The cancellation of another large Toronto-area condominium development – this one planned for the City of Vaughan’s Metropolitan Centre – has buyers crying foul and adds further fuel to a continuing government review of regulations and sales practices in the hot presale sector.
On Tuesday, Patricia DeBartolo of Bradford, Ont., received a letter from Icona Develoments Inc. returning her 20-per-cent deposit on the $522,000 three-bedroom apartment she contracted to buy. The letter informed her the two-tower project was now “un-financeable. … We must inform you that the Icona project has been cancelled because of circumstances beyond our control.”
Typical presale contracts include clauses that allow developers to abandon projects that fail to obtain financing, but buyers feeling stung that condo prices have kept going up believe the Icona project may still have been viable.
A rendering of the Icona condo tower.Courtes of the Gupta Group
“I feel financially victimized, why can they just walk away? There’s something wrong with that system,” said Ms. Bartolo, who is spearheading an group of Icona buyers looking to legal options to address what they see as an unfair deal. “When I made the investment, I was very excited, it’s frustrating to see that go down the drain.”
The project was backed by The Gupta Group, owned by hotel investor Steve Gupta, who founded the Easton Group of Hotels in Ontario in 1978. Icona Developments had sought permission for more than 1,600 units spread across three towers. As many as 1,143 apartment units had been presold in early 2017 for two proposed towers at 3201 Highway 7, a site currently occupied by an Easton-operated Hilton Garden Inn hotel.
2017 was a record year for condo presales, according to analysis from Urbanation Inc.; more than 35,000 units were sold in the Greater Toronto Area.
Shaun Hildebrand, president of Urbanation, says the Icona units sold out for about $630 a square foot in early 2017, but the market has risen rapidly, and now similar units could fetch as much as an additional $100 a square foot, adding up to tens of millions in lost revenue. At the same time, construction costs and development fees have also been rising, particularly in Vaughan, Ont.
“This was a big project that sold out extremely quickly, and therefore wasn’t able to capture the high price growth during the rest of the year, illustrating the importance of selling and starting to build in the same market environment,” Mr. Hildebrand said.
There’s another potential complication in the Gupta plan: when Icona Hospitality Inc. bought the hotel and land on Hwy. 7 in 2005 from 2748355 Canada Inc., the deal came with a restrictive covenant that did not allow non-hotel development on the parcel. On July 6, Justice Peter Cavanagh ruled those restrictions would remain in place, even though the Gupta-owned company had presold residential developments on the land.
The Gupta Group responded to requests for comment on the project with a statement echoing what it had sent to buyers: “We are extremely saddened and disappointed to have to cancel our ICONA condominium.”
“If you go out and start selling something that you don’t even know if you can produce, you’re responsible,” said Ms. DeBartolo, who took out a home-equity line of credit to pay for her deposit. She describes the 24-hour period in which she heard about and purchased her Icona unit as a high-pressure environment. At the sales event, held at site’s hotel, she describes agents rushing to and fro, potential buyers being told no legal modifications would be allowed to the presale contract. “It was ‘take it or leave it,’ behind you was another 10-15 people,” she said. “I’m an average consumer, builders get rich off of people like me. … We as investors go into it in good faith. You lose faith an any kind of preconstruction model.”
After the April, 2018, collapse of a similar-sized condo project near the Vaughan Metropolitan Centre – the three-tower 1,153-unit Cosmos project by Liberty Development Corporation – the City of Vaughan sent a letter to the provincial government asking for a review of legislation governing presale condominium sales tactics. “We hope the new provincial administration will take action on our request shortly,” the city said in a statement about the Icona collapse.
“It is my understanding that Tarion [the regulator for new home builders] is looking into this matter,” said Minister of Government and Consumer Services Todd Smith in a statement. “We are looking at this policy area along with a number of others to determine next steps on strengthening consumer protection. Our government will be working with industry, stakeholders, including municipalities, and Ontarians to ensure the appropriate protections are in place for consumers and that the regulatory burden for businesses is reduced so projects like these can succeed.”
Eleven condo projects totalling 3,992 units have been cancelled in the GTA since the start of 2017, according to Urbanation. Adding Icona’s 1,633 units would bring the total to 5,625.
Shane Dingman