In
a 29th-floor superior room at Toronto’s Trump International Hotel and
Tower, you can eat Trump-branded chocolate wrapped like a bar of gold.
Lounging on your king-sized bed in your Trump robe and Trump slippers,
you can browse a moody black-and-white sales advertisement for Trump
Residences — the luxury condominiums several floors above — that invites
you to “own Toronto’s most influential address.”
You
can telephone your humble servant, the Trump Attaché, to inquire about
the Trump Experiences touted in a slick bedside brochure, such as the
Exhilarating Super Car Experience or the Exclusive Hockey Hall of Fame
Tour with Maple Leafs forward James van Riemsdyk.
You
can express your displeasure when you learn the Van Riemsdyk Experience
is “no longer available” because staff are “curating new Trump
Experiences.” You can ask how much the tour would have cost, and the
Attaché will pause politely as though she is checking for you, and then
say that she is sorry, she doesn’t have that information.
Beneath
the dazzling surface of what is, yes, a very nice hotel, you may find
more reality checks. A package of Trump chocolate bars costs more than
breakfast. Half of the residential condos at Toronto’s “most influential
address” remain unsold. James van Riemsdyk has never even heard of the
James van Riemsdyk tour, and — whoops — his name is misspelled in the
ad. And behind the scenes, Donald J. Trump is at war with the developer
of the tower that bears his name.
After 15
years of controversy, an investor revolt and now a U.S. Republican
leadership campaign that has seen the billionaire businessman morph from
bombastic long shot to presidential prospect, Talon International, the
property developer, wants to erase his name from the Toronto skyline.
They believe Donald Trump has tarnished his brand and the tower that
wears it.
Donald
Trump holds no ownership stake in Trump tower. As with many of his
hotel-condo projects around the world, he has licensed his brand for a
fee. In Toronto, his company also has a long-term contract to manage the
building.
Together, Trump and Talon — the
company that built and marketed the tower — have faced years of bad
press and a lawsuit by buyers who say they were misled by marketing
materials. Now they are going after each other.
Trump’s
hotel management company, anticipating an attempted ousting, filed a
motion in December seeking to block Talon from delivering the blow, and
threatened to sue the company and the tower condo boards for “hundreds
of millions of dollars.” Trump argued that it manages the building at a
five-star level, and said Talon is the real problem.
Trump
was right, in one sense. Talon does want to cancel its licensing and
management agreement, according to documents filed in court and Talon’s
lawyer. However, Talon says it has every intention of doing so through
the proper legal procedure, despite Trump’s allegations to the contrary.
Talon alleges Trump Toronto Hotel
Management is not meeting its obligations. In an interview, Talon lawyer
Symon Zucker says his clients are “no longer interested in the Trump
brand” because Donald is actively diminishing it.
“It’s more important for him to be president than run a successful business,” Zucker said.
Alan
Garten, general counsel at the Trump Organization, called Zucker’s
comments “baseless and ignorant,” and pointed to the many accolades the
Toronto hotel has received. The five-diamond rating from AAA. The
five-star rating by the Forbes Travel Guide. Named the No. 1 hotel in
Canada for 2015 by Conde Nast Traveler. Consistently ranked among the
top three hotels in Toronto on TripAdvisor.
Garten
took a new swipe at Talon, blaming the developer for problems that have
plagued the tower since Trump ceremonially broke ground with Talon
executives nine years ago. Garten said Talon has been acting in its own
best interest by imposing “unnecessary and excessive fees” on unit
owners “to make up for the fact that the building was completed behind
schedule and grossly over budget.”
“At
this point, the unit owners, the vast majority of which support Trump’s
management of the building, have had enough,” the lawyer said.
In
its December motion, Trump alleged that Talon wants to terminate the
agreement in order to orchestrate a bulk sale of “more than 280 hotel
and residential units” remaining in the developer’s ownership or
control. Talon denies all of these claims.
Donald
Trump was not available for an interview because he is busy on the
campaign trail, according to his lawyer. Trump hasn’t spoken to the Star
since before 2012, when a journalist who had been reporting on the
investor revolt was banned from Trump tower’s grand opening. But his
confidence doesn’t seem to have wavered.
