Ontario mortgage watchdog orders $1.1M in fines to brokers involved in financing Fortress projects

Ontario's financial services regulator has issued $1.1 million in fines following an investigation into mortgage companies involved in the financing of real estate developmentsby the company that plans to build Winnipeg's tallest skyscraper.

The Financial Services Commission ofOntario, also known as FSCO, announced Fridayit has fined four brokerages involved in syndicated mortgageinvestments in real estate projects planned by Fortress Real Developments.

Fortress is the Richmond Hill, Ont.-based firm planning to build the SkyCityCentretower on Smith Street at Graham Avenue in Winnipeg.

The company also intends to redevelop the vacant St. Regis Hotel, in conjunction with Edenshaw Development.

In addition to meting out fines, FSCOordered one of thebrokerages involved with Fortress, Building & Development Mortgages Canada, as well as four individual brokers, to stop all mortgage brokerage business. One of the brokers is Vince Petrozza, chief operating officer for Fortress. All of these parties consented to the revocation.

"The orders were issued, pursuant to a settlement, against eight parties that were involved with syndicated mortgage investments for real estate development projects inOntarioand elsewhere inCanadafor which Fortress Real Developments Inc. was a developer or development consultant," FSCO stated in a press release issued Friday morning.

Fortress itself is not a mortgage brokerage or administratorand is not a party to the settlement or the subject of any of the orders, FSCOnoted in its release.

'High risk' investments: FSCO

Syndicated mortgages are investment vehicles thatallow several people to combine their money to create a single mortgage, with each investor individually registered on the land title. Investors inSkyCity syndicated mortgages, for example,were promised eight per cent annual interest.

That's a more attractive return than banks and other lenders can offer in the form of bonds, guaranteed investmentcertificates and other secure investment vehicles.

Syndicated mortgages are pitched on the basis they're backed up by the underlying value of the land in question in the event a project is not completed.

Ontario's financial-services regulator issued a cautionary statement about these investment vehicles on Friday.

"FSCO considers syndicated mortgages investments to be high risk, and notes they may not be suitable for the average lender or investor. Potential lenders or investors, including consumers and retail investors, are strongly encouraged to seek independent financial and legal advice before lending money through, or investing in, a syndicated mortgage," the commissionstated in its release.

"FSCO does not have the authority to offer restitution for any financial losses related to investments or its enforcement actions."

Business & Development Mortgages Canada said in a statement it agreed to a settlement with FSCO and will stop all mortgage brokerage business. It also agreed to allow an arm's-length firm to manage its existing syndicated mortgages.

This settlement was "a business decision," former BDMC principal broker Ildina Galatisaid in a statement.

"There has been no finding or determination by the Financial Services Tribunal as to any contravention or failures to comply with the Mortgage Brokerages, Lenders and Administrators Act," BDMC spokesperson JenniByrne, vice-president of communications firm Bayfield Strategy, said in a statement.

Over11 years as a brokerage for real estate developers, BDMChas "helped over 14,000 lenders participate in syndicate mortgages in more than 80 projects acrossCanada," BDMC said in its statement.

"The projects included all types of residential and commercial developments, offering a variety of terms and built forms for lenders to choose from. Through BDMC, more than$920 millionhas been funded into development projects, with the projects having a total built-out value of$6 billion."

Mortgage administration for existing syndicated mortgages loans will be taken overby a new arms-length administrator, FAAN Mortgage Administrators Inc., BDMC said in a statement.

Byrne also statedFortress is not a party to the settlement or the subject of any of the FSCO orders and does not believe the orders will affect its real estate business.

"The settlement and orders involve mortgage brokerages and brokers. Fortress is not a mortgage brokerage or administrator," Byrne said in a statement. "Fortress looks forward to continuing success in its real estate development and consulting business."

Fortress continues work on SkyCity: Byrne

Byrne said Fortress continues to work on the SkyCitydevelopment. The residential units at SkyCity are 55 per centsold and efforts to lease retail and office space continue, she said.

Angela Mathieson, president and CEO of Winnipeg downtown development agencyCentreVenture,said she is not in a position to speculate about the impact of theFSCOdecision on the ability of Fortress to complete its Winnipeg projects.

"Syndicated mortgages are [a] portion of financing used for Fortress projects,"Mathiesonsaid via email.

City council property chair John Orlikow said the city must determine how the FSCO orders will impact Fortress' plans for SkyCity.

"It does cause us quite a bit of concern. We were really hoping the SkyCity project will go forward. It's an exciting opportunity for downtown," Orlikow said Friday at city hall.

• Bowman's inner circle approves $6.5M grant to help build SkyCity tower

John Kiernan, director of Winnipeg's planning, property and development department, said whileSkyCity is an important downtown Winnipeg "centrepiece," there is no risk to the taxpayer if the project does not proceed.

A $6.5-million city grant approved by city council willnot be paid out to the developer unless it completes the project, he noted.

"SkyCity was not a City of Winnipeg liability, but I'm concerned if there's a ripple effect that affects Winnipeggers," Kiernan said, noting hundreds of people hoped to reside in the tower.

• CentreVenture gives Fortress another year to start work on parkade at St. Regis Hotel site

Kiernanalso said his staff are expecting an application this spring for apermit to build the foundation of the St. Regis Hotel redevelopment.

Byrne said the St.Regisis nearing the start of construction.

"A finalized lease for a restaurant and a parking operator to manage the 290 spots is anticipated this month," she said.

"Fortress [is] in discussions for the construction loan on St.Regisand is in the process of meeting conditions for that."