Trump Tower woes signal top of Toronto condo market
Herbert Crockett said his late father suggested investing in something he could touch, so he put cash into Donald Trump's latest hotel project in Toronto where he could feel the marble under his feet.
Crockett, a 75-year-old retired human resources director at the World Health Organization, said he bought a C$904,000 ($918,000) hotel-condominium suite at the Trump International Hotel & Tower, Toronto, attracted by a presentation that showed he could make as much as 27 percent a year on his investment. Crockett is now suing Trump and the hotel's developers for C$2.6 million, and says he's losing C$7,000 a month because the unit he rents out is occupied on average about a quarter of the time.
"We bought into the Trump name and what we were being told was a hot real estate market in Toronto for this kind of project," Crockett said in an interview. "It turns out that the hotel had nothing to do with him and that it isn't a good investment after all."
The brewing legal trouble is the latest sign that the real estate boom in a city with more skyscrapers under construction than any other in the world may be cooling as sales drop and prices climb. Canadian Finance Minister Jim Flaherty tightened mortgage lending rules in June and criticized "continuous building, without restriction" of condos. The central bank said last month that record consumer debt and the chance of a sudden housing correction are major risks to the economy.
"When people buy units purely as an investment and not to ever live in, it's a sign that the Toronto market is on thin ice," John Andrew, a real-estate professor at Queen's University in Kingston, Ontario, said in a phone interview. "The luxury market always feels the cracks of a housing market first. Here we have the canary in the coal mine."
The Trump Toronto, the tallest residential building in Canada when it opened in January, is suffering from low occupancy and its residents are unable to get the financing promised to them, about two dozen buyers allege in their lawsuits against the Trump Organization and the tower's developer Talon International Development Corp.
Donald Trump was not involved in selling the properties, said Alan Garten, personal legal counsel for the New York-based Trump Organization Inc. "These allegations are completely without merit," he said in an email. "Trump was not involved in the sales process and Talon, the developer, made no representations to buyers regarding return on investment."
Billionaire Donald Trump was featured on advertising material for selling the hotel suites, his photo and comments praising the building appearing in magazine advertorials that highlighted the investment potential of the suites. He sold rights for the hotel to use his name and trademark via Trump Marks LP, his company that owns the Trump brand. He attended the tower's opening in April. Donald Trump declined to comment through his attorney.
"The hotel is an unbelievable success," Garten said, pointing to the hotel restaurant's four diamond rating awarded by the Canadian Automobile Association and to review website TripAdvisor.com where the Trump Hotel occupies the number one spot for the city. Garten and Talon didn't provide data on hotel occupancy.
Crockett, who lives in Crozet, France, says he is "the victim of an investment scheme and conspiracy based upon reckless and negligent misrepresentations," according to his statement of claim filed in the Ontario Superior Court on Dec. 5. The developer promised him between 5 and 27 percent return on investment, that the hotel unit was a safe investment with an annual cash flow, and that he could easily secure financing, he said. None of these projections materialized and Talon has avoided his questions in emails and phone calls, he said.