A forensic investigator who has scrutinized information on millions of dollars lost in a Barrie project and a series of others across the country is calling for a public examination of the company involved.
“I really think somebody should be appointed in order to have a look at the financial records of this company,” said Dave Oswald.
Through his company, Forensic Restitution, Oswald has been poring over records available in the public domain related to Fortress Real Developments, concluding that much more money was raised than was needed to build Collier Centre in Barrie.
“They should have made money, but they didn’t," he said. "Why didn’t they make money?”
COLLIER CENTRE OWNERSHIP
Fortress Real Developments used money raised through syndicated mortgages to finance dozens of real estate developments across the country. Court documents have shown that many of those projects have ultimately failed.
One of the largest was Collier Centre in Barrie, a residential, office and commercial complex across from city hall which was initiated by Mady Development. When Mady went bankrupt during construction, Fortress assumed ownership. In 2018, Fortress defaulted on its first mortgage and Morrison Financial Realty Corporation eventually took it over and finished construction.
The project has long been completed and the adjoining condos occupied while the current owner continues to work on a plan for the office and commercial space.
But investors united through a Facebook page and website say 14,000 Canadians lost millions of dollars through Fortress’s many projects.
In Barrie, 949 investors have lost everything they invested in Collier Centre, adding up to a combined $53 million.
According to the Financial Services Regulatory Authority of Ontario, which issued a $250,000 fine against Fortress earlier this month, Fortress helped mortgage brokers raise more than $900 million in syndicated mortgage loans to help fund real estate development costs.
In an emailed statement, Fortress lawyer Brendan van Niejenhuis said Fortress ran into substantial cost overruns that were not anticipated in the Barrie project and that best efforts were extended to salvage the project for all stakeholders.
“The residential condominium portion was successfully sold out and delivered. Unfortunately, for the commercial tower and podium, the loss of the grocer and also the largest tenants was a significant setback that was ultimately not recoverable,” he wrote.
The new owners and their bankers continued to fund the project. But, he added, that without critical occupancy to more than 50 per cent of the project, “the ultimate value could not be realized and the bank also incurred a significant loss even in first position.”
When there were no buyers, the property was transferred to Morrison for $18.457 million, less than what Fortress owed Morrison as first mortgagee, leaving nothing left to pay other lenders and investors.
Just a few years earlier, Fortress paid $33.4 million for Collier Centre when 60 per cent of the project had been completed.
Including $53 million from syndicated mortgages raised through individual investors, Morrison Financial held the first mortgage of $29.6 million, Jaekel Capital provided the $4-million second mortgage and $3.12 million came from Magnetic Capital Group through a third mortgage, according to information compiled by FAAN Mortgage Administrators Inc., appointed as trustee over Fortress’s assets.
The total of $89.622 million raised exceeded the project’s budgeted amount of $79 million by $10 million or 12.5 per cent, said Oswald, whose examination is being used to lay the groundwork for lawsuits.
“The question then needs to be asked is what actually happened to that money,” he said. “We’re unable to say what the true position should be because we just don’t have access to that information (the books and financial records).
“There’s been no financial disclosure to anybody that we’re aware of that’s involved in this particular scheme," Oswald said. "And that, to me, is just wrong. That shouldn’t be.”
While the RCMP has been involved in an investigation, which resulted in a raid of Fortress’s offices in 2018, Oswald believes the company’s financial records should be subject to expert scrutiny by financial specialists.
Without any inquiry and accountability Oswald suggests there is great potential for the perpetuation of similar schemes to be developed and implemented without impunity.
HARMONY VILLAGE, BARRIE
Fortress was also originally involved in The Kemp, also known as Harmony Village on Bradford Street in Barrie, which raised a total of $27.5 million, $17 million of that was through syndicated mortgages.
In 2017, it went into receivership.
That property was sold a year ago for $12.7 million with ongoing plans for development.
About $2.2 million was left over after the first, second and third mortgages were paid off. The trustee, FAAN Mortgage Administrators Inc., reported last November it was trying to block Fortress’s claim on $572,000 of the remaining proceeds with a goal to distribute all of what was left over to the investors.
Given that $17 million was raised through 360 people investing in syndicated mortgages, it is anticipated that those individual investors might expect to get 10 to 12 cents back for every dollar they invested. In addition, 15 per cent of any of the investment they get back goes to the receiver.
BRADFORD BOND HEAD PROJECT
The fate of the 186 individual investments in the Bradford Bond Head Project on Highway 27 in Bradford West Gwillimbury, like the Collier Centre investments, are all considered lost.
In a letter to syndicated mortgage investors in January, the trustee, FAAN Mortgage Administrators, announced that after listing the property for sale last fall, the receiver accepted the highest of 11 offers. When that fell through it accepted the second offer.
“Unfortunately, based on the information provided by the receiver, the trustee understands that the proceeds from the second offer will be insufficient to repay any amounts owing to the Bradford Bond Head syndicated mortgage lenders,” the letter announced.
In a follow-up letter in February, the trustee announced that the next two bidders fizzled out as well, and Gal Real Four Holdings Ltd., a company affiliated with the second ranking mortgagee, ended up with the property, taking a shortfall on the money it was owed.
The purchase price, a summary of the offers received and the appraisal obtained by the receiver all remained confidential, the trustee noted.
The letter again confirmed that there was nothing left for the individual investors.
BRAESTONE IN MOONSTONE
The 250 people who invested in Braestone, located at 3009 Line 8 North in Moonstone, were able to receive full payout of their investment.
The proposed settlement plus the paid interest was anticipated to result in full repayment of the principal investment made by the syndicated mortgage investors, plus 15 per cent above the outstanding principal.
In November 2018, the trustee reported that $10 million was offered on the property, which, combined with $5.45 million in interest, exceeded the $13.35 million of outstanding principal.
According to the trustee’s November update, Fortress’s other failures also include the Charlotte Adelaide Tower in Toronto that attracted 301 investors and Oswald considers Winnipeg’s SkyCity Centre the biggest failure.
In information updated this summer, the victims say $214 million invested through syndicated mortgages have been lost in Fortress projects. Another $198 million invested in projects is considered by the trustee to either be in distress, or that there may not be any money available to return to the investors.
An investor who invested $25,000 in The Orchard development in Calgary with 381 others for a combined investment of $14.2 million is also calling for a close examination of Fortress’s financial records.
Fortress’s Calgary development stalled at the pre-construction stage and the property is currently used as a surface parking lot and is being sold.
The woman, who asked not to be named, is hoping to eventually recoup a percentage of her investment, but doesn’t expect to get all her money back. She said investors who lost money in these projects across the country, many of whom are embarrassed that they were duped, deserve to know what happened to it all.
“The investors were misled every step of the way, and to make matters worse, they were failed by the regulators,” she said.
The woman has also called for a public inquiry and a close examination of the financials of both Fortress and its principles.
What raises some intrigue for Oswald is that the earlier projects were completed while the latter projects failed. He wonders if money from the new projects was funnelled into earlier projects. All of them, he added, looked good on the face of it and should have made money, even with cost overruns.
“How did they end up with no money? These are the kinds of questions that need to be asked. Where did the money go to? What actually happened to the funds?”