Police search the Fortress corporate offices under warrant in Richmond Hill, On. on Apr. 13, 2018.Chris Donovan/The Globe and Mail
Investors who helped finance two Fortress Real Developments Inc. housing projects will get most of their loans repaid under new settlement offers, providing positive news for some Fortress investors while others still face the prospect of large losses as senior lenders seize control of numerous projects.
The latest deals involve the second phase of the Braestone housing development north of Toronto near Orillia, and The Harlowe condominium project in downtown Toronto. The two projects were launched using $13.35-million and $15.9-million respectively in financing from syndicated mortgage investors, mostly regular retail investors.
Fortress, a real estate developer and consultant based in Richmond Hill, north of Toronto, helped arrange the syndicated mortgage financing for the developers on both projects. The company raised more than $900-million from 14,000 retail investors through affiliated mortgage brokerage firms between 2008 and 2017 to finance more than 80 development projects across the country, and about 50 are still outstanding.
A new report from FAAN Mortgage Administrators Inc., a court-appointed receiver that has taken control of many of the syndicated mortgage loans arranged by Fortress’s former mortgage brokerage affiliate, said Braestone has offered to repay $10-million of the $13.35-million it owes.
The payment would not cover the full $16-million owed including unpaid interest and some deferred fees, but FAAN said investors will at least have recovered their full $13.35-million principal, plus an additional 15 per cent if earlier interest payments of $5.4-million are added to the $10-million lump-sum offer.
FAAN recommended the deal to investors, who overwhelmingly approved it in voting earlier this month.
Braestone, a project by developer Georgian International, told investors it will not be able to complete phase 2 of the housing project before the end of its extended loan term in July next year, owing to unexpected delays, including problems obtaining environmental approvals for the site, FAAN said. Braestone stopped making interest payments in July, and said it will not make any more payments.
While the Braestone offer provides “discounted returns” to investors, FAAN said there is value in the certainty it provides.
FAAN is also asking investors to approve a payout offer from The Harlowe Inc., a condominium development project by Lamb Development Corp. The deal would see syndicated investors recover $15.5-million of the $15.9-million in principal they are owed.
The Harlowe has sold 80 per cent of its units and is under construction, but needs an additional inventory loan to cover costs associated with selling remaining units, FAAN said.
While more than $20-million is owed to The Harlowe’s syndicated mortgage investors including accrued interest, FAAN said investors would still earn 15 per cent on their principal investment if earlier interest payments of $2.7-million are included. FAAN has recommended the settlement offer.
While both the Braestone and Harlowe deals do not provide full payment, they may offer better recoveries than those available to many other syndicated mortgage investors in Fortress projects.
Over the past year, many investors have come forward with complaints that they have not been repaid their principal after original loan terms expired. In April, the RCMP searched Fortress’s offices, saying officers have launched a fraud investigation.
Fortress has faced a spiral of defaults since then as senior lenders, whose claims rank ahead of the syndicated mortgage investors, have refused to refinance loans and have moved to seize properties.
For example, the senior lender owed $20.1-million seized and sold Fortress’s Brookdale condominium project on Avenue Road in Toronto in October. FAAN has warned that Brookdale’s syndicated mortgage investors, owed $25.3-million, could face losses once the sale proceeds are distributed.
Receivers have also taken control of the Glens of Halton Hills project in Georgetown, Ont., and Union Waterfront in St. Catharines, Ont., while other lenders have sent notices that they plan to seize and sell at least ten other Fortress projects. They include Collier Centre in Barrie, Ont., Charlotte Adelaide Tower in Toronto, Mississauga Meadows, Old Market Lane in Vaughan and Triple Creek in Calgary. FAAN has warned there could be large losses for syndicated lenders in some cases.
Fortress has also faced problems with its own lenders. Toronto-Dominion Bank has filed a lawsuit seeking repayment of $190,000 it says it is owed on the company’s corporate credit cards.
More recently, Fortress removed the large signs and company logo from its head office building in Richmond Hill. The company’s name was also removed from a building directory sign in the parking lot.
Fortress lawyer Scott Fenton said the company has reduced its office space from 10,000 square feet to 5,500 square feet, and the landlord asked it to remove its signs because it is no longer the anchor tenant.
“Fortress remains fully operational in the same building, so there should be no suggestion that the removal of the signage reflects that they are not in business or any other negative connotation,” Mr. Fenton said in an e-mail on Tuesday.