Toronto’s Trump Tower now for sale
The financial hole that is Toronto’s Trump International Hotel and Tower is officially looking for a new buyer, after years of consecutive losses that ended in its owner’s quiet default on the property recently. So if you have a few hundred million dollars to throw around and wouldn’t mind having the beleaguered name of the Trump brand as part of your portfolio, now’s the time to make your move.
A court-appointed receiver for the Trump hotel — the person who has official custodial responsibility on a property when the original owner defaults — announced this week that it is starting to take bids on the 65-storey building, located right in the heart of Toronto’s financial district. The price tag has been set at $298 million, a far cry from the $500 million that the original owner, Talon International Development Inc., spent to build the tower.
Wait, what? Trump doesn’t own Toronto’s Trump tower?
Trump’s links to the Toronto Trump tower are merely on the operational side of things. First, and most obviously, he lends the Trump brand to the property for a fee. Second, Trump Toronto Hotel Management., one of the many subsidiaries of Trump Inc., acts as the building’s manager and operator, meaning that they do everything from the marketing of the
Trump Hotel to the day-to-day management of the logistics of the building. Trump has in fact used this model in quite a few of his other buildings, which means that his company doesn’t bear quite as much of the financial burden as it would if it were the actual owner and developer.
So anyway, why did Toronto’s Trump Tower go bust?
There are myriad reasons, but the most important being the strange ownership structure of the building itself. Ninety-four out of the 261 condominium and hotel units (yes there are condo units in the Trump tower, and yes you can own hotel rooms), were available on the market to individual investors. That means that Talon, in addition to expecting that the hotel operated at five-star standards, was relying in part on the gamble that luxury units at the Trump tower would sell at luxury prices.
In fact, when the building officially opened in 2012, Talon’s CEO, Val Levitan was confident that “customer appreciation for the product” — that being the gleaming, ostentatious nature of the building — would bring it hordes of investors, enabling Talon to profit from the half a billion it slapped down on the development. That did not happen. By 2013, investors who had purchased rooms in the Trump tower were losing money solely because room rates and occupancy were drastically lower than expected. This trend continued, and by April 2016, just before Talon decide they wanted out from the whole project, slightly more than half of the residential condominium units up for sale, remained unsold.
More mess ensued. Investors alleged that they were misled by Talon into buying at “Toronto’s most influential address,” and Talon pointed its fingers at Trump Toronto Hotel Management, accusing them of not maintaining the building’s advertised “five-star standards.” In the summer of 2016, Talon lawyer Symon Zucker told the Toronto Star that his clients were “no longer interested in the Trump brand, because Donald is actively diminishing it.” The Trump Organization’s lawyer, Alan Gartel, in typical Trump fashion called Zucker’s claims “baseless and ignorant”, insisting that the building had maintained its five-star rating in service.
All this back and forth didn’t change the fact that there were unsold units at the Trump Tower that was bleeding Talon money. At the end of May 2016, saddled with losses, the developer defaulted on a construction loan of $260 million, leaving it hunting for a buyer. That too was unsuccessful, and through a series of (much too) complicated transactions involving a private real estate fund, JCF Capital ULC, the property was eventually handed off to a court-appointed receiver, CBRE, whose job is to market and sell the Toronto Trump Tower.
What’s key here, is that nothing really changes for the incoming buyer. Toronto Trump Hotel Management will continue to run the show, and it is yet to be determined whether the future owner will be able to opt out of the branding arrangement Trump had with Talon.
Bill Stone, the Executive Vice-President of CBRE Hotels confirmed to the Business News Network’s Greg Bonnell on Wednesday that the property will be sold as is, with Trump management and branding, confidently declaring, in similar fashion to Talon’s Val Levitan, that “opportunities to acquire such a prominent trophy asset in Toronto’s financial core are extremely rare.” The saga continues.
Vanmala is VICE Canada’s Money & Economics Editor. Follow her on Twitter.
Cover: Kevin Van Paasen/ The Globe and Mail