To whom it may concern:

This document outlines concerns regarding the following companies and individuals:

Fortress Real Capital Inc

Fortress Real Developments Inc

FMP Mortgage Investments Inc

FFM Capital Inc
FDS Broker Services
Centro Mortgages Inc
Building & Development Mortgages Canada Inc

Jawad Rathore
Vincent Petrozza

Table of Contents:

1) Corporate structure and business model of Fortress companies and affiliates………..…3

i) Overview of businesses………………………………………………………………….....3
ii) Overview of syndicated mortgage product…………………………………………..…5

2) Petrozza and Rathore sanctioned by the OSC…….…………………………….........……….10

3) Exceptionally high fees generated off the syndicated mortgage product………………..18

i) Fees to Fortress…………………………………………………………………………….18
ii) Referral fees………………………………………………………………………………...19

4) Egregious marketing of syndicated mortgage product by realtors

and mortgage brokers who collect hefty referral fees……………………………………......23

5) Highly questionable land valuation………………………………………………………………23

i) Colliers Centre, Barrie……………………………………………………………………..24
ii) SkyCity, Winnipeg……………………………………………………...………………….28
iii) Lake East in Oakville…………………………………………………………………..…34

6) Questionable RSP eligibility given overstatement of land value.

Same firm that issues opinion letters on RSP eligibility also sends
threatening letters to Fortress detractors………………………………………………………36

7) Free “independent” legal advice given to investors by the law firm

that is paid by the borrower…a clear conflict of interest!..................................................37

8) Fortress wholesalers in violation of investment suitability…………………………………39

9) A case study in how it can all go wrong: Colliers Centre in Barrie……………………….41

Appendix: Collection of ads for Fortress syndicated mortgage product…………………..50

1) Corporate structure and business model of Fortress companies and affiliates

i) Overview of businesses

Fortress Real Development Inc.

Fortress Real Development Inc. (FRDI) is a corporation incorporated under the laws of
the Province of Ontario, having its head office in Richmond Hill, Ontario. Jawad Rathore
is President and Chief Executive Officer of FRDI. Vincent Petrozza is Chief Operating
Officer.

Fortress Real Capital Inc.

Fortress Real Capital Inc. (FRC), is a federally incorporated company, having its head
office in Richmond Hill, Ontario. Jawad Rathore and Vincent Petrozza are officers and
directors of FRC.

FRDI and FRC provide inter alia, development consulting services in connection with real
estate projects.

FMP Mortgage Investments Inc.

A full-service mortgage brokerage and the leading national distributor of syndicate

mortgage investments that fund Fortress projects. FSCO license #12373.
FFM Capital Inc.

A mortgage brokerage that distributes the Fortress syndicated mortgage product. FSCO
license #12391.

FDS Broker Services Inc.

From their facebook page: Canada's leading distributor of syndicated mortgage

investments in real estate development projects led by Fortress Real Developments.
FSCO license #12367.

Centro Mortgages Inc.

Centro Mortgages Inc is the lead mortgage brokerage that registers the syndicate
mortgages that fund FRDI projects. FSCO license #10102.
In early 2016, Centro was renamed Building and Development Mortgages Canada
Inc.

Source: Strategic Outlook and Corporate Report, 2014

http://ffmcapital.com/wp-content/uploads/2014/09/Fortress_StrategicOutlook-and-CorporateReport.pdf
The growth in Fortress syndicate mortgage sales has been staggering:

Source: Strategic Outlook and Corporate Report, 2014

As of late 2015, Fortress claimed to have raised nearly $650M, almost exclusively from
retail investors:
 Source: Presentation given by Ben Myers at Veritas Canadian Housing day, November 10, 2015.

ii) Overview of syndicated mortgage product

Fortress raises funds primarily to finance the ‘soft costs’ of a real estate development. A typical
example may look something like this:

A developer has purchased a parcel of land on which they would like to develop a
condominium project. Before they can receive construction financing from a major lender
at favorable terms, they often have the land rezoned, hire a designer and architect, build
a sales center, hire a sales staff, advertise, and pre-sell at least 70% of the units.

A partial list of Fortress projects can be found here:

http://www.fdsbroker.com/current-fortress-projects/

Rather than advance the money themselves, developers may opt to bring in lender partners to
finance this very risky portion of the development process.

