Investors who provided $53-million in syndicated mortgage financing for one of the largest projects being developed by Fortress Real Developments Inc. have been notified they will recover nothing on their investment.
The Collier Centre condominium and commercial site, based in downtown Barrie, Ont., has had a troubled history and was seized last year by senior lender Morrison Financial Realty Corp., which was owed $29.6-million on its mortgage loan to Fortress.
The investors received a letter last week saying Morrison has found a buyer for the property, but raised only $18.46-million from the sale, which was far less than the $29.6-million it was owed.
Company president David Morrison said Collier was sold to a related company, which plans to complete the work in the hope of reducing or eliminating the losses.
A letter from Morrison’s law firm said the company has suffered a “substantial loss” on its investment, and would not be able to provide any funds for any of the other lower-ranking creditors, which means a total loss for the syndicated investors. In addition to Morrison’s loan, there were two mortgages totalling $7.1-million owed to other institutional lenders, and two mortgages provided by hundreds of syndicated mortgage investors totalling $52.9-million.
Fortress, which arranged mortgage financing from individual investors for dozens of real estate developments across Canada, has faced a series of project failures over the past year.
Senior lenders have seized many projects, and syndicated mortgage investors have been repaid a portion of their investment in some cases. But others, such as Collier Centre, have resulted in a total loss.
Vanessa Clair said she has lost $30,000 she received as a gift from her mother and invested in the Collier Centre project in 2015. She said her father invested his life savings of $210,000 on two Fortress projects, including Collier Centre, and his losses have been devastating for her family.
He now has cancer, and her mother was in a car accident and is unable to work, leaving Ms. Clair trying to help support her parents not long after graduating from university at age 23.
Ms. Clair said investors – who have shared information through a Facebook page and a Victims of Syndicated Mortgage Investments website at vosmi.ca – already knew there would likely be no recovery on the Collier project.
According to documents provided to investors by FAAN Mortgage Administrators Inc., which is the trustee appointed last year to take control of Fortress’s $560-million in outstanding syndicated mortgage loans, Collier Centre had the largest outstanding syndicated mortgages of any Fortress projects, making its failure the largest loss for investors.
FAAN has also notified investors they will receive none of the $4.3-million they lent for the Union Waterfront project in St. Catharines, Ont., which was placed into receivership last August and sold to new owners.
FAAN said it is “highly unlikely” there will be any recovery on the two phases of financing for Fortress’s Mississauga Meadows housing projects, where investors are owed $8.8-million, and said investors are unlikely to recover any of their $15.4-million in the Triple Creek project in Calgary.
Investors were also told in December they would recover none of the $14.4-million they lent for the Glens of Halton Hills project in Georgetown, Ont.
Collier was initially developed by Mady Development Corp., which raised $16.9-million from syndicated investors in 2012 to finance preconstruction work on the project. Fortress acted as an agent arranging the financing. When Mady went under in 2015, however, Fortress took over as the lead developer.
Fortress raised a further $36-million in a new round of syndicated mortgage financing, while leaving the original loan registered on the property title. Fortress said the original investors and the new investors would be repaid if the project earned enough profits to pay off the senior-ranking lenders first.
Fortress completed the condominium portion of the site, but did not finish the commercial and retail component, and had repaid none of the outstanding mortgage loans before the project was seized by Morrison last year.
Bonnie Emms, 72, said Monday that she is still working part-time after losing $100,000 investing in a Collier Centre mortgage. She also sold her house and bought a cheaper home to pay off some of the bank loan she took out to help finance her Collier investment.
“You just can’t make it on government pensions alone,” she said.
Ms. Emms said she was braced for the news there would be no recovery, but she still feels guilt about the investment decision. “I kick myself every day and I wish I could go back and do things over again.”
At its peak, Fortress was Canada’s largest arranger of syndicated mortgages, which are mortgages provided by a group of lenders pooling their funds.
Fortress arranged $920-million in loans from 14,000 investors between 2009 and 2017 to finance real estate projects, becoming a pioneer in bringing syndicated mortgage investing to ordinary investors.
But investors began to complain to police and regulators about mounting losses, saying the investments were not appropriate for their knowledge and risk tolerance. Ontario’s mortgage regulator sought court approval in April, 2018, to have FAAN take control of Fortress’s affiliated mortgage brokerage firm. The brokerage firm was administering loans on more than 40 projects on behalf of 11,000 individual investors at that time.
In April last year, the RCMP searched the offices of Fortress and affiliated companies as part of a syndicated mortgage fraud investigation that is still continuing. No charges have been laid in the case.