Kingsclub becomes second condo project in last few weeks to suddenly convert to rental apartments, leaving hundreds of pre-construction buyers out in the cold.

Susan Pigg – Toronto Star

Urbancorp has quietly cancelled its Kingsclub condo complex on King Street West and plans to build three towers of rental apartments instead.

It is the second downtown condo project in just the last few weeks to suddenly convert to rental apartments instead, leaving hundreds of buyers of preconstruction units out in the cold.

Comment: Well now that is weird.

The two back-to-back conversions are being seen as a sign that developers are growing fearful that condo interest is waning in Toronto, at the same time that rental demand shows no signs of letting up.

Comment: No, that is not seen as a sign at all. I doubt many people even knew until this. And when 20,000 new condos were sold last year, there is certainly no waning in condo interest. Probably has something to do with sales and tax breaks.

In Urbancorp’s case, however, purchasers put down deposits for the first tower of well-priced one- and two-bedroom condos more than three years ago. Some 181 buyers are only now being alerted that the 639-suite condo complex — still a busy construction pit on King Street West just north of Liberty Village — is being abandoned.

Urbancorp did not return phone calls and emails from the Star, but has been telling buyers that it couldn’t get construction financing.

That came as huge shock to John Wilk, 32, who put $40,000 down on a one-bedroom plus den unit back in November of 2011.

He knew the project was far behind schedule — it was originally slated for May, 2015 occupancy and the foundation has yet to be finished — but he’d heard no rumblings of a shutdown.

Some 181 of the first 293 units sold relatively quickly, but Urbancorp had apparently registered no more sales since late 2012.

Comment: Which is only 62% pre-sold, not enough to get financing. They would need 70% or more to get the funding. And out of 639 units, that is a paltry 28%. They were right on the train tracks, which could turn a lot of people off. The units are all pretty small. There are any number of reasons, we don’t need to say the sky is falling and that this is a sign of the collapse of the Toronto condo market. Look how well all the Streetcar buildings on Gladstone sold and are selling, about 1,000 feet to the north.

Just before Christmas, the 49-storey, 441-unit downtown condo and townhouse project, The Selby, was also converted to a rental project. No sales had actually been finalized.

The Bloor and Sherbourne Sts. project, which incorporates the historic Gooderham Mansion, has reportedly been bought by an institutional investor.

Comment: So that is something totally different. If they never even sold a single unit, that means they never even launched sales. Without inside knowledge, we cannot comment on the reasons for the change.

In that case, however, pre-construction sales had just been going less than a month before the decision was made to convert to rental. The developers of that project also could not be reached for comment.

These two cancellations are “a warning to all pre-construction condo buyers out there that this can happen and to read your contracts carefully,” said realtor Andrew la Fleur.

Comment: Sure, read your contracts. It gives all the power to the builder. If they project fails, they return deposits (or Tarion steps in to cover them) and the buyers are left out in the cold. It is not new, it has happened before. It happened before Minto built 775 King West, the original project for that site went bust. The Mansions on Jarvis went through a messy dissolution a couple years back. How about the big one, One Bloor West? All the original purchasers got the shaft when Bazis walked from the project and Great Gulf stepped in. Even DNA3 had a similar problem. None of this is at all new. The switch to rental is new, but not the termination of condo projects.

But it’s also a sign that developers are starting to see the longer-term gains and profits to be made from rental, said la Fleur, who specializes in selling pre-construction condos to investors who rent them out.

Comment: Maybe. We don’t know that for sure. We don’t know WHY these 2 projects did not get off the ground as planned. To make assumptions is unwise and dishonest.

“While this is a matter of buyer beware, it’s also a good sign for the market. It means that big money (deep-pocketed developers and institutional lenders) have confidence in the Toronto condo market and are seeing what pre-construction buyers have been seeing for years, that this (owning and renting condos) is a good way to make a return.”

Comment: There you go, the condo market is not going to collapse.

Both projects are still expected to be registered as condominiums. That provides tax benefits and the long-term ability for the owners to still sell the units off as condos if the market changes, says Shaun Hildebrand, vice president of condo research firm Urbanation.

Purpose-built apartment construction has been almost non-existent the last few decades across the GTA. Investor-owned rental condos now represent 99% of all new rental supply, says Hildebrand.

But just last fall, Urbanation did a study comparing rental rates in newer purpose-built apartment buildings — built between 2006 and 2013 — and rental condos. Incredibly, they found people were willing to pay a premium for a professionally managed rental apartment building with long-term security of tenure.

Comment: Oh yes, that is why condos go for more than 1960s apartments. People will pay more for modern living.

Under the terms of a mutual release and termination agreement that Urbancorp sent to condo buyer Wilk this week, he’ll be repaid $41,085. that’s just $1,085 for three years of interest on his $40,000 deposit.

Comment: But developers never pay interest on deposits, getting anything is unusual. And anyone with a savings account these days know how little interest is offered on their money. Had the project gone ahead, the buyer would have received NO interest on their deposit. He got 0.9% which is better than 0%.

Another buyer, who spoke on condition his name not be used, said he is owed $100,000 for deposits on two units, one of which he was anxious to make his new home.

He’s been told that, under Ontario condominium law, he’s entitled to three years of interest at the Bank of Canada overnight rate — now down to three-quarters of a percent — minus 2%.

Comment: Which would thus be zero. And the Condo Act only states that interest is payable, not the rate which is payable.

He’s considering legal action. But condo law expert Denise Lash says purchase agreements usually contain clauses that allow a developer to abandon a project if they don’t make the sales needed — usually 70% to 80% of the units — to qualify for construction financing.

Comment: And all purchase agreements are structured in a way to make it impossible for buyers to sue. If not, there would have been many other lawsuits by now.

Kingsclub buyers have been told they can purchase what’s left in the Epic or Edge projects nearby. But Wilk figures those are going to cost him far more than the $265,000 he paid back in 2011 for his 580-square-foot unit.

“I’ve basically given Urbancorp an interest-free loan for the last three years,” said a frustrated Wilk. “I would have done better if the money was in the bank.”

Comment: Yup, you might have. But even had the project gone to completion, he still would have received 0% interest, if it was to be prime minus 2%. So it doesn’t matter either way. And if he gets the same as the buyer above, he will get $2,712.50 in interest. Again, better than nothing.

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto real estate agent with Century 21 Regal Realty.
He did not write these articles, he just reproduces them here for people who
are interested in Toronto real estate. He does not work for any builders.
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