Billed as the tallest residential tower in Canada, the 85-storey project at Yonge and Bloor in Toronto

once known as the One

, will probably be also famous for one of the

longest construction runways

to final completion, a time frame

every condo buyer

should worry about.

Developer

Sam Mizrahi

bought the land in 2014, and by 2017, pre-sale buyers were snapping up units at prices that, in hindsight, look like bargains — even after a

condo market

that has peeled back roughly 25 per cent in places.

Those early birds are now finding out what happens when a megaproject goes bad.

A court-appointed receiver stepped in last year to rescue the $2-billion tower after the developers ran out of money. This past week, a judge signed off on a proposal that will wipe out almost every one of the 329 purchase contracts. Alvarez & Marsal, the monitor, figures it can resell the units for nearly $200 million more than the initial haul, even in today’s beaten-up market.

The goal isn’t to be fair; it’s to extract as much money as possible from the site to help repay the $1.6-billion creditors’ tab.

And some of that will come straight out of investors’ paper profits, one of the more egregious lessons in speculation gone bad in

Toronto’s condo market

.

Usually, regulators hate cancellations. But an insolvency expert with knowledge of the deal says this time buyers were offered a choice: take your deposit back, or retake the same unit at a

2025 price tag

that you would have laughed at 2017.

The deposit insurer now has to refund every dollar, plus interest. But the gains those buyers had banked over the past eight years? Gone.

And it’s all perfectly legal, all part of the typical fine print in a pre-sale market where “years to completion” can quietly turn into “never.”

Pauline Lierman, vice-president of research at

real estate

firm Zonda, is blunt: Those 2017 units will sell for more today because developers are still finding buyers for luxury, even in this soggy market.

Five of eight launches this year have been high-end, she noted.

But the rest of the market? That’s where the bruising is happening. About 7,300 unit sales have been cancelled in the past year, often because developers can’t hit their presale targets.

The pandemic-era peak in the first quarter of 2021, when average prices hit about $1,700 a square foot downtown and $1,200 in the suburbs, is long gone. Today, projects must price close to resale, roughly $1,100 or less, and even then, developers are dangling incentives.

Back in 2017, presale downtown units were going for $600 to $700 a square foot, said Lierman. That was a record year but before construction costs exploded and cancellation notices became more common.

Ben Myers, president and owner of Bullpen Research and Consulting Inc., said projects are still falling like dominoes. When the numbers stop working, the cranes stop moving. Some projects quietly morph into rentals. Others get shelved.

“There are not a lot of developers who will do a project at a loss,” said Myers.

Cancelling a project is covered by the Home Construction Regulatory Authority. The reasons for returning a purchaser’s deposit are outlined in the purchase agreement, said lawyer Bob Aaron.

“It depends on what the consumer signs, but often there are clauses in the agreements that allow the builder to terminate,” said Aaron, adding the Mizrahi project’s is a different case because the builder went under.

Before you feel sorry for the condo purchasers, let’s not forget that many buyers are pure investors, ultimately looking to flip for considerable profit with a very low initial payment.

For years, it was a no-brainer: put down a few per cent, watch the market rise, then flip the paper. Assignment clauses made it easy, until the last crash, when regulators and developers tightened the rules. Now, assignment fees, percentage-of-sale conditions, and recourse clauses make a simple flip not so simple.

But the market was liquid enough to absorb all those assigned condos. Not any more. Keep in mind, not every assignment clause is the same, and some have language allowing the developer to go after the original buyer unless it’s an absolute assignment with no recourse.

One lesson here is to buy from reputable builders, which makes it ironic that Tridel, one of the big names in the business, has been pulled in to rescue the sales program at the newly rebranded One Bloor West.

“With the successful delivery of over 90,000 homes, the completion of this landmark masterpiece is now entrusted to Toronto’s most reliable and accomplished condominium home builder,” the company boasts in its pitch to resell the same units pulled out from investors this week.

“The rule,” said Aaron, “is buy from the developer you know. The developer who has put up 100 buildings.”

It’s a hard lesson, but one purchasers of units in Toronto’s now infamous tower know. Getting your deposit back is great, but how would you feel if you had invested in the TSX Composite Index over the past five years and someone took back your 80 per cent return? Because that’s what happened.

The profit was real right up until the moment it wasn’t. And that, in the condo market, is how the tower sometimes falls.

  • Tridel tapped to lead completion of Toronto’s troubled luxury condo tower The One
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• Email: gmarr@postmedia.com