Oh, the stories I could share, if only I had my own television show, radio program, podcast, or……….blog?

I remember attending a condo “launch” some time around 2007 or 2008, and the project was only the second or third by this developer, so they were still working out the kinks in their systems and processes.

They scheduled two different “openings” on a Saturday: one at 10:00am and one at 1:00pm.

I signed up for both, using two different email addresses, and while I can’t recall if I got the coveted “purple wrist-band” for entry to this grand spectacle, or if was a hand-stamp reminiscent of gaining in-and-out privileges at Chuck-E-Cheese as a child, I vividly remember what happened during each of these appointment times.

The doors opened and it was a mad rush of “investors,” and soon there were people signing “work sheets” and writing out personal cheques.

There was a large map of sorts on the wall, with a bold number for every unit in the building, and every few minutes, a member of the developer’s team would go over and put a sticker over top of a number.

Why?

Because that unit had sold.

Picture yourself as a naive investor, hearing about how pre-construction condos are a great way to make money, and you’ve gained “VIP” access to this launch, you have your purple wrist-band, you’re inside looking at floor plans, but units keep selling!  Every five minutes, another sticker goes up on the wall!

What would you do?

Well, I’ll tell you what the people were doing that day – they were getting antsy, anxious, and fear-of-missing-out, before it was actually a term called “FOMO,” was taking over.  A lot people rushed to buy condos in that two-hour allotment, many of whom did so because everybody else was.

I knew one of the salespeople who worked for the developer, and as she wasn’t “on the floor” for the 10:00am appointment (ie. she wasn’t selling), we spent a lot of time chatting.  At 12:00pm when the place cleared out, I stayed for a bit as we chatted away.

That was her mistake.

Because what I saw, with my very own eyes, was other employees taking down about half of the stickers on the wall.

Why?

Because those units hadn’t sold.

They were just pretending that they did, in order to cause panic, FOMO, and make potential buyers think that their options were running out.

The 1:00pm appointment slot was looming and people were already lined up outside, so the fake-sale stickers were taken down so those buyers could see what was really available.

I’ll never forget this girl watching me look at the board with all those stickers coming down, then acting sweet and asking me, “Promise you won’t say anything?”

Sure.  It’s not like I wrote a real estate blog at the time, right?

I have so many stories just like this one, many of which I’ve told before on TRB, many of which I couldn’t tell, for fear of being sued, and many of which may still one day reach the whitespace of this blog.

That story provides a fair introduction to “part two” of our story about the perils of the pre-construction condominium industry, and it was shortly thereafter that I decided something needed to be done.

Done?  Like what?  And by whom?

Well, for all the ranting I do about the size of government, and how I constantly lament that any time a mistake is made by an individual in today’s society, the answer is always, “The government should do something,” this is going to sound quite hypocritical.  But back in 2010 or 2011, I suggested that it was time to re-write The Condominium Act, 1997.

The legislation in place that governed condominiums and condominium construction was out-dated, exceptionally flawed, and didn’t protect consumers the way it was intended.

Instead, it was a blueprint for how developers could take advantage of unsuspecting consumers.

Here’s my first post Toronto Realty Blog on this subject, over eleven years ago:

September 1st, 2011: “Re-Write The Condo Act?”

In that blog post, I referenced a great article in the Toronto Star by Robyn Doolittle, a then-unknown journalist, who eventually rose to prominence for her coverage of Rob Ford.

The article noted that an NDP member of parliament had been attempting to pass a consumer protection bill called “The Condominium Owners Protection Act.”

From the article:

Marchese has been championing the issue for five years.

His most recent attempt — Bill 79, The Condominium Owners Protection Act — failed this spring, when a Liberal-dominated committee essentially killed it by not sending it out for public consultation.

Marchese believes the Liberals may have felt pressure from the development industry. Conservative MPP Bill Murdoch, who represents Bruce-Grey-Owen Sound and sat on the committee, said it came down to Liberal priorities.

Ironic that politics got in the way of politicians protecting consumers.

The following year, in 2012, this article appeared in the Toronto Star:

“NDP MPP Seeks To Help Ontario’s Condo Owners”
Toronto Star
May 10th, 2012

From the article:

Fourth time lucky.

So hopes NDP MPP Rosario Marchese, long-time champion of condominium law reform, as his latest legislation cleared a major hurdle Thursday.

The Trinity-Spadina MPP’s private member’s bill passed second reading in the house and now goes to a legislative committee for public hearings. Marchese believes it could it be enshrined in law before year’s end, which would be good news for Ontario’s 1 million condo owners.

