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 the financing of real estate developments by the company that plans to build Winnipeg's tallest skyscraper.

Unclear how orders affect plans to build SkyCity Centre tower and redevelop St. Regis Hotel

The concept art for SkyCity, the 45-storey tower Fortress Real Developments plans to build on a surface parking lot at the northeast corner of Smith Street and Graham Avenue. (Fortress Real Developments)

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 developments by the company that plans to build Winnipeg's tallest skyscraper.

The Financial Services Commission of Ontario, also known as FSCO, announced Friday it has fined four brokerages involved in syndicated mortgage investments in real estate projects planned by Fortress Real Developments.

Fortress is the Richmond Hill, Ont.-based firm planning to build the SkyCity Centre tower 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, FSCO ordered one of the brokerages 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 in Ontario and elsewhere in Canada for 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 administrator and is not a party to the settlement or the subject of any of the orders, FSCO noted in its release.

'High risk' investments: FSCO

Syndicated mortgages are investment vehicles that allow several people to combine their money to create a single mortgage, with each investor individually registered on the land title. Investors in SkyCity 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 investment certificates 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 commission stated in its release. 

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

SkyCity Centre is slated to rise on this parking lot at Graham Avenue and Smith Street. (Bartley Kives/CBC)

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 Galati said 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 Jenni Byrne, vice-president of communications firm Bayfield Strategy, said in a statement.

Over 11 years as a brokerage for real estate developers, BDMC has "helped over 14,000 lenders participate in syndicate mortgages in more than 80 projects across Canada," 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 million has 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 over by a new arms-length administrator, FAAN Mortgage Administrators Inc., BDMC said in a statement.

Byrne also stated Fortress 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 SkyCity development. The residential units at SkyCity are 55 per cent sold and efforts to lease retail and office space continue, she said. 

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

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

Ledt to right: Winnipeg Mayor Brian Bowman, Fortress CEO Jawad Rathore, Fortress COO Vince Petrozza and Winnipeg CAO Doug McNeil meet in the mayor's office in this undated photo. (Twitter)

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.

John Kiernan, director of Winnipeg's planning, property and development department, said while SkyCity 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 will not 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.

Kiernan also said his staff are expecting an application this spring for a permit to build the foundation of the St. Regis Hotel redevelopment.

An artist's conception of the proposed redevelopment of the St. Regis Hotel. (Fortress Real Developments)

Byrne said the St. Regis is 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. Regis and is in the process of meeting conditions for that."


Bartley Kives

Senior reporter, CBC Manitoba

Bartley Kives joined CBC Manitoba in 2016. Prior to that, he spent three years at the Winnipeg Sun and 18 at the Winnipeg Free Press, writing about politics, music, food and outdoor recreation. He's the author of the Canadian bestseller A Daytripper's Guide to Manitoba: Exploring Canada's Undiscovered Province and co-author of both Stuck in the Middle: Dissenting Views of Winnipeg and Stuck In The Middle 2: Defining Views of Manitoba.