Note that at this point in the development process, much can go wrong. This is a high-risk
investment, as Fortress themselves acknowledge in some of their project fact sheets:
However, Fortress distributors go to great lengths to downplay the risks, and the principals at
Fortress are well aware that their products are being egregiously marketed. Section 4, below,
details this false advertising by distributors. One example is below:

In the event that something goes wrong in the early stages of the development, investors are
secured by the parcel of development land, which then must be sold on an ‘as is’ basis to recoup
losses.

However, Fortress does not always use a fair market value appraisal method, instead often
relying on an opinion of value/residual value method of setting the value of the land, which can
yield valuations that are much higher than what investors would actually receive if the property
was liquidated on an ‘as is’ basis. This is VERY problematic and is discussed extensively below
in the section on questionable loan-to-value ratios and RSP eligibility.

One unique aspect of this product is the use of interest reserves to pay investors. Syndicated
mortgage products typically pay upwards of 8% ‘interest’. Yet the developer is seeing no cash
flow at this point in the development process, so where does the money come from?

Fortress over-funds developments and sets money aside to pay investors their regular ‘interest’
payments, which are really a form of return of capital. As an example, if a developer needed $5M
to finance the estimated soft costs on a development, Fortress might raise $10M, from which they
would take hefty fees (see below), set aside the interest reserve, and advance the remaining $5M
to the developer. The developer makes no interest payments but must pay back the full $10M.
In this way, it’s similar in concept to a zero coupon bond.

A real-life example can be seen below from the Colliers Centre in Barrie (there is an extensive
discussion on the Colliers Centre project in section 9). This was taken from an online document
related to the Mady CCAA bankruptcy proceedings. Note that the Monitor states that $2.8M of
the $16.9M raised was set aside to pay interest back to Fortress investors:

http://www.grantthornton.ca/resources/creditor_updates/documents/Mady%20Collier/Nek
ison%20Factum.pdf

The use of the interest reserve to fund payment is sometimes used in advertising material for
syndicated mortgages:
Note that this can mask financial problems at a development since even if the development has
failed, mortgage holders will continue to receive their “interest” payments for the duration of the
contractual term.

Although unconfirmed, the wording on some Fortress term sheets seems to suggest that
investors can be repaid with money raised from subsequent rounds of funding by investors:

Further, note that Fortress distributors continue to raise capital on developments that already
have Fortress syndicated mortgage liens against the land.
This raises a number of questions.

2) Petrozza and Rathore sanctioned by MFDA and OSC, go to great lengths to silence
public discussion on the matter

In 2011, Mr. Rathore and Mr. Petrozza agreed to an OSC settlement, restricting them from
participating in the securities markets for a period of 15 years for facilitating a ‘pump and dump’
scheme being run out of British Columbia. They were ordered to pay a $3M fine (including
administrative costs).

The OSC settlement is below:

http://www.osc.gov.on.ca/en/Proceedings_rad_20111219_phoenix-credit.htm

A description of the events that transpired are also outlined in a BC Securities Commission
hearing:

http://do.bcsc.bc.ca/Enforcement/Decisions/PDF/2014_BCSECCOM_318_pdf/

Some key points from the BCSC findings are below:

Jawad Rathore has also been banned for life from the MFDA in 2005 over a separate infraction:
http://www.mfda.ca/enforcement/hearings05/Decision200504.pdf

Rathore has made multiple false and misleading statements to the media regarding the nature of
the OSC sanctions:

http://www.cbc.ca/news/canada/manitoba/skyscraper-developers-ordered-to-pay-3m-in-
2011-1.1319587

[…] “There was no findings of guilt or wrongdoing or anything else like that, so we are
happy to have made a settlement on that non-related business.”

Clearly there were findings of wrongdoing. Stating otherwise is meant to mislead potential
Fortress investors.

http://www.thebarrieexaminer.com/2015/07/21/fortress-and-mady-have-worked-together-
on-several-projects

[…] Rathore points out Fortress Real Development is not related to the Phoenix
company.

