Senior lenders have moved to seize control of 13 real estate development projects co-ordinated by Fortress Real Developments Inc. as the loans mature or fall into default.
A new report from FAAN Mortgage Administrators Inc., a court-appointed receiver that took control of Fortress’s affiliated mortgage brokerage firm, says 24 of the 45 syndicated mortgage loans it is overseeing have matured but the principal has not been repaid, while 13 projects are now facing enforcement actions from senior lenders who rank first on any prospective claim.
Fortress, based in Richmond Hill, Ont., helped developers raise financing for new construction projects by raising money from retail investors who funded syndicated mortgages. Mortgage brokerage firm Business & Development Mortgages Canada Inc., which was based at Fortress’s head-office location, raised $920-million from 14,000 investors between 2008 and 2017, including $560-million of syndicated mortgage loans that are still outstanding and are now being administered by FAAN.
Ontario’s financial regulator got court approval in April to have FAAN take control of BDMC, saying it was concerned about improper lending practices. More than 11,000 investors who lent money for the projects have not been repaid.
Many of the loans are now in jeopardy as higher-ranking lenders with first-priority mortgage claims are moving to seize control of the properties and sell them to recoup their loans. The syndicated mortgage investors typically have the lowest-ranking claim on the properties, in some cases ranking fifth behind other lenders.
FAAN’s latest report said senior lenders most recently have moved to seize the Treehouse project in Scarborough, where syndicated lenders have $5.4-million in subordinated loans outstanding; the Lake & East project in Oakville, where syndicated lenders are owed $9.1-million; and both phases of the Mississauga Meadows project, where syndicated mortgage investors are owed a total of $8.8-million.
Lenders are also taking control of the Charlotte Adelaide Tower project in downtown Toronto, which has a $16.2-million syndicated mortgage loan outstanding, as well as the Whitby Commercial Park project, which has $14.8-million in syndicated debt.
FAAN has warned syndicated lenders they may not be fully repaid in many of these cases. For example, it said it believes there may be some money available for syndicated lenders from the sale of Fortress’s Brookdale condominium project on Avenue Road in Toronto, but “the quantum and timing of any such distribution are unknown.”
Empire (Water Wave) Inc. has struck a deal to buy Brookdale, which was placed in receivership in June. The sale price has not been disclosed.
Syndicated lenders, owed $25.3-million, have the fourth- and fifth-ranking mortgage claims on the Brookdale property behind three higher-ranking lenders owed a total of $25.4-million.
Senior lenders have also moved to take control of the Triple Creek project in Calgary, where syndicated lenders are owed $15.4-million, but FAAN said the value of the land is “likely too low under current market conditions ... for there to be any material recoveries to the investors." A sale process has not been launched yet.
Lenders are also seeking buyers for the Collier Centre project in Barrie, Ont., the Union Waterfront project in St. Catharines, Ont., and the Glens of Halton Hills project in Georgetown, Ont.
FAAN also revealed it is trying to recover $7-million owed to syndicated lenders for the Eden residential housing project in King City north of Toronto, which was completed by PACE Developments Inc. this year.
Fortress officials told the Eden syndicated lenders this spring that their loan would be fully repaid within months because the project had been completed. But PACE notified FAAN in early July that it would not repay any of the loan because “certain cost overruns not previously accounted for had absorbed the over $7-million payable to investors," FAAN said.
FAAN said the news was “very concerning” and has asked to see documents to explain the significant change in the borrower’s financial position “over such a short time frame.” FAAN has refused to discharge the mortgage on the Eden property, and last week it filed notice that it will take possession of the property on behalf of the syndicated mortgage lenders.
FAAN has also been negotiating a payout for investors in the Braestone project north of Barrie. Syndicated lenders provided a $13.35-million loan to Braestone Development Corp. in 2012, but the project has faced long delays.
Braestone has offered to pay $10-million to satisfy the loan, which means investors would take a loss. But FAAN said including previous interest payments of about $5.4-million, investors would recoup more than the face value of their principal.
FAAN is seeking feedback from the Braestone lenders, but is recommending the deal.