A receiver has been appointed to take control of a Fortress Real Developments Inc. project on the waterfront in St. Catharines, Ont., adding to the growing list of legal problems facing the development company.
The Union Waterfront Inc. condominium project, which Fortress touted as the heart of the redevelopment of the Port Dalhousie area in St. Catharines, was placed into receivership by a judge on Aug. 3. The application was filed by FirstOntario Credit Union Ltd., which said it is owed $10.3-million, including accrued interest.
Fortress was planning a 14-storey mixed-use building on the site with 157 condominium units and commercial space, but a court application filed by FirstOntario said Union Waterfront has not made interest payments on its $10-million loan since February and has amassed a large property-tax liability.
Bankruptcy firm MSI Spergel Inc. was named the court-appointed receiver and has taken control of the property.
The receivership is the latest problem for Fortress, which is under RCMP investigation and has faced foreclosures on some of its major projects. No charges have been laid in the investigation. The developments were financed with syndicated mortgage loans raised from individual investors, who now could lose their investments.
FirstOntario senior portfolio manager Virginia Selemidis said in an affidavit filed in court that the lender worked with Union Waterfront to find a solution, but has received no “reasonable plan” to repay the debt.
She said one option was to sell the project to another developer for $13-million, but the buyer wanted FirstOntario to continue providing $10-million in first mortgage financing, which the credit union was not willing to do.
Ms. Selemidis said FirstOntario wants to ensure “an orderly sale and distribution of Union’s assets with a view to maximizing recovery for it and all stakeholders.”
Scott Davidson, a spokesman for Fortress, said the First Union project “has not failed” and Fortress still wants it completed.
“Fortress will be working alongside the receiver to guide the project through the approvals process,” Mr. Davidson said in an e-mailed statement. “All parties strongly believe in the proposed project and are committed to seeing it through to a successful conclusion."
A syndicated mortgage broker affiliated with Fortress – Building and Development Mortgages Canada Inc. (BDMC) – raised more than $560-million from 11,000 investors to finance 44 projects for Fortress and its development partners, including Union Waterfront.
Ontario’s financial regulator applied for a court order in April appointing a receiver – FAAN Mortgage Administrators Inc. – to take control of BDMC, saying it was concerned about its lending practices.
FAAN said in a June report that syndicated loans for some Fortress projects are “under considerable stress” and lenders could face “significant losses” because many of those loans are subordinated to larger ones from senior lenders.
FAAN said the Union Waterfront loan was in default at that time and was facing possible enforcement from its senior lender.
The receiver also said the senior lender for Fortress’s proposed office complex at the Collier Centre site in Barrie, Ont., had issued a notice of sale for the property, saying the period set to repay its loan had expired. The senior lenders had priority over syndicated mortgage lenders who provided $53-million in loans to the project.
Fortress’s Brookdale condominium project in Toronto – which has almost $25-million in syndicated mortgage loans outstanding – is subject to two enforcement actions by a senior lender, which has issued a notice of sale for the land, FAAN said in the June report. Syndicated lenders rank fourth and fifth behind senior lenders.
FAAN also said Fortress’s proposed Triple Creek housing development in Calgary is in default on its senior loans and may face enforcement action “in the near term.”
Fortress is also in default on loans for the Glens of Halton Hills project near Toronto and recently cancelled development of its SkyCity condominium in Winnipeg, returning deposits to buyers.
The company is also appealing an order by the City of Regina requiring it to fill in a foundation hole on the long-delayed Capital Pointe project in downtown Regina.
However, FAAN said in the June report that it appears Fortress’s Brookhill development project in Bowmanville, Ont., will be refinanced with new senior lenders. Under the terms of the deal, $5.3-million of syndicated mortgage loans will remain outstanding and be subordinated to those of the new senior lenders.
Fortress has also found a buyer for a Victoria building project called The Wade, FAAN said.
Janet McFarland