SECRETS OF THE FOUR SEASONS
In a red-hot real estate market, how did some owners at one of Toronto’s glitziest developments lose money on their purchases?
Nestled in the heart of Yorkville, two glass towers rise above a scarlet fountain that gently gurgles as residents pull into a parking lot with paving stones arranged in paisley patterns.
The Four Seasons Private Residences Toronto is one of the most prestigious condo developments in Canada, a place where the moneyed elite can live modern urban lifestyles akin to Manhattan, Paris, London or Hong Kong.
But the glitz and glitter at the Four Seasons hide secrets.
Amid Toronto’s condo boom — which has fuelled one of the strongest real estate markets in the world — a striking number of condos in the Four Seasons have sold for a loss.
A Toronto Star and Ryerson School of Journalism investigation into real estate transactions in the Four Seasons found nearly one-third of sales in the towers have been for a loss.
Since condo owners took possession of their units in 2013, there have been 101 sales. Thirty of them were for a loss. The average loss recorded is $253,909, or 8.1 per cent.
Six of the losses are greater than half a million dollars.
“It’s not normal for people to be selling at a loss,” said John Pasalis, the founder of the real estate analytics website Realosophy. “In the past five or six years generally prices have gone up … What’s going on here?”
“At the end of the day, I paid top-of-the-market price based on a spec in advance. I just paid too much.” OLIVER MCGINLEY WHO SOLD UNIT 2402, PICTURED ABOVE, AT THE FOUR SEASONS IN 2016 FOR A LOSS OF $680,000
Many people in the Four Seasons have made money, selling for an average profit of $704,856 or 23.9 per cent.
But a subset of owners sold for less than they paid.
Meanwhile, over the past five years, the average price for a condo in Toronto has risen 67 per cent, according to the Toronto Real Estate Board.
The losses are so out of whack with the wider condo market that an agent who buys and sells in the towers didn’t believe they exist.
“No one person that bought at the Four Seasons lost,” said Elise Kalles, 80, a real estate agent who specializes in the luxury market and owns two units in the Four Seasons.
“I was involved right from the beginning. I don’t know, honestly, of any that sold for less than they paid. None.”
Kalles is listed as the agent for a unitholder who lost more than $1 million in 2016, when she sold her unit for $5.7 million. The owner had bought pre-construction for $6.5 million (plus at least $326,212 in tax). Kalles and her client did not respond to questions about this transaction.
Nineteen losses were evident in sales prices listed in the Ontario land registry. Because buyers of newly built condominiums pay sales tax — and this extra cost isn’t included in the registered sales price — we added 5 per cent GST as the minimum amount of tax first purchasers would have had to pay. (Since mid-2009, 13 per cent HST is applied to the purchase of new condos.) With tax factored in, 11 sales that appeared to be for a small gain went instead for a loss.
The losses have occurred in every year but 2018 and have affected lower-end, mid-range and high-end units in both towers. Some were flips, where the seller owned the unit for as little as 29 days. Others involved units that were held for up to 41⁄ years. One unit sold for a loss twice. The loss sales do not include 26 transfers between family members for $2 or $0.
Losses peaked in 2015, when 13 of the 21 sales in the towers left sellers in the red. There were four losses in 2016, three in 2017 and none this year to date.
The Star dug into land registry documents, mortgage filings, court records and corporate registrations in an attempt to understand the loss transactions. This task was complicated by a lack of transparency in the public registers that made it impossible to determine exactly what went on in each deal.
But the records point to a bigger problem in the housing market: poor oversight and weak regulations have made Toronto real estate vulnerable to abuse.
The Star found no evidence of illegal activity in the Four Sea- sons. But as cities around the world — from New York to London to Vancouver — make moves to clamp down on financial crime by ending anonymous ownership of property, experts say Toronto’s real estate market is exposed.
“If a province like Ontario and a financial sector like Toronto thinks that the same kind of things aren’t happening here, it’s just naive,” said James Cohen, executive director of Transparency International Canada.
When the pre-construction sales for the Four Seasons began in 2007, units at 55 Scollard St. and 50 Yorkville Ave. were priced between $1,350 and $1,500 per square foot — the most expensive condos in Canada at the time.
“It redefined Toronto real estate,” said Jimmy Molloy, a Toronto real estate agent specializing in the luxury market. “All of a sudden, it just dragged everybody up … It just kind of changed the whole landscape of the marketplace.”
The 210 exclusive condos are split between the lower-priced “East Tower,” where you can still buy a unit for under $1 million, and the more prestigious “West Tower,” where a unit hasn’t sold for less than $3 million in years.
The West Tower condos sit atop a five-star hotel and owners in both towers have access to a French bistro, private yoga classes, a spa that has a reflexologist and a masseuse on call, and a psychic named Cyndi who will “guide you through a highly personal psychic and spiritual exploration.” Condo owners can also book travel aboard the hotel’s private jet.
The list of Four Seasons owners reads like a who’s who of Toronto’s elite, including Leafs coach Mike Babcock, Postmedia CEO Paul Godfrey, Rogers executive Anthony Staffieri, department store heir John Craig Eaton and Seagram’s liquor fortune heir Paul Bronfman.
While all of them still own their units, others sold for a loss. These losses could have been prompted by personal situations including rushed sales, divorces or incomplete renovations. There are also tax reasons why someone might want to take a loss on a real estate trans- action. Capital gains tax is due on the sale of a rental property. But if the sale goes for a loss, there are no taxes to pay — instead, you get a tax credit.
