I continuously promote the purchase of pre-construction condominiums & townhouses in Toronto as an excellent investment vehicle.

However, it doesn’t always work out in the end.

On Saturday, there was a terrific article in the Toronto Star that featured a few unlucky, would-be purchasers.

While I sympathize with their plight, I think they should have done their homework first…

I do a lot of work for Context Developments as several agents here at Bosley Real Estate have great relationships with this developer.  They completed Radio City a few years back and have just recently completed Tip Top Lofts and Spire.  The name “Context Developments” is well-known in the real estate industry, and we’re at the point now where any project announced by Context is immediately assumed to be a success.

This is not how it works with ALL developers.

While some development companies have multi-million dollar financiers in their back pockets, others are working on their first project and can barely scrape together enough pocket change to pay for parking outside their own job-site.

Saturday’s article in the Toronto Star told the story of several people who purchased units at the Jarvis Mansions on Jarvis Street (next to the Keg Mansion) and how the project has gone into receivership just days before the scheduled completion.

The project was announced, and first started selling units over FOUR YEARS ago, and has been dragging it’s feet ever since.  The project came to a standstill in July because of nine liens against it for over $2 Million by the general contractor, Pegah Construction.

In August, the developer, Panterra Mansions Joint Venture Corp, emailed it’s purchasers to inform them that construction on the project had “temporarily” stopped.

The original closing date for this project was scheduled for October 29th, 2004.  Safe to say, they aren’t going to finish on time, unless they jump into their Delorian with Doc Brown & Marty McFly…

The buyers will have an opportunity to re-purchase their units out of receivership, however the prices will be adjusted to reflect current market value, which is significantly higher than the prices the buyers agreed to pay four years ago when they first gave their deposits.

So where did this project go wrong?

How could these unfortunate buyers have avoided such a mess?

Well, there’s no blueprint for buying units in pre-construction, but I do have a few rules of thumb.

1) Size of the Project: Believe it or not, the larger, more expensive, and more complex the project is, the better the chances are that the project will succeed.  A small development will involve small-time developers and empty-pocketed financial backers.  If you’re building a fifty-story condominium, chances are, you’ve done this before.  The smaller the project, the fewer buyers will be disappointed when you don’t complete it on time.  There are a few small developments in downtown Toronto that have been continuously pushed back now for years!

2) Development Team: Do your homework!  Go to www.urbandb.com and lookup the team handling the project.  Who is the developer?  Who is the architect?  Who is the general contractor?  Which real estate company is handling the sales?  At Urban Database, you can search by a developer or architect and see what projects they have done before.  I suppose you could Google the team as well, and read up on their history!  If you draw the conclusion that the project is being developed by people with no experience, why would you want to be involved?  Do you want to ride the learning curve with them?

I had a client buy into a new development near Dundas & DVP, and when I went to the sales centre in person, they informed me “We don’t cooperate with other agents,” which means that they handle the sales themselves, internally.  I would say that 90% of new developments cooperate with agents, so doesn’t that small 10% raise a red flag?

If the development team is cutting out all the experienced, knowledgeable professionals, then wouldn’t it seem like they have something to hide?

In the end, my clients sat down with their lawyer and he raised all the same red flags that I did.  (the project site was being built next to land zoned “Low Lying Flood Plain,” which was my biggest concern after the non-cooperating salespeople and the first-time developer).  They got their deposit back, and have since looked at resale units across Toronto.

While I sympathize with the buyers in the Toronto Star article, I can’t help but picture a bunch of naive people walking into a sales office with fists-full of dollars, and not doing any research on the project.

Play with fire, and you will get burned.

These people weren’t the first, and they surely won’t be the last…