What’s going to happen to Toronto’s Trump International Hotel and Tower now that it’s up for sale?
Although Donald Trump has moved on to a more prestigious role as leader of the free world and full-time Twitter antagonist, he’s still the face of a retail, real estate and hospitality empire with interests around the world—including in Toronto, where the Trump International Hotel and Tower has been tarnishing the Trump brand’s gilded patina practically since opening day. First there were lawsuits by buyers who say they were scammed into purchasing worthless hotel units, then there were structural issues with the tower’s giant spire, and now, finally, the tower is up for sale. Here’s everything you need to know about the status of Trump’s Torontonian outpost.
Trump has little to lose beyond his reputation
Although Donald Trump’s name is all over the Trump International Hotel and Tower, and although he, Ivanka, Eric and Donald Jr. all attended an opening ceremony in 2012, his actual involvement in the project was minimal. Trump has no known ownership stake in the building. He merely licensed his name and image, as a marketing tool, to a Toronto developer called Talon International. The majority owner of the tower is Midland Development Inc., a company chaired by Alex Schnaider, a Russian-Canadian billionaire who made his money in the steel industry.
In addition to the licensing deal, Trump also holds the management contract for the building, which means an arm of his corporate empire is responsible for operations and upkeep on all the hotel and residential areas. The exact terms of Trump’s deals with Talon are confidential, but, on Trump’s pre-election financial disclosure form, he claimed to have received $611,864 in management income in 2016.
The project’s actual owners won’t own the place for much longer
There have been lots of headlines saying that the Trump International Hotel and Tower is for sale, but the reality is a lot more complicated than that. When Schnaider and his business partners built the tower, they, like most developers, didn’t do it with their own money. Instead, they arranged a complex, $300-million loan agreement with Raiffeisen Bank International, an Austrian financial institution. Talon International used the money to finance the purchase of at least some of the land upon which the Trump Tower sits and then, eventually, to build the tower itself.
In the normal course of things, a developer pays back its debts using proceeds from the sale of units in the completed building. But sales of units in the Trump Tower were slow, and Talon had to go back to its lender twelve times for extensions and other adjustments, before finally defaulting on the loan in 2015. In September, Raiffeisen Bank sold Talon’s debt to JCF Capital ULC, a private investment firm headquartered in the U.S. Now, Talon owes more than $300 million to JCF.
JCF isn’t counting on Talon suddenly getting its act together. In November, the firm convinced the Ontario Superior Court to place the Trump Tower in receivership, meaning the building is now temporarily in the custody of a court-appointed officer, who has the authority to make business decisions on the property’s behalf, with an eye toward repaying anyone who loaned the project money.
Because it would be difficult (and possibly futile) to try recouping Talon’s debt by selling off each individual unsold unit in the building, the receiver instead won court approval for a bulk sale of every part of the tower that remains in the developer’s possession. This includes all the unsold units, and there are a lot of them: as of October, Talon still owned 74 out of 118 of the building’s residential condo units, and 211 of 261 of the building’s hotel/condo rooms, which were sold as investment properties to buyers looking to share in the hotel’s profits.
The official asking price is $298 million, but the tower could sell for significantly less
When someone sells a small piece of real estate, like a house or a condo, they set an asking price and see if anyone is willing to pay it. In the case of something as large as the Trump Tower, the process is a bit more complex.
JCF has made what’s known as a “stalking horse offer” of $298 million on the Tower. This means that if no other qualified buyers are willing to offer a sum of money larger than that amount, JCF will take ownership of the property at that valuation. But the payment wouldn’t be in cash. JCF pegs Talon’s debt at well over $298 million, so, rather than paying for the tower, the investment firm would simply lay claim to it, in compensation for the money owed to it by Talon. JCF bought Talon’s debt from Raiffeisen Bank at a discount, so the actual purchase price would be far below face value.
We’ll know if there are any other buyers interested in the property on February 15, when the first round of bids is due.
The Trump name will probably stay on the tower—at least, for now
There was a flare-up of hostilities between Talon and the Trump organization last year. Trump took Talon to court in a preemptive attempt to prevent the developer from moving to oust Trump’s hotel management company and hire another building manager. The two sides tried to resolve the conflict in mediation, but the tower’s financial situation deteriorated before they could do so.
The receiver isn’t making any move to remove Trump’s name from the building, meaning it will be up to the new owner to decide whether or not to try to sever the connection with the president and his family.
But Talon’s legal problems will go on
In October, a pair of people who bought units in the tower won an appeal against Talon. Under the terms of the court decision, both of those purchasers were allowed to collect damages, and one of them was allowed to rescind his sale agreement. It was a watershed moment in a long legal battle that began several years ago, when buyers accused Talon of using Donald Trump’s image to misrepresent the tower as a savvy investment opportunity, leading some unit owners to suffer huge financial losses when the hotel’s bookings lagged behind expectations. As a result of the ruling, there are 20 other Trump Tower unit owners who may now be entitled to similar compensation.