Winnipeg SkyCity tower pitch to Toronto investors lacks key info

Winnipeg condo buyers are bullish about SkyCityCentre, a 45-storeytower billed as the tallest structure between Toronto and Calgary.

Almost half the $200-million project's units 188 of 388 condos have been pre-sold,with most of the deals going down in a million-dollar show suite on GarryStreet, within sight of the surface-parking lot at Graham Avenue and Smith Street,where the tower is supposed to rise.

Winnipeg SkyCity tower pitch to Toronto investors lacks key info

8 years ago

Duration 3:17

Winnipeg condo buyers are bullish about SkyCity Centre, a 45-storey tower billed as the tallest structure between Toronto and Calgary.

That's not the only place whereSkyCityis being sold.In a nondescript meeting room in the Toronto suburb of Richmond Hill, small investors can snatch up a piece of the project for as little as $30,000 in the form of a syndicated mortgage.

But the adsinviting Ontario investors to park their money in aWinnipeg condotower do not disclose the developer Fortress Real Developmentshas yet to secure a critical piece of public funding.

Correspondence sent to the city and investors tells contradictory stories about the $14.5million worth of public money Fortress says it needs tokickstart constructionand when the project will begin construction.

SkyCity marketing materials tell potential investors that "a municipal and provincial grant has been approved for the project and will allow construction to start in 2016."

That public funding, however, has not been secured.

• SkyCity condos will happen downtown, developers promise

In 2015, Fortress informed downtown development agency CentreVentureit will not be able to meet the construction deadline for a downtown housing-stimulus grant, which only had conditional approval.One condition required the project to be finished by January 2019 in order for Fortress to be eligible for $6.5 million worth of city funding as well as $8 million from the province.

Then in March 2016, Fortress submitted a letter to the City of Winnipeg to warn the project was in jeopardy without the public money.

"While we are a long way down the road to developing SkyCity Centre, we need your help to keep the project viable," Fortress COO Vince Petrozza wrote in a letter addressed to Mayor Brian Bowman and other members of city council on March 11.

"To be clear,SkyCityCentre is not a feasible project without the [housing] program grant."

Fortress obtained the SkyCity site, the former home of theWinnipeg Tribune building,in late 2013 for $9.5 millionfromOggiInvestments,a company owned by Winnipeg entrepreneursSabinoTummilloand JohnGarcea. The 1.1-acre parcel of land was assessed at $2.4million.

Oggistill owned the land in April 2013, when Fortress originally applied for city-provincial funding under a now-defunct downtown residential development grant program, and was given conditional approval that hinged on completion by January 2019. CentreVenturemanaged the grant program on behalf of the city and province by receiving, assessing and processing applications.

In a November 2015 briefing note, authored after Fortress warned it was going to miss the construction deadline, CentreVenture urged city officials to change the bylaw governing the grant program.

CentreVenture asked for the changesto ensure funds could flow to SkyCity as well as two other condo projects that would not meet the four-year deadline: the 91-unit, $25-million D Condos tower on Assiniboine Avenue, which is already being built,and YouCube, an 11-unit, $2-million project on Waterfront Drive that's nearly finished.

The city's lawyers rejected the idea of amending the bylaw, said John Kiernan, the director of Winnipeg's planning, property and development department.

Instead, at the end of August 2016, city economic development and housing managersrecommended new grants that would replace the expired housing program and effectively extend construction deadlines for all three projects.

City council approved grants of $1.9 million and $135,000 for D Condos and YouCube, respectively, in September but Fortress asked the city to pull a $6.5-million SkyCity grant off the table for now.

While the new city grantwouldgiveFortress more time to finish the building, it would removean option to collect the grant as a lump sum as soon as condo buyers move in. Instead, the money wouldbe paid out over a period of 10 years.

"This structure would create difficulty when working to obtain construction financing," Fortress spokeswoman NatashaAlibhai said in a statement.