“It’s a completely different business. The only real common thread is I’m a majority
shareholder of each. Our restrictions, the settlement there, totally unrelated business,
doesn’t inhibit whatsoever our ability to do any of our real-estate business,” Rathore said.
“For us, due diligence is really the heart of what we do. What happened in the financial
markets (between 2007 and 2009) was incredibly unexpected, it was calamitous, it really
affected a lot of people. Those business activities are seven or eight years ago, and a lot
has changed since then as well.”

The clear implication is that the sanctions had to do with severe market volatility during the
financial crisis. This is false and misleading.

Further, Fortress has gone to great lengths to silence those who have brought up these past
infractions on the internet and social media. Below are libel notices sent by Fortress lawyers to
several individuals.

The individual who received the letter below referenced the OSC and MFDA sanctions and
suggested that Mr. Rathore and Petrozza had ‘stained backgrounds’:
The individual who received the letter below posted a link to and direct quotes from a Globe and
Mail article highlighting the BCSC ruling:

http://www.theglobeandmail.com/report-on-business/industry-news/the-law-page/five-
investors-manipulated-share-prices-bcsc-rules/article20519867/
In addition, they have threatened multiple online forums for allowing posters to discuss their
previous infractions. The screenshot below shows Fortress Senior VP Ben Myers threatening an
‘Urban Toronto’ forum member for posting links to the OSC and MFDA rulings:
The forum moderator later allegedly sent the poster a message warning that Fortress lawyers
were demanding his information, as can be seen in the post below.
Both posts have since been deleted by moderators.

Further, a twitter account, @craig_burley, posted the following retraction following critical
comments regarding Mr. Rathore and Mr. Petrozza:

Finally, the images below are from the comment section of a post on Mortgage Broker News
regarding FSCO warning of unlicensed syndicated mortgage providers:
http://www.mortgagebrokernews.ca/news/fsco-warns-about-syndicated-mortgages-182229.aspx
3) Exceptionally high fees generated off the syndicated mortgage product

i) Fees to Fortress

The Fortress syndicated mortgage product is often advertised as having no fees, in contrast with
MERs from mutual funds, etc (see Appendix A for some examples). In reality, a large portion of
the funds raised is used to pay various fees.

Again, the Mady insolvency filings provide insight into the use of funds raised by Fortress. The
document below states that of the $16.9M raised by investors, nearly $6M was diverted to fees,
with only $11M being advanced by the lawyer (Sorrenti):

http://www.grantthornton.ca/resources/creditor_updates/documents/Mady%20Collier/Nek
ison%20Factum.pdf

Further, an analyst report on a bond offering on their SkyCity development in Winnipeg noted that
nearly 25% of the offering would be absorbed in fees, with Fortress management collecting a 7%
fee up front, regardless of how the project fares:

http://www.baystreet.ca/articles/research_reports/fundamental_research/Liveworkplay-
Dec-2013.pdf
ii) Referral fees

It is well known within the mortgage industry that Fortress, like other syndicated mortgage
companies, generously compensates referrals from mortgage brokers, realtors, and financial
advisors. This can be seen in the above charts, which both show sales and referral fees being
roughly 10%.

Below is a comment from Ron Butler, a respected mortgage broker in Ontario, on the Mortgage
Broker News forum. Here he suggests that referrals from Fortress are multiples of what
mortgage brokers are paid to originate mortgages for lenders:

http://www.mortgagebrokernews.ca/news/fsco-warns-about-syndicated-mortgages-
182229.aspx
In fact, the ad below for a position with FDS Broker Services, promises that applicants “will be in
the field and closing sales in less than 7 days” and that they can expect to earn a minimum of
$125,000 in their first year.
Finally, below is an interview with a Mr. Roy Deeks, identified as the principal broker of Unity
Financial Mortgage Services. Note that Mr. Deeks’ Linkedin profile indicates that he originates
syndicated mortgages through Titan Equity Group, a Fortress competitor. Nevertheless, there
are reasons to believe that the referral fees are relatively comparable across providers. Mr.
Deeks notes that “the referral fees are much greater than what I was earning on my standard
mortgage business”.

http://www.mortgagebrokernews.ca/tv/roy-deeks-broker-retirement-plan-107175.aspx
Regarding Titan Equity Group, note that the Ontario Securities Commission recently alleged fraud
against the founder, Lance Kotton:
http://www.thestar.com/business/2015/11/27/ontario-securities-commission-investigating-
york-region-real-estate-firm-with-ties-to-toronto-fc.html

