Ontario syndicated mortgage sales reach nearly $4 billion

Ontario syndicated mortgage sales reach nearly $4 billion

Ontario syndicated mortgage sales reach nearly $4 billion Figures released by the Financial Services Commission of Ontario (FSCO) revealed that sales of syndicated mortgages for condo units in the province reached nearly $4 billion in 2014, the latest year with available numbers.
In an analysis piece published by Maclean's on Monday, senior business and finance writer Chris Sorensen observed that this number is reflective of the rise of syndicated mortgages, where hundreds of individuals decide to lend money to a developer “in exchange for a fixed annual interest rate of between eight and 12 per cent over a term of two to five years.”
Sorensen noted that this arrangement presents plenty of advantages for would-be investors, especially since each of them would need to lend as little as $25,000.
“Unlike other pooled real estate investments, syndicated mortgages allow investors to pick which projects they want to be involved with and secure their portion of the mortgage on the property in question. If the project performs well, investors may be eligible to receive extra payouts. If it goes bankrupt, investors can theoretically recover the principal amount of their loans following the sale of the property,” Sorensen explained.
The analyst attributed the increased popularity of the set-up to regulatory changes implemented in 2012.
“When banks began to impose more restrictive borrowing requirements on condo developers four years ago amid concerns of overbuilding, that spurred demand for alternative sources of capital to help finance projects,” Sorensen wrote.
However, since the money is primarily used for expenses involved in pre-selling a sufficient number of units to secure bank financing (including permit applications and sales centre building), syndicated mortgages are nowhere near a “safe” option for investors.
“Even in a hot market like Canada’s, there are no guarantees a given condo project will get off the ground, regardless of how quickly buyers snap up the units,” Sorensen warned, adding that buyers should be highly cautious of the possibility that they might not even get their funds back in the first place.
“If something goes wrong with a project, syndicated mortgage investors are subordinate to banks and other primary lenders, meaning they’re further back in line for repayment—assuming there’s enough money left over after other lenders have received their share,” the analyst said.
  • Mike 2016-04-06 9:32:12 AM
    This so reminds me of the limited partnerships of the 80's and 90's but they only carried commissions of 4%, alot of people lost alot of money. I have seen 8% commissions paid on syndicated mortgages. Any product that has to pay huge commissions to get it sold must be very very risky. This whole area is just waiting to blow up and when it does it will tarnish the whole industry. If a company, building a condo or a medical center is so badly capitalized that it is willing to pay that much for its money you know they will walk away from a deal that goes sideways pretty fast, in fact they won't have a choice. These things are being sold as a secure investment to GIC holders by very unqaualified salesmen. Going to get ugly.
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  • Ron Butler 2016-04-06 10:44:23 AM
    I think that there is nothing wrong with the basic concept of syndicated mortgages: small syndications occur everyday, three brothers do a second on single family detached, Mom and Dad and one son do a private first on a commercial condo, on and on. Simple, easy for everyone to understand mortgages.

    The problem is massive, multi-million dollar syndications of soft cost on construction projects. No matter how good a job the mortgage brokerages do about disclosure there is simply a different element of risk attached to these syndications and those projects should not be handled by mortgage brokers and agents. Those projects need to be handled through securities licensed organizations.

    Here is simple proposal for FSCO: put a moratorium on all syndications over $2 Million.

    Just freeze this multi-million dollar sales activity TODAY and wait until further study is finished and a total redesign of the rules around large syndication are completed. I think it is important for the public good and it will also protect our whole industry.
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  • Evan 2016-04-06 10:50:23 AM
    ALL investments bear risk and so long as that risk is disclosed and the client is given adequate information from which to make a decision, I see nothing wrong with this as another investment vehicle.

    There are far more risky investments out there, and far safer.

    The people who nay-say this investment... a question... do you hold the same view for the stock market? Mutual funds? Both of these investment vehicle are very high risk... the latter has been proven to be a huge loss leader for the investor. While the first has proven many times to be the source of millions of people's financial ruin.
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