Suite/Unit Financing Problems for Trump Tower and Shangri-la?


Over the past 2-3 weeks I have received a few calls from clients looking for suite/ unit financing for these projects. Many of them had originally bought units back in 2004 and 2005. After 6 years these uncompleted towers have appreciated about 40-50%. At a recent Inman Agent Reboot Conference, one pre construction/ new condo specialist mentioned that new projects are appreciating at about 8% per year. So what is the problem?

These new projects are going to be registered as hotel/ condos with some suites being in the hotel pool for rental. This is technically a commercial designation as no long term lease tenants will really be staying, and the suites will be subject to different tax laws. So banks are reluctant to lend on them. For one, they do not fit into the lender’s lending guidelines, another is if someone defaults how do you really sell that property.

Considering that just in Trump Tower and Shangri-la the average 600 square foot unit is around $1million dollars right now, that is a $1.5 billion worth of units that need financing. Similar projects like 1 King West have been a nightmare for buyers and investors. While these new properties have experienced property management and hotel management companies, past experience makes lenders shy away from them.

Many people that have called me have put down 25% and need loans for $500,000+. However the real appraised equity outweighs what they put down, but banks do not look at that in the purchase aspect only in refinance of new projects registered products.

So what are buyers to do? I have found one lender thru the broker channel that will finance these properties on a case by case basis. This means great credit, verifiable income, verifiable down payment. Buyers will need an extra 15% which is about $100,000 in cash since max loan to value is 60%. Two banks will do it thru the branch, again on a case by case basis. To find out which ones you will need to contact me.

Question: Considering only 3 lenders will even consider lending on these projects and their high values, how does this in reality affect their worth? If you are selling a $1 million dollar plus unit and your buyers need perfect credit, $400k in cash and great income how limited is you perspective market. Even in a hot hot Toronto condo market not may people have that kind of money for one investment property. Otherwise you need the money in cash. So with Trump, Shangri La, Four Season having about 1800 units, how many potential buyers will these units actually attract. I for see a large price reduction in these projects due to lack of able and qualified buyers and many people not being able to close at registration due to lack of funds and credit. Will be interesting to see what happens as some of these units are coming up for occupancy and registration expected around November 2011 for Trump Tower.

Email me at wpianka@tmacc.com to find out more about getting financing and the 2 banks that offer loans.

 

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About wojciechpianka

After a few years of studying English and History at the University of Toronto, I decided to transfer to Ryerson University and pursue a Bachelor of Commerce degree. While studying, I worked various jobs where I acquired many skills. Starting as a teller at Scotiabank, I moved on to being a manager of a restaurant, admin staff at a medical clinic, a sales agent for INGDirect and a manager at One King West Hotel. While all these jobs challenged me, I never felt my potential being utilized. Finally in 2008, I completed the Ontario Mortgage Agent Course and signed up with The Mortgage Alliance Company of Canada. This was a great decision, as it allowed me to use the skills I learned working to help people achieve their real estate and financial goals. My passion for real estate and numbers has lead me to becoming a mortgage agent. Growing up in New York City, I always had a fascination of historic buildings and skyscrapers. At 21, I bought my 1st property and have been investing in real estate ever since. I firmly believe thru steady, safe and conservative investing a one can obtain long term financial wealth. One day, I hope to develop the same buildings I help clients purchase.
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