Mortgage Broker

20 | winter 2017 cmba-achc.ca CMB MAGAZINE syndicatedmortgages During the subsequent investigation following Eron's collapse in 1997, investors disclosed they got involved because the company offered a "guaranteed" 24 per cent rate of return and this seemed legitimate. e case highlighted the need for mandatory investor disclosure concerning the detailed risks involved with funding mortgage loans. Franklin, who has been practicing real estate law in Toronto since 1973, emphasizes that nothing about syndicated mortgages is guaranteed. Prior to 2008, he says, syndicated commercial-property lending in Ontario was a domain reserved for savvy and experienced investors. But that year – amidst a global financial crisis and sharply declining stock market returns – a new investment option promised ordinary investors an eight per cent return in what has traditionally been considered a safe, secure investment realm: mortgages on real estate. A New Investment Model First unveiled in Ontario by Fortress Real Developments – founded by President and CEO Jawad Rathore, and Chief Operating Officer Vince Petrozza – the syndicated equity development mortgage was a distinct subset of the traditional syndicated lending structure. "We saw a really interesting opportunity [around 2008] on the real estate side of our business with offering syndicate mortgages," Rathore told online publication BuzzBuzzHome in a 2012 interview. "Basically, the Canadian real estate market has never really been available for direct investment to the general public, so we saw a really interesting and exciting niche opportunity to offer that element of the market out to the general public. "From about 2002 'til about 2007, 2008, we were funded mainly by a lot of high-net-worth private individuals, a lot of overseas money," he continued. "[ereaer], we started going into the retail market and selling through licensed mortgage agents and financial planners directly to the Canadian public." Aer Fortress identifies a suitable development project pitched by a "blue-chip investor," says the company's website, its network of three licensed mortgage brokerages (including FDS Broker Services) sells the investment opportunity to individual investors. e mortgages are registered against the title of the property, and the investors' money is then lent to the developer to cover the purchase of the land and "so costs" including permits, approvals, construction of a sales centre, and marketing and consultant fees. According to the September 2016 edition of Syndicated Mortgage, an FDS Broker Services investor publication, the benefits of investing are attractive. "Not only do you earn eight per cent fixed annual interest, but you are also investing in prime Canadian real estate that accounts for 20 per cent of our GDP. Real estate offers the ability to diversify into an area oen underserved in many consumers' portfolios. e ability to collateralize directly to an actual asset makes real estate an attractive option." In addition, says Syndicated Mortgage, the investments are secured against the subject property, backed by "third party appraisals and opinions," and are RRSP and TFSA eligible for a $30,000 minimum investment. In the same September 2016 publication, Fortress noted it had more than 70 projects under development across Canada, with over $745 million contributed through syndicated equity development mortgages. Too Good to be True? If you're thinking that Fortress and its specialized mortgage investments sound too good to be true, there are some who would certainly agree with you. David Franklin represents several investors who have entrusted money to various projects backed by Fortress, including the Mady Collier Centre in Barrie, Ontario. e condo commercial tower was labelled a hot prospect, and potential investors were told their investments would be registered against real property. Excavation began in November 2012. "ey were told, 'You all know how good real estate is and you know mortgages are a secured investment. So, we're going to offer you a mortgage on real estate and, by the way, they're RRSP eligible and we can offer you eight per cent interest,'" says Franklin. "'e wealthy have been doing this for a long time; now you can get in on the action.'" But Mady ran into financial trouble in late 2014 and construction ground to a halt. Mortgage brokerages are also responsible for fully educating consumers about the risks associated with syndicated mortgages, including those for a proposed development, and must keep detailed notes in the client file to prove these discussions were held. private individuals, a lot of overseas money," he continued. "[ereaer], we started going into the offers the ability to diversify into an area oen underserved in many consumers' portfolios. e ability to collateralize directly to an actual asset makes real estate an attractive option."

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