“I don’t think there is a hotter brand in the world than the Trump brand,” he told Bloomberg in February.
In
that interview, Trump put a different spin on his dispute with Talon.
He said his Toronto hotel is “a tremendous success” and that’s why the
developer wants to sell. “Normally I would let them do that. Maybe I
will, maybe I won’t,” he said. “I’d rather buy it.”
The
deterioration of the Trump-Talon relationship, which is documented in
records filed in Ontario Superior Court, is unfolding like a messy
divorce. The outcome will determine whether the Trump name has a place
in Toronto.
Trump swoops in
The
tower that stands in a former parking lot at the southeast corner of
Bay and Adelaide Sts. wasn’t supposed to be a Trump hotel.
Donald
Trump was a surprise addition to the project team when he first came to
Toronto in 2001 to trumpet his involvement in a press conference with
then-mayor Mel Lastman. Trump had joined forces with the Bowmore Group, a
Toronto developer, on a plan to build a five-star hotel-condo that
would be a Ritz-Carlton.
As
the cameras rolled that day at city hall, Trump boasted that actors
Bruce Willis and Sylvester Stallone might even buy units.
“We have a following where if we build something, people sign and they don’t even know what I’m building,” Trump said.
The
project was a big deal for Toronto. The city was becoming a major
financial power centre, but it didn’t have a five-star hotel. The
closest thing was the old Four Seasons, which was dated. It was rumoured
that some VIPs would fly in for the day to do business and then leave,
not wanting to sleep between four-star sheets.
Leading
the development plan for the Bowmore Group was Leib Waldman, a
53-year-old businessman who would quickly turn out to have a padded
resumé and a checkered past. His partners were surprised to learn, from a
Star investigation in 2002, that he had been convicted of bankruptcy
fraud and embezzlement in the U.S. in 1995 and had skipped out on his
jail term.
Months after the revelation, the
Ritz dropped out. It looked like the idea was dead, but in 2004, Trump
was back with a new plan and the project was rebranded Trump
International Hotel and Tower Toronto.
By
then, the New York real estate mogul’s star power had grown. It had
been more than a decade since Trump narrowly escaped bankruptcy, rolling
loans and packaging debt to salvage his empire. Now he was a reality TV
star on The Apprentice, which had premiered on NBC in January. He
hosted Saturday Night Live. He grinned from the book cover of Trump: How to Get Rich.
Talon
International took over as developer. Company chairman Alex Shnaider, a
Russian-Canadian entrepreneur, was a 36-year-old married father with an
intriguing story of his own. He had made a fortune in the steel-trading
industry. He drove a $400,000 steel-grey Bentley. He bought a Formula
One team for $50 million. More recently, he hired Justin Bieber to sing
at his daughter’s 16th birthday party.
Shnaider
and a friend, Val Levitan, formed Talon to develop the Trump project,
with Levitan as CEO. It was their first Toronto real-estate venture. As
owner, Talon would build the 65-storey tower and take charge of
marketing and selling its 118 residential and 261 hotel condos. Trump
would lease his name to the project and, once it was built, his company
would manage it, running all services and amenities except for parking,
food and spa.
Despite alluding to one,
Trump made no financial investment. His involvement is limited to the
licensing and management agreements.
Talon
kicked off sales in late 2004. In a glass-walled office on the future
project site, the company marketed two types of luxury units. Investors
could purchase hotel condominiums — basically a traditional hotel room
with the word “condo” in its name — which would be placed in a
profit-earning rental pool to be managed by Trump. Or they could buy
residential condominiums, which were permanent homes with kitchens and
dining rooms that would sit atop the hotel and see owners benefit from
amenities such as the pool and spa.
“That’s
a typical formula in the marketplace because (five-star) hotels can’t
make enough money to stand on their own,” said James McKellar, a
professor of real estate and infrastructure at York University’s
Schulich School of Business. “But the developer can sell luxury condos
with that hotel name and then use that to offset some of the development
costs of the hotel.