Under his proposed law, there would be a condo review board, a tribunal to resolve disputes among owners, condominium boards, property managers, and developers.

His bill would also address construction matters such as soundproofing and improve new home warranties.

Those reading this right now should take note that it’s September of 2022 and this article was written in May of 2012.

A full decade has passed since this was a topic of discussion, and it’s been over eleven years since I wrote that blog post about the Condominium Act being re-written.

While many of you are simply getting a history lesson, I actually lived through this.  I watched in frustration as attempts to hold condominium developers accountable failed in perpetuity.

TARION was too big.  Developers were too powerful.

It would take something drastic to ever see the system changed.

I noted at the end of Monday’s blog that the straw that broke the camel’s back was condo cancellations, but before the cancellations came the ingenious “cancellation and re-launch.”

Let’s say you’re a developer and you launch a 30-storey, 325 unit condominium with a gross floor area of 250,000 square feet.  Including parking spaces and lockers, you sell the building out after six months for an average of $600 per square foot, or $150,000,000.

Six months go by and you extend your “economic viability date” by sending letters by registered mail to every one of the 325 buyers.

You do this three times.

You have yet to break ground, and two years after your initial launch, condo prices have risen throughout the city.

If only you could get today’s price, right?

But you can!

Because of Condominium Act and the legislation therein, a developer can essentially “cancel and re-launch” a project.  They might not phrase it that way.  In fact, they would say they cancelled it first, then later re-launched it after much consultation and planning.

But in reality, this is like running a restaurant and twenty minutes after somebody orders a $10 hamburger, bringing it to their table and offering it to them for $14.

That’s exactly what developers did in the late-2000’s and early 2010’s.

So that developer who sold out the 325-unit condo at $600 per square foot, or $150,000,000, “re-launches” the project and, get this – offers the existing, er, previous buyers the “first chance” to buy back in!

And they do.

In droves.

I don’t have evidence to support this but I’d be willing to bet that more than half of all people who had bought into a pre-construction project that is cancelled end up buying back in.

So at $800 per square foot, the project sells out for $200,000,000.

The developer just put another $50 Million into his pocket and it cost him some time, energy, and sales staff.

This started to happen with an increasing frequency, but buyers had nobody to complain to.

They could complain to the newspapers, but after posing with a sad-face for the photo to accompany the article, they were left licking their wounds.  These articles passed through the news cycle and the “cancel and re-launch” were soon forgotten.

Then in early-2015, something crazy happened.

A now-bankrupt developer called UrbanCorp, who I had been ranting and raving about on Toronto Realty Blog for years on account of their miserable track record, did something that hadn’t been done before: they cancelled a project when it was already under construction and converted the project to rentals from condos.

This was incredible, and I don’t mean in a good way.  It was just shocking!

Sue Pigg, who wrote for the Toronto Star at the time and broke big story after big story, year after year, broke this one too:

“Builder Quietly Cancels Condo Complex”
The Toronto Star
January 27th, 2015

I really miss Sue, she was incredible.  She uncovered the fraud in the sales centre at Trump Towers years earlier, and as an aside, that’s an incredible read!

As you might expect, I posted a very snarky response on Toronto Realty Blog:

February 2nd, 2015: “Did UrbanCorp Steal Their Condos Back?”

As I explained in my blog, it seemed as though UrbanCorp simply “borrowed” money from hundreds of buyers in the project, paying a paltry 0.75% interest when they returned the buyers’ deposits, which enabled them to get construction financing to begin the project.  Once the project was underway, they cancelled the project, returned the money, and then had options at their disposal.

Could they build the complex and sell to a REIT?

Could they keep these apartments in their own portfolio?

They had options, and they had these options because they fleeced pre-construction condo buyers.

But the biggest insult was when they “allowed” the buyers the opportunity to purchase units in two of their other projects that were under construction – of course, at significantly higher prices then what they paid three years previously.

In my opinion, this cancellation was far more egregious than anything prior.  Previously, these projects were cancelled and sold back to buyers, which is despicable.  But KingsClub was even dirtier because they continued to build the condos and simply called them “apartments” and kept them for their own portfolio.

UrbanCorp cancelled another project only months later:

“Family Fears Homelessness When Builder Doesn’t Return Deposit”
Toronto Star
June 13th, 2015

A builder not returning a deposit, eh?  Keep that in mind as we come full circle to 2022 later on.

Now, for those of you not familiar with UrbanCorp’s story, and who are tasting vomit as you read this – don’t worry, they got what was coming to them.

