Real estate developer Fortress Real Developments Inc. is facing a flurry of legal actions from mortgage lenders who have filed applications to foreclose on land earmarked for development projects.
Court documents show senior lenders have launched actions against at least four Fortress affiliates following recent payment defaults.
The targeted companies include Fortress Brookdale Inc., which is building a condo project on Avenue Road in Toronto; Brookhill Holdings Inc., which is planning a single-family housing project in Bowmanville, Ont.; and Fortress Collier Centre Ltd., which is developing a commercial tower in Barrie, Ont.
Another lender also filed legal warning that it plans to seize land slated for the Glens of Halton Hills project, a planned residential development in Georgetown, northwest of Toronto.
Fortress said in an e-mailed statement Thursday that new financing deals are in the “advanced stages” to replace senior lenders in the Brookhill and Glens of Halton Hills projects and should be completed shortly. It said it is working to resolve other claims.
Fortress, a privately owned real estate developer run by founders Jawad Rathore and Vince Petrozza, lists more than 50 projects on its website that it has under development or construction across Canada, including some it is developing itself and many others where it arranged syndicated mortgage financing for third-party developers.
The company’s legal problems escalated this spring after the RCMP searched its head office in Richmond Hill, Ont., on April 13, seizing documents as part of what it called a syndicated-mortgage fraud investigation.
Ontario’s financial regulator also applied for a court order in April to have a receiver take control of Fortress’s affiliated syndicated mortgage company, Building & Development Mortgages Canada Inc. (BDMC), which has raised more than $600-million from 11,000 investors since 2013, primarily to finance Fortress’s projects.
The regulator said it has received numerous complaints about BDMC from individual syndicated-mortgage investors who have not been repaid, and believes there are “serious regulatory issues” with the loans. BDMC’s receiver, FAAN Mortgage Administrators, is helping to resolve issues with senior lenders to get projects completed so syndicated lenders can recover some of their investments.
In many cases, loans from the syndicated lenders are subordinated to several tiers of senior loans ranking above their claims.
In the case of Fortress Brookdale, for example, senior lender Firm Capital Corp. filed an application in March to take control of the project’s land and assets. Work halted in January on the partly constructed condominium tower in Toronto, and buyers who purchased the condo units were notified May 23 that the project has been cancelled.
Firm Capital, which has first claim on the land, says it is owed $19.1-million. There are four other mortgages, totaling $32.6-million, including $26.6-million in fourth- and fifth-ranking mortgages provided by BDMC on behalf of syndicated lenders. There is also $7.7-million in construction liens registered against the land.
Brookdale could not secure financing to finish construction because of the “chilling effect” of legal allegations and news reports involving Fortress this year, according to a letter sent by the project’s builders to condo unit buyers in May.
Fortress said its financial difficulties with Brookdale are a holdover from previous ownership by insolvent developer Mady Development. Fortress acquired control of the project in mid-2015, but Mady bondholders are suing for an ownership stake in the Brookdale land.
“The project is up to the third floor of construction and we look forward to a resolution that will allow the project to continue completion free of issues,” Fortress said in its e-mailed statement.
Fortress has also received notice from the lender on its Fortress Collier Centre Ltd. commercial development in Barrie that it is seeking to foreclose on land securing its loan, according to a court filing.
Fortress said it is working with lenders and potential buyers to reach a deal to resolve issues with the commercial tower project.
“An announcement is imminent on this,” Fortress said in its e-mailed statement.
Fortress is also facing legal problems in Regina, where it has helped finance a project known as Capital Pointe, a proposed condo tower at the major downtown intersection of Albert Street and Victoria Avenue.
Because of lengthy delays in the project, the City of Regina withdrew construction permits for the site and ordered the land owner – Westgate Properties Ltd. – to fill in the foundation hole by the end of April, saying it is unsafe. Westgate and Fortress have launched an appeal.
Fortress said it could not comment on the Capital Pointe development while the appeal is pending.
The company also cancelled its SkyCity Centre project in Winnipeg last week and promised to return buyers’ deposits, two days after disgruntled buyers filed a class-action lawsuit seeking to get their money back. Fortress told buyers it “was not currently viable” to proceed with the tower as planned.
Fortress has also revealed several other cancellations. For example, Jasper House, a condo project in downtown Edmonton, and The Orchard, a condo tower project in Calgary, have both been cancelled by developer Lamb Development Corp., but Fortress posted an update on its website in April saying both may be “repositioned” as rental apartment developments.
Fortress has also notified buyers that a development partner cancelled plans last year to build a two-phase townhouse development on Lakeshore Avenue in Mississauga, known as Mississauga Meadows I and II. Fortress has taken control of Mississauga Meadows I and is working to acquire Mississauga Meadows II and hopes to relaunch both.
Fortress has also revealed that in January it sold The Kemp, a waterfront site in Barrie, but the buyer has extended closure on the sale, which was conditional.
The company said sales deals for several projects, including The Kemp, are in a due diligence period, “which limits our discussion on them.”