The other side of the syndicated mortgage story

The other side of the syndicated mortgage story

The other side of the syndicated mortgage story Following a deluge of criticism in the mainstream media, one industry professional who specializes in syndicated mortgages tackles – what he argues to be – misleading information.

They may be the most polarizing product in the mortgage industry, and Glenn May-Anderson, broker of record for FDS Brokers Services, argues there have been inaccuracies in some of the reports about syndicated mortgages.

The Toronto Star recently took syndicated mortgage provider Fortress Real Developments to task after one of its projects, the Mady Collier Centre in Barrie, filed bankruptcy and protection from creditors. May-Anderson argues the article left out some key facts.  

“There is … no discussion (in the article) of the 13 successful exits so far, returning a minimum 8% annual simple interest and full principal to investors,” May-Anderson told MortgageBrokerNews.ca. “There is also no discussion of the additional eight exits planned for this year.”

The Star piece, entitled “The high-risk world of syndicated mortgages,” features David Franklin, a real estate lawyers currently representing an investor who put $80,000 into the Mady Collier project. Franklin argues his client would not have invested had the risks been disclosed up-front.

However, May-Anderson says the risks are always disclosed to potential investors.

“All risks are disclosed multiple times prior to a client lending their money to a developer.  More importantly, we take care to ensure potential clients understand the risks associated with this type of lending before they proceed,” he said.

May-Anderson also took issue with the article’s subtitle – and general undertone – that Syndicated mortgages “are now being pitched to ordinary consumers with promises of low risk and high returns.”

“We do not market these investments as low-risk.  We do not market them to ‘ordinary people,’” he said. “Our customers typically have over $100,000 in investable assets, and our minimum investment is $30,000.”

In the case of the Mady Collier Centre -- which the Star article says investors’ claims against the property were “wiped” -- May-Anderson says the project was purchased by Fortress Collier Inc., a single-purpose entity created to take over the project, and investors were issued  new mortgage charges worth the same as their original investments.

“The project construction is currently being completed by EllisDon, and there is a plan in place to exit all syndicate investors in the next 18-24 months,” he said.
 
12 Comments
  • Mortgage Guy Geoff 2016-05-05 10:02:40 AM
    The old adage "don't let the facts get in the way of a good story" seems to apply here.

    Of course its incumbent on us as professionals to properly inform potential investors. However where is the personal responsibility, and the common sense to realize that if it sounds too good to be true...

    No one is going to look after MY money better then ME. I would think investors might want to remember this when trying to blame others for their own lack of due diligence.
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  • Jeff Young 2016-05-05 10:18:03 AM
    Syndicated Mortgage Investments are one of the toughest things to sell. Everything is disclosed and must be so that the investor is educated and empowered to make the right decision to either stop the process or to continue to complete it. Risk factors are reviewed 2 - 3 times in the 2 - 3 week process. Even a $30,000 minimum investment requires 3 - 4 hours, if not more to bring to the point of the Indépendant Legal Advice interview. It is like....at every step we are creating negative hurdles that the investor needs to understand and then jump over. I would dare say that once through the process, an Syndicated Mortgage Investment client who invested via FDS Broker Services into an Fortress Real Developments Inc. related project is better informed about Syndicated Mortgage Investments than most financial advisors. My clients have made 8% fixed return, and that includes me, for the last 5 years. That is Fantastique!
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  • David Franklin 2016-05-05 11:34:37 AM
    Glenn said “All risks are disclosed multiple times prior to a client lending their money to a developer.” And also “We do not market these investments as low-risk.”
    My client completed a suitability form and the box for medium risk was checked being 2 on a scale of 1-4 with 4 being high risk and the box stating “I would rather accept a lower rate of return to reduce my risk” was checked. Based on this form my client should have been advised not to invest as the Fortress mortgage product is high risk and the Ministry of Finance in 2004 stated that syndicated commercial mortgages were riskier than house mortgages.
    My client was not told that the Barrie property was purchased for $4 million with $500,000 down and a postponeable $3.5 million mortgage was taken back by the City of Barrie. The closing was in July 2012 and the investor mortgage for $16,923,077, 4.23 times more than the purchase price, was registered one month later in August 2012. My client was not advised of the purchase price and was not provided with the agreement of purchase and sale as is required in the FSCO Form 1. An appraisal was not provided, however there was an opinion of value which stated that it was not an appraisal. It was represented that the mortgage was RRSP eligible but there was no written opinion provided confirming this and CRA only allows mortgages up to 100% of fair market value as being eligible. The mortgage being 423% of the purchase price would not appear to be RRSP eligible and if it was not then there is a tax penalty of 50% of the amount invested.
    My client was not told that the interest payments to be paid were coming from the capital being invested and that the amount of money going into the project was about 45% of the amount of the mortgage.
    My client was not told that Fortress Real Development Inc. was the lender to Mady, as set out in their loan agreement dated July 17, 2012, and was receiving a 50% profit share, would only be advancing into the project $11 million from the funds raised and that $5,000 would be paid to a charity.
    My client was provided with the free independent advice by a lawyer from Sorrenti Law over the telephone. According to the Law Society of Upper Canada this was not independent legal advice.
    If my client had been advised of this information, no investment would have been made.
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