“The decision you make
then is you better make sure you’ve got a good hotel and that that name
is a real brand-name that stands up to time.”
Shnaider
shocked the city with sky-high prices. Condos were to average $800 a
square foot, among the most expensive real estate in the country, with
starting prices of $1.5 million. Hotel units were selling for upwards of
$700,000.
Industry experts were skeptical.
The developers were inexperienced, the condo market was softening and
the hotel industry was in dire straits in the aftermath of SARS. “They
are asking some serious Manhattan-type prices, and as much as we would
like to think this is New York, it isn’t,” housing analyst Will Dunning
said at the time.
After securing $310
million in funding to begin construction, Talon broke ground in the fall
of 2007. Trump, Shnaider and Levitan appeared together at a press
conference. Grinning, they dug gold-plated shovels into a ceremonial
pile of Trump-branded dirt.
Problems
followed. Months later, the sub-prime mortgage crisis hit the U.S. and
the ripple effects cooled the Toronto housing market. Though Talon had
said the tower would be open by 2010, construction dragged on for years.
Soon, Trump was no longer the only big-name luxury hotel-condo in town.
The Ritz was back with a new developer and location in the
Entertainment District. The Four Seasons was building a new hotel in
Yorkville, and the Shangri-La had a $400-million project on University
Ave.
By 2011, with the economy on shaky
ground and four luxury hotels slated to open in a single year, analysts
questioned whether Toronto could support so many high-end rooms.
Investor revolt
On
April 16, 2012, a flank of black Cadillac Escalades pulled into the
porte-cochère at 325 Bay St. and Donald Trump emerged, chin forward,
hair fluorescent, squinting at the cheering crowd. He flashed a bored,
tight-lipped smile, waved hello and gave the thumbs-up. Cameras flashed.
Trump tower was officially open.
Trump’s
entourage moved through the gleaming lobby and rode the elevator to a
10th-floor ballroom, where he stood on a stage flanked by three of his
children along with Mayor Rob Ford and Shnaider.
As
a triumphant drum-and-horn crescendo boomed from an unseen sound
system, four women in thigh-baring dresses paraded down the aisle
carting gold scissors on cloth-draped platters. They handed them to
Trump and his VIPs, who cut clumsily into a long red ribbon rolled out
by two white-gloved Toronto police officers. The bigwigs exchanged
smiles and handshakes. But behind the scenes, they had a problem. Over
the next eight months, dozens of investors — mainly purchasers of the
261 hotel units — would refuse to pay closing costs and assume ownership
of their units.
The panicked buyers were
not all the wealthy foreign investors people had imagined. Sarbjit
Singh, a 52-year-old father of two and warehouse supervisor from Milton,
was making about $55,000 a year and had no investment experience beyond
the purchase of his family home when he visited the Talon sales centre
in December 2006. He didn’t have the $173,400 deposit required to
purchase a 571-square-foot hotel unit priced at $869,000, so he borrowed
the money from his father, a retired welder, who took out a line of
credit on his home.
Se Na Lee, 43, a
homemaker living in Richmond Hill with her husband, Andrew Lee, 46, a
mortgage agent, also borrowed money from her parents to put a $171,400
deposit on a 653-square-foot, $857,000 hotel suite.
Lee
and Singh were shown marketing materials that projected room rates of
$500 to $600 a night and 75-per-cent occupancy, or in a worst-case
scenario, 55 per cent and still profitable, according to a lawsuit later
filed in Ontario Superior Court. Though a disclaimer warned the
materials were “not a guaranteed investment program,” Talon sales agents
assured buyers the Trump brand and “buzz” around the project would lead
to success. The buyers said agents told them Trump had mortgage
programs with two major lenders, and getting a loan for a minimum 65 per
cent of the purchase value wouldn’t be a problem.
