies to sell the units for them. My understanding comes from the few sales offices that I’ve visited and an episode of Big City Broker but as I’ve said, I may be wrong. If I’m right though, the agents will be licensed via RECO. Not in the industry so these things sometimes happen.

        1. Appraiser says:

          @ Mike: With pre-sale condos as in re-sales of all kinds, one is buying real property under the terms and conditions of the relevant agreement of purchase and sale. Which in the case of builders can be long-winded, one-sided contracts to be sure, but they do not involve buying the “right” to purchase property at a future date. That is a misconception. Once all parties sign off, it’s a done deal.

          Most low-rise new homes are purchased pre-construction as well (the asset does not yet exist), with a proposed future closing date, subject to numerous terms and conditions. That fact does not define them as derivatives either.

          1. Mike says:

            @Appraiser- And the story was about what? That’s right, people who had “bought” a condo in the pre-development stage who won’t be getting an actual condo (or anything for that matter). How did that happen? That’s right, the developer, had options to get out of the contract. The condo purchaser has no legal recourse, the developer had no legal obligation to provide the condo.

            Now had the buyer (as with many in the Turmp) come back to the developer several years after the contract was signed and the premium paid and said to the developer, “the economic climate has changed from the time in which the purchase was made and I’d like to back out of the contract and get my deposit back”, what do you think the developer would do? That’s right, keep the deposit and sue for any associated losses. But wait, what if the developer was able to sell the condo on the market and pocket the profit? Well they can do that too, it’s their…wait what’s the word I’m looking for? That’s right, option.

            As for single family homes being purchased in pre-development stages. I’m sure you’re right in some markets but this blog focuses on Toronto real estate. Not a lot of new development homes going in these days, most new homes are custom built by smaller builders. That said, I concede the point but my argument holds true to all pre-development sales where there is no tangible asset existing at the execution of the contract.

        2. Devore says:

          “In pre-sales, you are buying the “right” to buy a property that may or may not be developed in the future”

          You are buying the “obligation” to buy “a” property at a pre-determined price. It’s not really an option.

    4. Jonathan says:

      Mike, the analogy does work, although your version is really muddled. I think you have it backwards – in a pre-con contract, a developer buys a put option (aka, the right to sell something at a set price) from the buyer. If the actual market value goes up above the pre-con price, the developer can let the option expire without exercising it and retain ownership of the condo. If the actual market value drops below the contract price, the developer can choose to exercise the option and force the buyer to take possession at the pre-con price.

      Basically, the pre-con process caps the developer’s downside while they retain the ability to retain the upside by cancelling a project and returning depositor money. To this point few developers have chosen to cancel projects in this manner because it is a seriously dick move and will lead to loss of reputation, but apparently Urbancorp doesn’t care about this and/or already has a poor reputation.

      1. Mike says:

        I see what your saying and yes, my explanation is confusing mainly I kept starting and stopping to do some actual paid work.

        Your right, it doesn’t fit into the actual definition of a Put option because the purchaser is paying the premium but the developer still has the option.


  8. Paully says:

    Are there not big property tax implications here? I thought that “apartments” pay a much higher property tax rate to the city of Toronto than “condos” based on percentage of the CVA? Maybe the City’s tax compliance people should start sniffing around to see if this is yet another way they are getting screwed by a developer?

    1. Devore says:

      If TO is like other places, apartments (including rental condos) do not receive the owner-resident property tax discount. Renters end up paying higher taxes than owners; so much for progressive taxation. I don’t think there’s any tax shenanigans at play here.

  9. Kyle says:

    I think this will play out a lot more often now. There is a lot of institutional money looking to get into the downtown Toronto condo rental market. And for obvious reasons they don’t want to buy up individual units as they become available, so their only option then is to build or buy up a pre-con project. In the last few months King Blue, The Selby and now the Kingsclub were all sold out from underneath buyers who had deposits on units. In an interview with Andrew Lafleur and Matt Kingston, there was mention of another institutional buyer looking to spend 30-40 million. There are also developers like Rockport and Minto who are building new purpose built rentals. These guys will be competing for choice land with developers looking to build condos. Now with exchange rates as low as they are, foreign institutions will definitely be pulling the trigger on more purchases here. All this means prices for downtown condos will remain well supported for a long time to come.

  10. sandra says:

    It might make sense to just invest in syndicated mortgages then and skip the pre construction condos. I have two friends at my office that are making 8% per year, which makes my high interest savings account at ING look disappointing. 🙁 I have seen some bad reviews online though.

    1. Mike says:

      How sad is it that you need to spam someone else’s blog? Wait, I’ll tell you, very.

      1. Joe Q. says:

        I doubt it’s spam, actually — the link is to a highly critical blog post about syndicated mortgages that’s been making the rounds.

  11. CondoMadness says:

    The reason one rents in a rental building is that you can count on being able to live there for as long as you want. Renting in a condo building is only suitable for the short term as it is extremely easy for the owner to kick you out.

  12. Chroscklh says:

    Pre construct had place in mkt. Still does – as Appetizer point out above. But Chroscklh feel is no pricing risk proper – when mkt stop pricing future condo below ‘spot’ (current exist) – risk/reward off, is no good for buyer. high profit also bring in inexperience, shady player. Drive up land cost and compeition for financing – squeeze margin force developer do shady thing “Contract says 8 ft ceiling? Now make 4 ft ceiling – is okay for midget, yes?” I believe is Ronald Regan who say “He who laughs last, probably didn’t get the joke.” – is true, yes?

  13. Appraiser says:

    A few thoughts on Toronto condos. All condos were once pre-construction condos, even the one in which our gracious host resides. Without pre-construction condos there would be no re-sale condos now. Out of the thousands of new buildings and hundreds of developers over the years, three projects went poorly? Five? Ten? Twenty?

    There are currently 93 condo buildings under construction in T.O. This latest Urbancorp debacle represents a tiny fraction of the market. I’m not defending nefarious or under-handed tactics, nor am I willing to paint an entire industry with the same brush, just making observations.

    1. Mike says:

      Toronto is one of the only cities that pre-sells condos. In most other cities (NYC, Miami, LA, Chicago), condo’s are built and then sold. So it’s not like condo’s wouldn’t be built without pre-sales. If they were built post-construction then you’d see a lot of the lower rung developers eliminated from the market.

      The reason we have pre-sales is that someone (it might have been Harry Stinson but don’t quote me) couldn’t fund the development of a condo so he sold all the units at a discount and then went to the bank and pitched a risk reduced investment. The banks loved the fact that he had all the buyers lined up and it cut their risk and started asking all condo borrowers to do the same.

      I see your point about it being a small percentage of overall units built in the city but is a bus crash where everyone dies more horrific in Toronto than it is in Beijing because of the number of people who travel on a bus?

      1. Jayne says:

        I think Daniels is one whose condos sells after being built

      2. Joe Smith says:

        “In most other cities (NYC, Miami, LA, Chicago) condo’s are built and then sold”

        This is absolutely false
        There are differences but preconstruction is the normal way new condos are sold in N America

  14. Clifford says:

    Hahahah. I thought of your youtube video as soon as I heard about this. It’s typically difficult to find information on a developer but it’s not too difficult to find horror stories about Urbancorp. buyers should have known that this builder is probably the absolute worst in the city.

  15. Pete says:

    While I think stories like this will keep some buyers away (the ones who are looking for a place to live), I don’t think it will keep away the investor/buyers. Investor/buyers are looking to make money, and the easiest way to con someone is to play to their sense of greed.