Mr. Kotton was previously the marketing manager at Fortress (see third paragraph of press
release below):
http://www.marketwired.com/press-release/toronto-ottawa-landscape-is-about-change-
with-three-new-development-projects-from-fortress-1500571.htm
4) Egregious marketing of syndicated mortgage product by realtors and mortgage brokers
who collect hefty referral fees

The generous nature of the Fortress referral fees and the apparent lack of oversight from
regulators regarding advertising have led to this product being egregiously marketed. Appendix
A contains a sample of these ads, which includes statements such as ‘guaranteed’, ‘like a GIC
but paying 8%’, etc.

The principals at Fortress are well aware that their product is being falsely advertised by
wholesalers.

5) Highly questionable land valuation

One claim seen repeatedly in advertisements for the Fortress syndicated mortgage product is that
it is a ‘secured’ investment, meaning that investors have their loans secured by the value of the
land by being directly on title. Below are just a couple examples:
One striking feature of many Fortress deals is the questionable valuation of the land upon which
the syndicated mortgage is secured. Remember, if something goes wrong in the early stages of
the process, the only recourse to investors is the value of the land, which must be sold on an ‘as
is’ basis to recoup funds.

This is why AACI Appraisals are necessary to determine the fair market value of the parcel of
land to ensure adequate value to repay investors if it had to be sold on an ‘as is’ basis.

Below are details of just a handful of specific Fortress projects pertaining to the purchase price of
the land, the mortgage liens against the land, and the opinion of value.

Note that in many cases, liens are registered on behalf of syndicated mortgage investors within a
very short time of the purchase of the parcel of land, and often at multiples of the recent purchase
price. This is very troubling.

i) Colliers Centre, Barrie

Note below that the parcel of land was sold to Mady Colliers Centre Ltd for $4M in July 2012.
One month later, a lien was registered on behalf of Fortress investors for $17M.

http://www.grantthornton.ca/resources/creditor_updates/documents/Mady%20Collier/Application
%20Record%20Part%202.pdf
See document page 207
Note from the document above that Olympia Trust is registered on title. Olympia Trust
administers all mortgages that are held within registered accounts (RRSPs, TFSAs, RESPs, etc).
The Canada Revenue Agency’s position is that an investment is RSP eligible only if it does not
exceed 100% of fair market value of the underlying collateral. There is more on this in section 6
below, but note that any time Olympia Trust is registered on title, the investment has been
marketed as RSP eligible.

To justify placing a lien of this size against the parcel of land, Fortress relied upon an ‘opinion of
value’ letter (NOT a AACI appraisal) from Cushman & Wakefield. The letter specifically states
that it is not an appraisal, as it uses a ‘residual value’ method to determine the aggregate land
contribution to the total project.
The important part to remember here is that if a problem emerged on day 1, the actual fair market
value of the land providing collateral to investors if sold on an ‘as is’ basis would be nowhere near
$21.8M and would be very close to the $4M original purchase price. This is indisputable!

This means that the wholesalers who market these products as ‘safe’ because investors are
registered on title are guilty of false advertising.

Also of interest, below is a FSCO Investor/Lender Form provided to an investor in the Colliers
project by a FDS representative. Note that it specifically states that an appraisal had been done
and that the appraised ‘as is’ value is $21.8M. This is false.
ii) SkyCity, Winnipeg

A BayStreet.ca report on the SkyCity Winnipeg project suggested that the purchase price was
$9.5M in September of 2013:

http://www.baystreet.ca/articles/research_reports/fundamental_research/Liveworkplay-
Dec-2013.pdf

We have reviewed the title for the property, which management acquired in September of
2013 (the Ontario offering provided the required equity to acquire the property).
The property was acquired for $9.5 million, and is owned by a numbered Manitoba
company controlled by Fortress and Mady.