One agent involved in the tower suggested the losses could be due to the delayed opening of the towers, or because some buyers had difficulty obtaining bank mortgages and turned to higher-cost alternative lenders. Both of these situations may have pushed some pre-construction to sell their units early
“A number of foreign investors decided to sell at the same time,” said Nissan Michael, an agent who specializes in buying and selling in the Four Seasons and markets himself as “Mr. Yorkville.” “Too much inventory and you’ve got a buyer’s market.”
Toronto businessman David Holton Young, 66, inherited unit 205 from his father, who died after putting down a preconstruction deposit. Shortly after registering the condo in 2013 for $2.3 million (plus at least $116,283 in tax), Young put it up for sale, where it languished on the market for almost two years before selling at a loss of more than $685,000.
“It took a long time and many price reductions to sell,” Young told the Star in an email. “In the hottest property market in the history of the city — to lose about 35 per cent over almost a decade takes some doing!” Court records show that Frank Provenzano, 56, a former owner of ProGreen Demolition, was accused by two of his brothers of secretly withdrawing $8.5 million from the family company and using it to invest in real estate without their knowledge. One of those investments was unit 202 in the Four Seasons, which was purchased pre-construction for $1.2 million (plus at least $58,585 in tax). Two months after the lawsuit was filed last summer, Provenzano sold the unit for an $80,000 loss.
Provenzano did not file a statement of defence and did not respond to multiple requests for comment. His brothers dropped the case in May.
Japanese author Toshio Masuda, 80, bought unit 2503 for $4.1 million ($4.3 including tax) in March 2013 via a shell company called Frontier One Canada Investments Ltd. The same day, he and his wife, Mariko Ejiri, took out a $3.2 million mortgage from a Japanese meat packing company with an interest rate of 40 per cent. They sold the unit less than a year later for a loss of more than $375,000.Masuda did not respond to emails or faxes sent requesting comment.
Oliver McGinley, a 48-yearold greenhouse operator and consultant for non-profits, purchased units 602 and 2402 in pre-construction for a combined $11.3 million (plus at least $566,372 in tax). When he took possession of the units in 2013, he registered private mortgages from cable mogul and family friend David Graham for $16.5 million — nearly 50 per cent more than the units’ purchase price. Reached by telephone, McGinley said the mortgages, which were not fully drawn upon, financed extensive renovations he had done on the units. Despite these enhancements, McGinley wasn’t able to recoup the purchase price he paid, let alone the additional money invested in renovations. .
“At the end of the day, I paid top of the market price based on a spec in advance. I just paid too much,” he said. “I don’t like losing and losing in a market that’s going up and up, but it is what it is.”
McGinley sold the smaller unit last year for a $7,000 profit. He sold the more expensive unit in 2016 for a $680,000 loss.
“I didn’t do anything wrong,” said McGinley. “My name was on these things. I couldn’t have been more transparent.”
In response to questions about the losses, Four Seasons company president Paul White sent the Star a statement that read, in part: “Four Seasons Hotels and Resorts is a management company and, as such, we are not responsible for the conduct of sales or resales of residential units.
“We firmly believe that Four Seasons Private Residences Toronto is the best address in the city and we are very proud to serve the community of residents who have chosen Four Seasons as their home.”
A lack of transparency in Ontario’s land and corporate registries makes it difficult or even impossible to determine the ownership of 51 units in the Four Seasons, which have been or are currently held by private (that is, not publicly traded) corporations.
Twelve of the 51 corporations are numbered companies, six of which were incorporated a couple of months or mere days before purchasing the unit.
Eight of the 30 loss transactions involve private corporations.
Anonymity in Canadian real estate can be further bolstered by offshore tax havens, making it doubly difficult for tax officials or law enforcement to trace the origin of funds. Six units are held by companies with addresses in offshore tax havens, such as Delaware, Bermuda, Malta and the Cayman Islands.
Unit 4603, for example, was purchased for $4.6 million in cash (plus at least $231,835 in tax) by Pramor Global Financial Corp., a company registered in the British Virgin Islands. Because the BVI allows companies to keep the names of its shareholders and directors private, the people behind Pramor are completely anonymous, unknowable to anyone without a warrant. The unit is still owned by Pramor.
Max Motel Cohen, the Toronto lawyer who filed real estate documents on behalf of Pramor, declined to identify his client. “The purchase of land by well-to-do individuals or holding companies, for cash, is not that unusual,” Cohen said in an email.
Unit 206 was purchased by 60 Degrees Group Canada Ltd., a company registered to a mailbox in the Cayman Islands. The only names associated with the company are Barry Cleaver, a London, Ont., lawyer, and Mark Joseph Azzopardi, a Maltese banker. The real owner of the unit is unknowable.
Ayear after buying the unit for $875,000 in cash, the anonymous owner took out a $2-million mortgage from another offshore company registered at the same post office box in the Cayman Islands.
The Star was unable to reach Azzopardi. Cleaver said the unit was not the only piece of property pledged as security for the mortgage. The unit sold in October for a $115,000 profit.
In 2016, the United States Treasury Department started tracking real estate purchases by shell companies in the hot real estate markets of Manhattan and Miami. It found that more than a quarter of cash purchases of property by shell companies were flagged as suspicious.
The monitoring program has now been expanded to six other areas including San Francisco, Los Angeles, San Diego and San Antonio.
Earlier this year, British Columbia implemented reporting rules that will require anonymous companies that purchase real estate to identify their real owners to authorities.
After the U.K. House of Commons proposed a ban on real estate ownership through shell companies in July, there will soon be few places left with as little transparency as Ontario.
“It’s still a bit of a Wild West that’s not policed,” said Realosophy’s Pasalis.