The RCMP asserts that property values were inflated to promote non-qualifying investments as being RCMP-eligible in a mortgage fraud investigation affecting several Ontario properties, as well ad downtown Winnipeg tower, court documents seeking an April search warrant at six Toronto-area offices say.
Fortress Real Developments, its lead mortgage broker Building and Development Mortgages Canada (BDMC), and three other affiliated brokerages, including FDS Broker Services were searched by police in the mulct-million dollar fraud investigation.
Superior Court justice Robert Goldstein ordered the search warrant document unsealed and media outlets including CBC and the Globe and Mail have reported on its contents.
The document does not say which individuals are believed to have committed fraud and no charges have been laid. The allegations have not been proven in court.
Projects affected by the alleged fraud include the Sky City tower in Winnipeg as well as the Collier Centre in Barrie, Harmony Village Sheppard in Toronto and Crates Landing in Keswick, ON.
“These projects contained representations made to investors involving inflated current ‘as is’ property values,” Const. Martin Williamson of the RCMP’s Integrated Market Enforcement Team said in the documents. “Property valuations for Fortress Real Capital syndicated mortgages were misrepresented to investors.”
As an example, RCMP say 310 individuals invested $16.9 million in a syndicated mortgage for the Collier Centre in Barrie.
RCMP investigators believe the alleged inflated property values meant that loan-to-property values exceeded 100 per cent on several syndicated mortgages signed between 2012 and 2017.
The RCMP alleges that investors were told in 2012 that the Collier Centre “as is” land value was $21.9-million, but the RCMP believe the land was worth only about $7-million, according to the application.
“A loan-to-value ratio over 100 per cent would indicate that the investment would not be RRSP eligible, contrary to information provided to investors,” Williamson wrote.
Williamson alleged an “inflated property value” significantly impacts the actual safety of the investment because the security of the investment is tied to the underlying value of the land.
The search warrant document describes an unidentified investor who put $100,000 into SkyCity in Winnipeg in 2015, CBC reported.
Investigators believe the value of the land where the 45-story condo project was set to rise “was falsely represented.” Documents list the plot of land as having an “as is” value in 2013 of $18 million.
“Investigators believe the current ‘as is’ value of the property in 2013 was between approximately $4,400,000.00 and $11,000,000.00,” wrote Williamson.
“The investments that investigators have examined are not RRSP-eligible and could be subject to adverse taxation by the Canadian Revenue Agency,” Williamson asserted.
“As a result of the inflated current as-is land valuations, investigators believe that there are currently millions of investors dollars, including retirement savings, where the amount of mortgages on the property exceed the current value of the property. This is contrary to what was told to investors.”
CBC reports the search warrant document does not detail the number of investors involved, but a recent court filing by the regulator of syndicated mortgages states more than $700 million has been invested by approximately 11,000 individuals.
“Fortress is co-operating with the current law enforcement inquiries regarding syndicate mortgages and has nothing to hide. Fortress believes that it will be vindicated,” wrote Fortress spokesperson Scott Davidson of Bayfield Strategy in an emailed statement to the public broadcaster.
“We rely on mortgage brokers and agents to provide accurate, reliable and regulatory compliant information that the projects and the lenders can rely upon. This includes market studies and reports on sales trends, appraisals and valuations of land, and advice from experts,” wrote Davidson.
The fraud investigation, which began in October 2016, was dubbed project Odynasty by investigators from the RCMP’s Integrated Market Enforcement Team (IMET). Investigators included a commander, a primary investigator, two intelligence analysts as well as several other civilians and officers, who gathered information through surveillance, undercover work and witness interviews.
The search warrant document says that some Fortress syndicated mortgage investors are receiving returns on their investments and developers are using the funds for their projects.
In a statement to CBC, Davidson (representing Fortress) wrote: “Fortress has participated in the successful exit of 30 projects and the completion of almost two million square feet of new residential and commercial real estate with another four million square feet currently under construction. We believe we have followed all rules, regulations and laws in doing so.
“We look forward to moving all projects ahead.”