Note that Mady and Fortress raised money for the acquisition of the land through a separate
offering. Interestingly, it appears from some online developer forums that local developers
question the purchase price, with some suggesting Fortress and Mady paid a very significant
premium to any other comparable sale at the time.

http://forum.skyscraperpage.com/showthread.php?t=213641&page=12
If true, this raises serious questions. If the parcel of land was acquired at a significant premium to
market, then this was either a significant oversight on the part of management and raises
questions about their competency and market expertise, or it raises more serious questions
related to potential malfeasance.

A title search indicates that in September 2013, the same month that Fortress/Mady closed on
the land, two liens were registered against the land for a combined value of $15M:

The first mortgage to Firm Capital

The second mortgage to Olympia Trust (i.e. the Fortress syndicated mortgage):
Even assuming that the $9.5M purchase price was a fair market value (a generous assumption),
there are still $15M in liens on a property that sold less than a month earlier for significantly less
than that.

Marketing materials for the project acknowledge that there will be a first and second mortgage for
a total of $15-16M against the land. However, they claim that this represents a loan to value ratio
of 88%:

Once again, an ‘opinion of value’ based on a residual value approach was used rather than a
AACI appraisal based on fair market value. Below are two screenshots from the report, authored
by Legacy Global Mercantile Partners Ltd.
It’s worth repeating that if something went wrong with the project, there would be a very
significant shortfall between the assets recovered during sale and the total liens on the property.
Investors, who were told that their investments were ‘safe’ and ‘secured’, would face significant, if
not total, losses.
iii) Lake East in Oakville

The property was acquired May 28, 2015 for $1,860,000. On the same day the property
transaction closed, $5.7M in liens were registered against the property. These included a first
mortgage to Vector Financial Services Inc. for $2,696,250 and a second mortgage to Centro
Mortgage Inc. (i.e. a Fortress syndicated mortgage) for $3,000,000.

Note that the first mortgage is for a term of two years at the greater rate of 8.75% or CIBC prime
rate plus 4.75%, and after maturity on July 10, 2017 at the rate of 12%. The payments are
interest only monthly and the interest is compounded monthly. There are four guarantors on this
mortgage.

Conversely, the second mortgage, which has no guarantors, is in subordinate position, and is for
a longer term, carries a stated interest rate of 8%. It is highly unusual to see a situation in which
a subordinate loan with a longer term and fewer personal guarantees would have a lower rate
than the first mortgage.

Examples like this are the norm, not the exception. Many more similar deals could be
highlighted here.
6) Questionable RSP eligibility given overstatement of land value. Same firm that issues
opinion letters on RSP eligibility also sends threatening letters to Fortress detractors

Mortgage investments may be placed within a tax sheltered, registered account only if the value
of the mortgage does not exceed 100% of the value of the land on a ‘as is’ basis. Canada
Revenue Agency refers to this as ‘fully secured’.

Below are highlights from CRA letter regarding their policy on RSP eligibility of mortgage
investments:

http://taxmentor.ca/av/2010-0373231C6.pdf

Paragraph 4900(1)(j) of the Regulations provides that a debt obligation is a qualified

investment if it is fully secured by a mortgage in respect of real property situated in
Canada and the debtor is not a connected person under the governing plan of the plan
trust (i.e., the debtor cannot be the annuitant under the RRSP or a person not dealing at
arm's length with the annuitant). These conditions apply on an on-going basis, except
that any decline in the FMV of the real property after the debt obligation was issued can
be ignored in determining whether the "fully secured" condition is met.

[…] In general, a mortgage loan would be considered to be "fully secured" if the value of
the real property, pledged by the borrower to the lender should the borrower default on
repayment of the loan, is sufficient to cover the full amount of the principal and interest
outstanding on the loan. This is a question of fact in each case.

[…] In general, we would note that RRSP issuers are expected to take reasonable steps
in monitoring the on-going status of qualified investments. In the context of mortgage
investments, it would seem to us that a change in ranking of the RRSP mortgage or the
issuance of additional debt that has priority over the RRSP mortgage would necessitate
an assessment by the RRSP issuer of whether the investment continues to satisfy the
eligibility criteria in paragraph 4900(1)(j) of the Regulations. Depending on the
circumstances, this may require the RRSP issuer to obtain a current valuation of the real
property security and a confirmation of the total amount of debt in priority to the RRSP
mortgage.

