Investors will receive a partial payout on the syndicated mortgage loan they provided for the James condominium project in Toronto, launched by Toronto developer Brad Lamb in partnership with troubled Fortress Real Developments Inc.
The settlement marks the fourth deal in recent months to help investors recover money from development project loans arranged by Fortress. The company, based in Richmond Hill, north of Toronto, helped arrange $920-million in mortgage loans from 14,000 investors between 2009 and 2017 to finance real estate development projects across Canada.
Under a settlement agreement scheduled for court approval on Friday, a group of individual investors who provided a $5.7-million syndicated mortgage loan for the James will receive a $4.8-million settlement, representing 85 per cent of the principal amount of their loan.
The lenders will not be repaid $1-million in accrued interest, which means the settlement will cover about 72 per cent of the total outstanding obligation.
Mr. Lamb declined comment Tuesday on the settlement. Fortress lawyer Scott Fenton said the settlement was reached before the end of the loan term, and interest was not due to be paid until completion.
“This represents an opportunity for an early exit, years ahead of the planned schedule for building construction, completion and registration,” he said in an e-mail.
Fortress was Canada’s largest syndicated mortgage loan company at its peak, helping to raise financing for dozens of real estate projects from regular investors.
Some loans have fallen into arrears, however, as Fortress has faced a series of financing problems, and senior lenders have moved to take control of several projects. In 2018, RCMP officers searched the offices of Fortress and affiliated companies as part of an investigation into the group’s fundraising practices, but no charges have been laid.
In recent months, a trustee appointed by the Ontario Superior Court has negotiated several settlement deals to try to recover payments for Fortress investors on some projects. The trustee, FAAN Mortgage Administrators Inc., is administering $560-million of syndicated mortgages.
FAAN filed a report in court last week, saying the senior lender on the James condo project – Kingsett Mortgage Corp. – is not willing to renew its $3.9-million secured loan. A new lender is willing to replace the loan, the report said, but will not do so as long as a charge remains on the property from syndicated lenders.
The report said the project has faced setbacks, including escalating construction costs and financing challenges “on account of significant changes in the marketplace since the James project commenced.”
In a ruling in March, 2018, the Ontario Municipal Board approved 17 rather than 18 storeys for the site, requiring the developers to scale back the number of units and refund deposits to some condo buyers. That translated into about $6-million of lost revenue for the project, FAAN said.
Lamb Development Corp. cancelled the James project entirely last year and returned deposits to buyers. In October, the company relaunched the project, located on Richmond Street West in downtown Toronto, rebranding it as the Woodsworth.
The trustee has recommended the settlement offer, saying syndicated investors will likely not be repaid before construction on the Woodsworth is completed, estimated for 2023, and there is no certainty they will be fully repaid at that time.
FAAN has announced three other settlements in recent months, including another deal involving a Lamb Development condominium project in Toronto known as the Harlowe.
Syndicated mortgage investors approved a $15.5-million settlement to cover almost all of the $15.9-million in principal they were owed for the Harlowe project loan. Including accrued interest, the investors were owed a total of $20-million.
Investors in the Braestone housing development north of Toronto near Orillia, Ont., also agreed to a payment of $10-million to settle the $16-million in outstanding principal, interest and deferred fees they were owed. FAAN said if earlier interest payments of $5.4-million were included in the calculation, investors would more than recover their full $13.35-million upfront investment.
FAAN also negotiated a $1.95-million payment from Kingridge Development Corp. for a loan for the Speers project, also known as Kingridge Square, in Oakville, Ont. The syndicated investors were owed almost $2.1-million in principal, so recovered 94 per cent of that amount.
However, other Fortress syndicated mortgage investors have been told they are facing much larger losses.
For example, the senior lender in Fortress’s Collier Centre project in Barrie, Ont., has taken control of the project and has warned there is unlikely to be any recovery for syndicated lenders, who are owed $53-million. Syndicated investors have also been notified they will recover none of the $4.3-million they provided for Fortress’s Union Waterfront project in St. Catharines, Ont., which was placed into receivership in August.
Investors also learned in December they will recover nothing of their $14.4-million loan for the Glens of Halton Hills project in Georgetown, Ont.