Cancelled projects?

[buildup]

Several reasons projects which haven't broken ground, yet might be 70% sold, could get cancelled include:

- a desire for a buyer to back out because (s)he feels current market value is lower than what was paid

- the asset they plan to sell to pay for the committed purchase has fallen

- the developer can't get financing to build

- higher constrcution costs

So both buyers & builders might be having difficulty.

So which projects seem at risk? I'd suggest 77 Charles & The Saint Thomas seem stalled.

 

[Observer Walt]

Having just read the discussion in the other sub-forum about this thread being closed then reopened, I think this could be a valid topic for discussion. However, discussion should be based on at least a bit of solid information. I have commented before that I don't think this forum should be for completely uninformed speculation which seems to have just been plucked out of thin air.

Anyone at all can post baseless speculation. I don't think it serves a purpose to have a forum sounding like a group of 14-year-old boys fantasizing, when they actually have no information at all. Sorry if that offends anyone.

Is there any particular reason why the two projects named here would be more likely than others to be "stalled"?

 

[Sir Novelty Fashion]

Well, if people can spend years going on like 14-year-old boys in boom times (ZOMG THIS TOWER HAS TO BE TALLER CUZ WE NEED A 1,000 FOOT SUPERTALL!) then I certainly don't see why we can't exercise the same right to uninformed commentary when things go bust. This sudden sensitivity to pessimism is the worst kind of fanboyism of all.

I'm dubious about what "70% sold" really means. (And not just becuase every building is "70% sold," which makes me think that's a nudge-nudge-wink-wink insider euphemism.) If markets continue to collapse, would it be unreasonable to expect that the people who have paid for units in buildings like 1BE and Shangri-la might become unable to fulfill those contracts? They might well have expected to pay for the units they committed to with money that no longer exists. Have the builders already been paid in full by the banks who arranged the mortgages? I don't know quite how this works.

I'd be interested to know whether the upper-end projects are more exposed to the market turmoil than the Uptowns and Crystal Blus of the world.

With zero actual information, my bet would be that 1BE's not going to happen, that 18 York might not either, and that the odds are even that Shangri-la and the Four Seasons might remain large holes for quite some time.

 

[lawsond]

^^^

exactly right.
if we're willing to chant "build baby build" then we have to be willing to entertain the prospects that things may not be built.
it's not like this is the new york times...ok bad example...but this is not journalism, it's a discussion forum.
speculation is warranted.

 

[Hydrogen]

With zero actual information, my bet would be that 1BE's not going to happen, that 18 York might not either, and that the odds are even that Shangri-la and the Four Seasons might remain large holes for quite some time.

I think 1BE will be a go, and so will Four Seasons. Shangri-la is still in the excavations stages, but it's interesting to note that the one in Chicago is on hold.


I think Parc (by BJL) will vanish.

 

[Archivist]

What about Aura? I could see that one getting canned. The site has a long history of things not happening on it.

 

[Solaris]

I have great faith in AURA, it should be built I think because (1) it is a good lookin' tower, (2) sales have gone very well, and (3) Caderal Stoneridge is actively pursuing variances for additional floors and to be that suggests they remain highly interested in this project

if one must fail, please let it be 1BE and not Aura ~ .............. but that's just me

 

[cdr108]

I'm dubious about what "70% sold" really means. (And not just becuase every building is "70% sold," which makes me think that's a nudge-nudge-wink-wink insider euphemism.) If markets continue to collapse, would it be unreasonable to expect that the people who have paid for units in buildings like 1BE and Shangri-la might become unable to fulfill those contracts? They might well have expected to pay for the units they committed to with money that no longer exists. Have the builders already been paid in full by the banks who arranged the mortgages? I don't know quite how this works.

IMO the "xx% sold" number is dubious since developers tend to release units in phases and hold back some. So in reality, does the 'xx% sold' mean of what is released at the time, or of the total number of units in the project?

Let's give them the benefit of the doubt and say they get '70% sold' of total # of units, and they get full 20% deposit (and we know some will accept as little as 5%); that still means only 14% of the total market value of the project is in trust.

If the RE market were to turn down dramatically between sales and completion, I could see purchasers walking away from the S&P agreement and just forfeit their deposit than hold a losing and expensive investment.