[…] Your final question relates to a variation to the arrangement described above. In this
alternative, the RRSP trust would finance both the purchase of the land and the
development of the project. Periodic advances would be made by the RRSP trust and it
would have a first mortgage over the land and project. As you note, the issues with this
alternative are similar to those discussed above in that the "fully secured" condition
would need to be satisfied at all times in order for the mortgage investment to be a
qualified investment for the RRSP trust.

It is very clear that these mortgages do not meet the requirements for RSP eligibility. Yet Barry
Segal of Norton Rose Fulbright has issued tax opinions on a number of (if not all of) Fortress
syndicated mortgage offerings:
Note that Norton Rose Fulbright is the same law firm that issued the threatening letters to
Fortress detractors, as outlined in section 2 above.

As part of the loan agreement when investing in a Fortress syndicated mortgage, investors
acknowledge that they may have adverse tax consequences as a result of this investment, which
may include remitting 50% of the original mortgage amount to CRA regardless of how that
mortgage performed:
7) Free “independent” legal advice given to investors by the law firm that is paid by the
borrower…a clear conflict of interest!

Prospective investors are told to get independent legal advice (ILA) regarding the merits of the
mortgage investment, suitability, etc. Under the Rules of Professional Conduct of the Law
Society of Upper Canada, a lawyer providing ILA to his client is required to meet with the client
and be paid for this service by the client, and the meeting must take place without any parties
being present unless a translator is required.

Prospective Fortress investors are told that if they use the lawyer recommended by the mortgage
broker, then the ILA fee would be paid for.

Below is a screenshot from the FDS Broker web page:

If a prospective investor wishes to take advantage of this free ‘independent’ legal advice, the
mortgage broker/agent makes an appointment with a Fortress-approved lawyer and arranges a
meeting. The meeting can be either via phone conversation or in person.

Below is a certificate for independent legal advice for an investor on a Fortress project:

Note that the lawyer’s name is Grant Morgan. From Mr. Morgan’s Linkedin profile:

https://www.linkedin.com/in/grant-morgan-baa1b713
It is unclear if Sorrenti Law provides ILA to all Fortress investors, but to the extent that this firm is
providing ILA to investors AND is closing the mortgage on behalf of the borrower, there is a clear
conflict of interest, and they are in violation of the Rules of Professional Conduct of the Law
Society of Upper Canada.

The conflict here is clear: The borrower (Fortress) wants the lender/investor to advance the funds.
In this case, the investor’s interest is adverse to that of the borrower. Further, the mortgage
broker, who is also present during the meeting, only gets paid their commission if the investor
advances funds. The law firm can not represent both of their best interests simultaneously.

8) Fortress wholesalers in violation of investment suitability

FSCO has set out the following FAQ’s for the licensed parties to reinforce what they are required
to do when dealing with mortgage investors.

https://www.fsco.gov.on.ca/en/mortgage/Pages/DSRBLI.aspx#DtLaIans20

Do I need to disclose to an investor that a mortgage may not always be

a good investment?

Each Mortgage Brokerage has a duty to ensure that a mortgage investment is suitable for
the potential investor, having regard to the investor’s needs and circumstances. The
Mortgage Brokerage is also required to disclose material risks of the mortgage
investment in writing to the potential investor. For more details, please refer to section 25
of Ontario Regulation 188/08 - Mortgage Brokerages: Standards of Practice. Please note
that this requirement does not apply for “designated classes of lenders and investors”
(see section 2 of Ontario Regulation 188/08 - Mortgage Brokerages: Standards of
Practice).

Below is a ‘Know Your Client’ form filled out on behalf of a Fortress syndicated mortgage investor
in the Colliers Centre project in Barrie. Note that they deem their risk tolerance to be ‘medium’
and would rather accept lower return in exchange for less risk:
By Fortress’ own admission, syndicated mortgages to finance construction activity are
‘speculative’ and involve a ‘high degree of risk’. Clearly this investor should never have been
placed in this investment. They are now facing the prospect of significant loss on their investment
in the Colliers Centre, as discussed below.

9) A case study in how it can all go wrong: Colliers Centre in Barrie

Timeline of events:

February 2012 - Charles Mady announces the launch of Collier Centre in Barrie, Ontario, with
75% of the project’s Lakeview Condos sold and occupancy scheduled for summer 2014.

