Investors who helped finance several major real estate projects for Fortress Real Developments Inc. have learned they will recover little of the money they invested in syndicated mortgage loans.
The projects include the Collier Centre retail development in downtown Barrie, Ont., the Union Waterfront site in St. Catharines, Ont., and the Glens of Halton Hills site north of Toronto.
Lenders and receivers have begun to put the sites up for sale and are reporting they can’t raise enough money to repay syndicated mortgage lenders, who typically have the lowest-priority claims.
The Collier Centre was seized last year by senior lender Morrison Financial Services Ltd., which is working on a plan to redevelop the retail and office property. Morrison listed the site for sale in late January and has begun meeting with builders to consider options to finish the space, including a partnership.
Morrison president David Morrison said he doesn’t know if his firm will recover the full $29.6-million it is owed on a first-ranking mortgage on the site. However, he doubts there will be anything for the syndicated mortgage investors who provided $53-million in loans. Their claims rank last – behind Morrison’s claim and $7.1-million in mortgages provided by two other lenders.
“I can’t envisage any result that would see enough money coming out of this project under its current form to repay any of their money," he said.
Investigation: Inside the fall of Fortress
Fortress, based in Richmond Hill, Ont., helped transform syndicated mortgage lending in Canada by raising money from ordinary retail investors. Its affiliated mortgage brokerage raised $920-million from 14,000 investors between 2009 and 2017 to finance loans for development projects.
Many of the projects were not completed, however, and the loans are now overdue. Senior-ranking lenders are taking control of projects, and some of the syndicated mortgage investors are complaining they were not properly informed about the risks or how their funds would be used. The RCMP have launched an investigation into the Fortress group’s practices, but no charges have been laid.
Investors recently learned they will not be repaid any of their loans for the Glens of Halton Hills project, a planned townhouse complex in Georgetown, Ont., where nothing has been built. It has been put into bankruptcy, and a trustee has negotiated a sale of the land.
According to court filings, the $7-million purchase price will cover the four first-ranking mortgages, worth $5.4-million, and much of the second-ranking loan, worth $2.4-million.
But the syndicated mortgage investors, who are owed $14.4-million, will recover nothing. They received letters in late December notifying them there were “insufficient proceeds” to repay their mortgages.
The latest bad news came from the receiver for the Union Waterfront project in St. Catharines, which was placed into receivership in August.
The receiver, msi Spergel Inc., has negotiated a sale of the property for $8.1-million, and the deal is expected to be approved at a court hearing in Toronto Friday. In a court filing, msi Spergel says the first-ranking lender, FirstOntario Credit Union Ltd., is not going to recover the full $10.8-million it is owed in principal and interest, and there will be no money for any of the other lenders, who are owed $8.7-million – including $4.3-million owed to syndicated mortgage lenders.
After the receiver pays the outstanding property taxes, it appears FirstOntario could lose almost $3-million.
Investors are also waiting to hear how much they will recover on $25.3-million they provided for Fortress’s Brookdale condominium project on Avenue Road in Toronto.
A receiver negotiated the sale of the property in October to developer Empire Communities, and court filings show there were proceeds of more than $47-million after costs. Senior lenders are owed $25.4-million, so some money should still be recovered for the syndicated mortgage holders.
The wild card is more than $10-million in construction liens that have been filed against the property. Those claims could reduce the available proceeds to just $11-million or so, leaving the syndicated mortgage lenders recovering less than half their loan.
There are also signs that the Capital Pointe condominium project in downtown Regina will not be built, which would leave lenders trying to recover on $40-million in mortgage claims, including $33.3-million owed to syndicated investors.
The City of Regina won a legal appeal at a hearing last week, requiring developer Westgate Properties to fill in the foundation hole by March 30. The move is expected to effectively end the long-stalled project.
Capital Pointe was supposed to help redevelop Regina’s major downtown crossroads of Albert Street and Victoria Avenue. Instead, the empty site has left the city with nothing to show for a decade of delays.
The Collier Centre was a similarly critical development for Barrie, covering a full block across the street from City Hall and the court house.
Mr. Morrison hopes to complete the project as it was originally conceived, saying he would like to work with a developer to finish the “iconic” site.
“It is absolutely the best location in Barrie for a project of its sort,” he said.