After
the hotel opened in January 2012, Lee and Singh took interim occupancy,
which is a temporary phase of possession — a kind of legal limbo — that
is standard in the sale of new condos. With a traditional condo, it
means a buyer can move in but does not immediately assume ownership. For
the Trump hotel unit investors, it meant they would begin paying fees
and earning income on their rooms, but Talon wouldn’t transfer ownership
or request the balance of the purchase price until final closing months
later.
When their first statements
arrived during interim occupancy, Lee and Singh were shocked to discover
their units were running at a loss, far below the worst-case scenario
Talon marketers had predicted, according to their claim. Maintenance
fees were higher than anticipated. Occupancy and room rates were much
lower. Instead of building a nest egg, they were losing $4,000 to $5,000
a month.
As Talon gave notice that final
closing would take place in November, investors scrambled to find
lenders willing to offer a mortgage on the money-losing properties. Many
couldn’t. Singh and others did not close. Lee was among a minority who
paid final costs, and from October 2012 to December 2014, her losses
totalled $134,500, according to her claim.
Toronto
lawyer Mitchell Wine represents Singh, Lee and 20 other buyers who in
late 2012 sued everyone involved — including Talon, Trump Toronto Hotel
Management, as well as Donald Trump, Shnaider and Levitan personally —
alleging they were “victims of an investment scheme and conspiracy.”
The
lawsuit, which sought to cancel the deals and recover losses, alleged
that Talon sales agents misled buyers with marketing materials based on
“reckless and negligent misrepresentations” and led them to believe they
were buying a piece of real estate directly from Donald Trump, who the
investors alleged was obligated to ensure Talon had “the experience and
integrity to develop the Trump Hotel properly.”
It
also argued that Talon violated an exemption granted by the Ontario
Securities Commission in 2004, which had freed the developer from
regulations meant to protect rookie investors, with the condition that
Talon not provide potential buyers with financial projections. The OSC
investigated, but decided not to take action.
Talon
and its executives denied the allegations, arguing that all investments
are risky and the purchasers were experiencing an extreme case of
buyer’s remorse. They filed counterclaims seeking the balance of
payment. Talon said the investors weren’t amateurs and they were not
“buying cupcakes,” as Shnaider put it in one interview.
Trump’s
lawyer said he “had nothing to do with the sales process,” but added
that the lawsuit appeared to be “a desperate, last-ditch attempt by a
small group of buyers to get out of what were clear and unequivocal
purchase contracts.”
As the case wound its
way through the courts, Talon was left with more than 200 of the 261
money-losing hotel suites, and it still held more than half of the 118
residential condos. Levitan resigned and Neil Labatte, a former Fairmont
Hotels executive, took over the daunting task of marketing the project.
Luxury
hotel occupancy was hovering at 50 to 60 per cent and amid the glut of
new rooms, rates were $300 to $400 a night. Trump tower had PR problems,
too. A pane of glass fell from the building during installation,
closing a downtown intersection during rush hour. Hotel restaurants were
skewered by critics.
Last summer,
Superior Court Justice Paul Perell delivered a victory for Trump, Talon
and the companies’ executives. Perell dismissed the claims of Lee and
Singh, whose arguments were presented as test cases representing the
group of 22 in a legal fast-tracking process known as summary judgment.
Perell agreed that Talon’s marketing materials were “deceptive
documents,” but ruled it wasn’t reasonable for the buyers to rely on
them and said they did not breach OSC marketing regulations. He said the
buyers knew that all investments are risky.
Perell
also specifically dismissed allegations that Donald Trump should be
held personally responsible, saying the argument was “devoid of any
merit.” Lawyers for Talon and Trump applauded the ruling. The investors
have appealed, and a hearing is set for June. Wine and his clients
aren’t commenting while the case is before the courts. Shnaider and
Labatte refused interview requests, and Zucker, their lawyer, won’t
speak about the appeal.
Win or lose, Trump and Talon now have bigger problems.
Gloves come off for partners
Bad feelings between Trump and Talon had been silently simmering for years, but the dispute came to a head last spring.
In
April 2015, lawyers for Trump Toronto Hotel Management slapped Talon
with a notice of default, unleashing a torrent of complaints on the
company. Trump alleged Talon was engaging in a “calculated scheme” to
frustrate Trump’s management performance by interfering in the
building’s operation.
