An agent looking to use Toronto’s growing condo-hotel market to carve out a niche for himself is finding a dearth of channel lenders willing to write mortgages on those suites, which spend most of their time in a rental pool.
“These new projects are going to be registered as hotel-condos because most of the suites remain in the hotel pool for rental,” Wojciech Pianka, a Toronto mortgage agent with Mortgage Alliance, told MortgageBrokerNews.ca. “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 guidelines; another is if someone defaults how do you really sell that property?”
They’re questions that broker channel lenders may not yet have answered for themselves. Pianka has contacted as many as 15 in the last month in an effort to arrange financing for what he hopes will be the first in a long line of clients looking to buy into any one of a number of high-profile development projects now under construction. Those developments bring the hotel-condo concept to downtown Toronto, and the millions of tourists and business travellers who visit it each year.
The three most prominent projects -- the Trump Tower, the Four Seasons Residences and Shangri-La – have a combined 1,800-plus units. There are several more in the works, each allowing buyers to occupy their units for a portion of the year, usually as a vacation property. The rest of the time those suites are used as hotel rooms, leased back to the management company, with a portion of the proceeds going to the owner.
While terms vary, most agreements mandate that units spend some time in that pool of suites. The requirement is problematic for brokers trying to arrange residential A deals for even qualified clients, said Pianka.
“Of the A-lenders I’ve contacted on behalf of my client, all said ‘No,’” the agent told MortgageBrokerNews.ca. “Hotel condos, as a concept, represent a relatively new risk and one that many of our lenders may not have considered previously. It may simply be that they haven’t yet developed enough experience around the product.”
His own search has yielded tentative interest from a credit union, which is now weighing the possibility of extending a conventional mortgage based on a significant down payment. There is still, however, the question of whether the deal can be treated as an owner-occupied property.
Still, Pianka’s persistence may ultimately pay off given the success American brokers have had in arranging purchases for foreign as well as domestic buyers in key markets across the States. But those deals remain relatively complex – with lower success rates. They are also more likely to be scuttled by small concerns around square footage and the perceived difficulty in disposing of a default property.