 

[yyzer]

a 20% deposit on a $300,000 dollar condo is $60,000....not too many purchasers are going to walk away from that.....

you will note that most of the projects offering 5% down are either almost complete in construction, or well on their way....

 

[torontofcfan]

I think regardless of units sold, ultimately it will be the financier who will deciede whether the project is a go or not. It is up to them whether they want to fund the project or not. I am almost dead certain there is an opt out clause covering economic conditions.

A number of these projects go outside of Canada for funds, it these financiers/investors have the tolerance for risk and like the project it will go forward regardless.

 

[TOareaFan]

Since it is what I do for a living (that is all I am saying on the subject) I think I can add some light, in a general way, to some of these questions.....in no particular order.


When a lender looks at a project and sets a minimum amount of presales they do so to make sure there is a market acceptance of the project and to lessen the risk (some mistakenly say eliminate the risk) of there not being enough income at completion to pay off the construction loan. The risk does not totally disappear as there is always the risk of some/most/all purchasers not showing up on closing.

Lenders view projects sold mostly to investors/speculators (whether local or offshore) as more risky as they realize the decision to close becomes a purely economic one. On the other hand, projects sold to mostly owner occupiers are viewed as a bit less risky as the purchaser "has to live somewhere" so the decision on whether to close or not is only partially economic (particularly today in the world of pre-approved mortgages so the purchaser knows they can move in and pay their mortgage even if the value of their property is not same as when they bought it).

Someone pointed out that if a building is pre-sold to the 70% level with 20% deposits that "only 14% of the total market value of the project is in trust"....that is true but it would be a greater percentage of the cost of the project (assuming the builder was hoping to make a profit over the cost of construction)......the lender would only count a portion of the deposit money into their equity calculation (only the portion that was going to be insured and used in the construction program of the project) and the borrower would have had to prove/inject additional cash equity into the project.....the construction loan would be a percentage of the cost of the project (usually a max of 85% but often less).

I am not sure that the Toronto Shangri-la is at all related to the Chicago one. Shangri-la is a hotel brand and the properties are owned/developed by different people and the hotel is paid a fee for branding/marketing/managing the hotel (similar model to Trump.....the Donald does not own the building/project).

IMO....most (if not all) of these projects will go ahead. The issue (if there is one) will come up at completion/closing. If a project has its financing in place (I think all the ones mentioned do) and their deposits and equity in hand and fixed price construction contracts in place then the delivery risk is, largely, out of the equation.......the test becomes when you go to that rich foreign investor/buyer 36 months later and say "we are ready for the other 80% of the funds now".....do they have it?

Small caveat on the above.....if some of the projects were financed off-shore they will be at risk of their lender just simply not having the funds to continue the construction loan.......I think a couple of the mentioned projects were financed off-shore but that does not mean that their particular lender is or is not able to continue.....lenders tend to want to honour their commitments to borrowers (even in bad times) 'cause failing to do so is remembered for a long time!

 

[BobBob]

Thank you for that informative post, TOareaFan!

 

[Quanttrader]

.lenders tend to want to honour their commitments to borrowers (even in bad times) 'cause failing to do so is remembered for a long time!

Agree with most everything but this statement. Lenders protect their own butts first at the first sign of trouble. They did it in 91 recession, did it after 9/11 and they'll do it again now. If they want to kill a deal they will and you can't stop them. Extraordinary circumstances clause or something like that. Gives them an out.

Pretty soon pre-sale buyers will be desperate to sell their deposits cheap. 50 cents on the dollar for the Four Seasons deposit contract anyone? Probably won't be worth what you paid when it's done so better to cut losses now and put that cash under your mattress!

 

[Solaris]

super resourceful knowledge TOareaFan ! ... very much appreciate the educated info from your expertise ~

 

[Hydrogen]

I am not sure that the Toronto Shangri-la is at all related to the Chicago one. Shangri-la is a hotel brand and the properties are owned/developed by different people and the hotel is paid a fee for branding/marketing/managing the hotel...

I doubt they are related either. I was just noting what was going on elsewhere. Didn't mean to suggest the Toronto version was in any trouble.