The status of the province's $8-million contribution is less clear. A spokeswoman for Manitoba's municipal government ministry saidSkyCity satisfied all the conditions of the original housing-stimulus grant program but would not speculate whether the province would join the city in offering a replacement grant that would extend the tower's construction deadline.

Ads directed to investors in syndicated mortgages a pooled form of investment do not reflect the fact Fortress was unable to meet the deadline for the original housing-stimulus grant and that the status of the new economic-incentive grant is uncertain. Some of those ads remained online last week.

These investment vehicles allow several people to combine their money to create a single mortgage, with each investor individually registered on the land title. Investors inSkyCityare being 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 are backed up by the underlying value of the land in question in the event a project is not completed.

As a surface-parking lot, theSkyCitysite is currently assessed at $3.5million by the city.

• CentreVenture sells St. Regis Hotel, plans for parkade and retail

• New St. Regis Hotel developer has yet to erect single building

Fortress did not respond to queries about the discrepancy between whatinvestors inSkyCity syndicated mortgages are being toldabout the status of the government funding and what Fortress told CentreVenture and city council.

Winnipeg planning directorKiernanalsodeclined to comment on the discrepancy, buthe did offer general advice.

"It's a buyer beware. People should be careful and should do their research and their due diligence," he said. "Each individual investor should really take time, caution, and investigate thoroughly and get legal advice before they enter into an agreement."

Three brokerage firms market syndicated mortgages for Fortress projects. The president of twoof those firms, FFM Capital and FDS Broker Services,deferred questions about the marketing materials "termsheets," in the parlance of the industry to Fortress's head office.

"We are one of the three referral channels that Fortress uses in order to distribute their products, but we are not the product designer. They are," FFM Capital president Tony Mazzoli said in a telephoneinterview.

Marcus Kwamie, aspokesman for thethird brokerage,FMP MortgageInvestments, said the termsheetremained online into October in error. The firm changed the materials following CBC News queries about them earlier this month.

FMP's new SkyCitytermsheetisdated June 2016, which isafter Fortress notified both CentreVenture and city council it wouldn't meet the original grant's construction deadline.

Both the city and CentreVenture say no taxpayer money is at risk if SkyCity does not proceed.

Kiernan, whose department recommended the new grant, said nogovernment money will flow to Fortress until the tower is built.

"We want to ensure we follow through with our commitment on the grant. That's what we can do from our side. We also do want to protect taxpayer investment in this project," Kiernan said.

CentreVenture, which assessed and processed applications under the old city-provincial housing-development program, reinforced the fact SkyCity must be finished before any government money flows to Fortress.

"They will only receive grants when the project is completed, so there is no real risk to city or the province to extend the deadline in question, and that is why we are supporting it," CentreVenture CEO AngelaMathieson said.

In its March 2016 letter to city council, Fortress also provided construction completion dates that differ from the October 2019 move-in date in the contract signed by SkyCity condo buyers.

"Our architect has advised that working drawing preparation, and city review process, will likely take us into the early part of 2017, which is when we propose to put a shovel in the ground," Petrozzawrote. "The project will take a minimum of three years to construct."

If theproject is built in 36 months, SkyCity willnot be finishedbefore 2020.That date also dependson condo sales remaining strong, Petrozza said.

• In comparison: Plans vs. current Fortress Real Developments sites
• Skyscraper developers ordered to pay $3M in 2011

Fortress spokeswoman Alibhai said the SkyCity builder will be announced this month.

"With all components moving forward, we are aiming to put a shovel in the ground next year," she said via email.

The city, however, is expecting to see progress within the next three months.

Fortress paid $125,000 for apermit to begin excavatingand build a foundation at the SkyCity site. That permit expired in July 2016, but was extended as long as Fortress meetstwo conditions.

First, the firmmust submit construction drawings by Dec. 1.The excavationmust beginby Jan. 5, 2017.

Have you invested in SkyCity or pre-purchased a condo? We would liketo hear from you. Emailus atJoanne.Levasseur@cbc.ca.