The hotel and
residential units at Trump tower each have their own condominium
corporations, which are made up of owners. Central to the dispute is the
fact that Talon, four years after opening, still holds the majority of
hotel units and residential condos in the building. That means the
company vote outweighs that of the other owners.
“Talon
has openly stated on numerous occasions that because it owns the
majority of units, Talon has the right to do whatever it pleases,” Trump
alleged in the notice, which was later filed as a court exhibit.
Trump
said it believed the interference was driven by Talon’s desire to take
over management. The notice ended with a warning: stop meddling or Trump
would take legal action, potentially demanding the developer remove
Trump branding from the property.
In a
response, Talon lawyers denied all allegations, saying the notice was
full of inaccuracies and omissions. The real story, according to the
developer, is that Talon was forced to become more involved as it became
clear the building was being improperly managed. Talon accused Trump
management of hiring unqualified staff, not resolving various
maintenance issues and failing to produce financial records — issues
that came up again when the condo boards fired back at Trump with their
own notices of default a few months later.
Talon
lawyers said in the response they believed Trump’s ultimate objective
is to devalue the tower and purchase it at a discount. The evidence:
senior Trump executives had expressed an interest in acquiring the
entire project for $100 million, Talon said, and potential investors
revealed that Trump employees had been disparaging the project and
Talon’s handling of it.
That fall, Talon —
as majority owner — initiated a special meeting of the hotel and condo
boards, outlining the purpose in a memo: to vote on whether to terminate
Trump. Trump took it straight to court, filing a motion in December
accusing Talon and the boards of trying to unlawfully end their
contract, which is how a private fight became part of the public record.
The motion sought to stop Talon from cancelling the management
agreement, arguing the company was required to first participate in
mediation and arbitration.
Talon’s real
motive, Trump and company lawyers alleged, was to sell off its units in a
bulk sale to repay “hundreds of millions of dollars” owed to banks that
funded the development, and then wipe its hands of the project.
Trump
warned that it could sue the condo and hotel boards, including Talon,
for “potentially hundreds of millions of dollars” for cancelling the
contract. The terms of the management agreement are not public, but
according to financial documents disclosed last year by Donald Trump’s
campaign, Trump Toronto Hotel Management collected $543,094 in fees from
Talon over an 18-month period beginning in 2014.
In
response, a lawyer for the condo boards said they were only seeking
permission from owners to terminate Trump management, not taking
immediate steps to do so. Trump and Talon are now in mediation and
Trump’s motion has been shelved. Talon did not file a response, but in
an interview, its lawyer denied Trump’s allegations.
“This
is not some lawless attempt to get rid of Mr. Trump,” Zucker said. “We
hope that we can resolve matters.” Zucker said the project is a
“landmark development” that will continue to experience success once the
matter is resolved.
“The project in
Toronto is the unfortunate hostage to events in the United States which
are outside of its control,” Zucker said.
The
controversy that has surrounded Trump tower is unlikely to disappear
with Donald on the campaign trail, making headlines with every new
pronouncement. Last year, after he made widely derided racist statements
about Mexican immigrants — calling them “rapists” who are “bringing
crime” to America — and proposed blocking all Muslim people from
entering the U.S., Toronto turned its anger toward Trump tower.
In
December, councillor Josh Matlow made a public call for Talon to remove
Trump’s name from the building, arguing it was a blemish on Toronto’s
skyline. Lisabeth Pimentel, president of Unite Here Local 75, the union
that represents some Trump hotel workers, said hotel staff members “get a
lot of questions from customers about Trump” and his positions.
“We
shouldn’t have to answer for his behaviour,” she said. In August,
hospitality workers staged a demonstration with a mariachi band outside
the hotel-condo to protest the Republican candidate’s anti-immigrant
statements.
Trump’s people don’t see the damage others believe has been done.
“The Trump brand is stronger than ever,” said Garten, his lawyer. “Not just in Toronto but throughout Canada.”
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