July 2012 – Fortress markets the syndicated second mortgage (mortgage registered on July 3,
loan agreement with Mady dated July 26) on the project to investors, promising a 24-month
redemption on the notes as indicated by the screen shot from the Fortress web site.
@FortressRDI tweets from late July reference a Fortress presentation in Barrie to a large group
of investors about the project. Note the high regard Fortress had for this project in calling it a
“slam dunk” in another July 2012 tweet.

2013-2014 - Over this time period, Fortress provided updates on construction progress and lease
signings. Curiously, there is no mention of the slippage of the original occupancy date of summer
2014, or the 24-month maturity of the investor notes in late summer 2014

October 2014 – From the Collier project updates section of the Fortress web site (copied below),
comes news that the office/retail component is “almost complete”, followed, in November, by a
tweet from Vince Petrozza featuring a picture of the unenclosed steel frame office segment of the
project with the comment “looking great!”
January 2015 – At this point the Fortress website notes that the project had been “winterized”. In
reality, by the end of January, Laurentian Bank had stopped funding the construction loan for the
project, contractors had filed numerous liens for nonpayment and stopped working, and, finally,
Mady Development sought protection for the project under CCAA.

http://www.thebarrieexaminer.com/2015/02/02/dt-barrie-project-remains-stalled

The Fortress website continued to list the project as “winterized” until early May. There appears
to be no word on the disposition of investor notes, which by May were almost a year past their
apparent advertised term.
November 2015- As Mady had filed for credit protection, the Colliers Centre project was tied up
in CCAA proceedings until November 2015 when Fortress acquired the project by way of a
vesting order at a price of $32.7M.

This development was loudly trumpeted by Fortress as a ‘successful acquisition’, with the
wording suggesting that somehow this was ‘good news’ for their investors:

In reality, court records clearly indicated that the original Fortress investors had been completely
wiped out in the bankruptcy proceedings:
 http://www.grantthornton.ca/resources/creditor_updates/documents/Mady%20Collier/Am
ended%20Notice%20of%20Motion.pdf

Consequently, a memo was circulated to the original Colliers Centre investors, dated November
24, 2015, which acknowledged that the original mortgage was fully impaired, but suggested that
investors may get paid back from future profits on the development:

But how likely is it that the original investors receive their money back?

Court records indicate that Laurentian Bank appraised the completed project at $72.4M in their
initial loan agreement:
A project pro forma contained in the Monitors Report suggests total revenues of roughly $76M:
This figure aligns with the opinion of value by Cushman & Wakefield, highlighted in section 5-i
above. Note, however, that the estimated market value was reached by using the projected
income generated off the commercial and retail components of the development.

This is problematic since the two anchor tenants in this development, collectively responsible for
76,000 square feet of commercial/office space, have pulled out of the rental agreement due to
delays:

http://www.thebarrieexaminer.com/2014/04/24/collier-centre-tenants-list-growing

This strongly suggests that the fair market value of the project, as currently tenanted, is
significantly less than the original appraisal.
Complicating things further is the fact that there are currently $97M in liens against the property,
with the final $16.9M being the original investors. By all conceivable estimates, this figure is well
in excess of any realizable sale price, meaning it is overwhelmingly likely that the original
investors will eventually see significant, if not total, losses.

Other concerning facts were revealed in the CCAA proceedings, notably that $7.4M in investor
funds disappeared from this project as they were consolidated with other Mady developments:

This raises questions related to oversight and ‘checks and balances’ on the part of Fortress. Why
was this money deposited into a general account at Mady rather than a dedicated project
account? Generally lenders advance funds in stages with proof of spending required before
additional tranches are advanced.

But perhaps most striking is that the court monitor indicates that no parties, including Fortress,
were willing to fund investigations into the missing funds.
Related, this isn’t the first time that Fortress protocols have been called into question. Below is a
screenshot from court proceedings related to another Fortress project, Langston Hall:

https://www.canlii.org/en/on/onsc/doc/2014/2014onsc612/2014onsc612.html?searchUrlH
ash=AAAAAQANamF3YWQgcmF0aG9yZQAAAAAB&resultIndex=5
Appendix A: Samples of advertisements for Fortress product