Here’s a blog that I happily wrote one year later:

April 1st, 2016: “UrbanCorp Finally Gets Their Comeuppance”

But then the story got really weird as UrbanCorp had their registration revoked by TARION, but for some reason, were raising money in Israel!  Here’s a blog I wrote later that week:

April 6th, 2016: “Urbancorp Bonds Plunge In Value………In Israel?”

Man, this brings back memories.  I can’t say that I took pride in UrbanCorp’s demise, since that would be untrue.  But I will say that I felt vindicated when they went under.

Unfortunately, this changed absolutely nothing within the industry.

In fact, condo cancellations became even more common.

Fast forward one more year, and we saw the real estate market shoot up like a rocket in early 2017, then come back to earth in April.

Here’s a story about a failed Mimico project called “On The Go Mimico”:

“More Than 200 Condo Buyers May Lose Homes After Development Fails”
CBC.ca
April 11th, 2017

Now, I’d be remiss if I didn’t point out that nobody “lost their home” in this situation.

This project wasn’t cancelled by the developer to be re-launched and re-sold, or sold to a REIT, or kept in-pocket like KingsClub.  This project was cancelled because the developer went bankrupt and the development was placed into court-ordered receivership.

Did the buyers lose their deposits?

No.

From the article:

About 200 people who bought condo units in an Etobicoke high-rise project may lose their homes after the development was placed into court-ordered receivership due to massive financial problems.

The project, still only about 15 per cent complete six years after it was first marketed to potential buyers, will now be sold off by the receiver in a bidding process.

The buyers who paid for the pre-sold condos — 208 of the project’s 242 units — will get their combined $6.3 million in deposits back. But the condos they bought and waited years to move into will likely be sold off at much higher current market values by whomever steps in to complete the project. 

Some of the original buyers had purchased their units as far back as 2011 when Toronto home prices were about half of what they are today.

Again, I take issue with the line, “…may lose their homes.”

Nobody lost their home.  They didn’t own homes.  Homes weren’t built yet, nobody lived in them, and nobody owned anything.

The buyers were set to receive their deposits back, per the article.

But the line “Some of the original buyers had purchased their units as far back as 2011 when Toronto home prices were about half of what they are today” ignores the intrinsic nature of speculation in pre-construction condominium buying and investing.  It’s like this article was written by a child, living in a utopia, on another planet.

I have zero sympathy for people who ignore this thing called “risk” in any market, and the idea that somebody gambled in 2011 by putting down a deposit on a pre-construction condo is now owed something, is a fallacy.

Here’s another story about a cancellation in Keswick, Ontario, and this one features an impressive photo of six people looking sad for the camera:

New Home Buyers Want Answers After Builder Cancels Sales In Georgina
YorkRegion.Com
May 18th, 2017

From the article:

And of course, I chimed in with an epic post on Toronto Realty Blog:

November 13th, 2017: “Another Pre-Construction Condo, Cancelled. Who Is To Blame?”

I got “into it” with a few folks who bought into MUSEUM FLTS that found and read my blog.  While nobody accused me of writing anything that was wrong, they just didn’t like that I wrote it.  I, too, wish that we could erase history.

Early in 2018, the following article appeared in the Globe & Mail:

Pre-sale Regulations In Spotlight As Hot GTA Condo Market Leaves Buyers Out In The Cold
The Globe and Mail
February 13, 2018

This was one of the first articles in a major Toronto newspaper that called the entire process of pre-construction condominiums into question.

From the article:

The trend is raising questions about the rights of buyers, the motivations of developers and the responsibility of lawmakers to better regulate a red-hot segment of the real estate market: presale condos. The issue is positioning buyers against builders as both sides attempt to reap the benefits of soaring prices. Buyers are frustrated that even as they are locked into deals, there is no recourse if a builder backs out. Developers say they are simply following the terms of signed contracts.

Purchase contracts typically give builders wide scope to cancel a project, including if they have not sold enough units, do not have financing or have not received city building permits.

Gold, Jerry!  Gold!

Except that, for a person like myself, who had been writing about this for ten years on my blog, it was frustrating to see this in print and get reactions.

Don’t get me wrong, I was happy when people read that article, shook their fists in the air, and said, “Something needs to be done!”  But having been that guy for a decade, it was bittersweet.

So was this the beginning of change in the pre-construction condominium industry?

Unfortunately, not.

It would take another three years to see anything happen.

And I will detail that for you on Friday.

(To be continued…)