City of Regina prepared to force Capital Pointe development to back-fill site

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Thu, Mar 15:This morning the City of Regina announced the developers, Fortress Real Developments, have two weeks to resume construction or the city will pursue legal action to force the developer to back-fill the hole – Mar 15, 2018

The capital pointe construction site facing another hurdle.

This morning the City of Regina announced the developers, Fortress Real Developments, have two weeks to resume construction or the city will pursue legal action to force the developer to back-fill the hole.

“By March 30th the property owner has to advise their engineer that it intends to resume construction in April, if this does not occur by March 30th, first the property owner will be instructed by their engineer to back-fill the site. Second, the City will issue a legal owner to back-fill the site,” Louise Folk, the city of Regina’s director of development services, told media Thursday morning.

Previously, the mayor had announced Fortress had until March 15th, to show “meaningful construction” on the site. Failure to do so could put their building permit at risk.

According to Folk the city chose not to declare the building permit expired to give the developer a chance to continue construction.

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In an email to Global News, the Capital Pointe development team said they would not comment on the decision noting “At this time we are not in a position to make any further comments regarding what we consider has now become a legal matter.”

Fortress still owes the city $50,244 in property taxes, something they say they intend to resolve.”To date, the project has paid in excess of $1.2 million to the City of Regina for permits, fees and taxes. We fully intend to make sure all tax arrears are cleared in shortly,” the email also stated.

The City of Regina has said it is prepared to place a lien against the property if the taxes are not paid.

Captial Pointe’s Storied History

The Capital Pointe project was unveiled in 2010, and since then it’s been over seven years of deadlines, delays, and new deadlines.

“Well I think it’s an ongoing frustration for downtown and the entire ward,” City Councillor Andrew Stevens said. Stevens represents Ward 3 in the city where Capital Pointe resides.

READ MORE: City of Regina legally obligated in granting new Capital Pointe building permit

Capital Pointe has been disastrous from the start, changing developer hands three times. Along the way there were delays as each new ownership group made design changes, and dealt with building permit delays; primarily caused by developers allowing old permits to expire, and refiling for new ones.

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“It’s unfortunate. I mean this kind of development is a very detailed project that takes a lot of work,” the project’s development director, Greg Black acquiesced. That was in 2015, two years after the original completion date.

The completion date was extended to 2018, 1000 days after the October 29th groundbreaking in 2015, but just two years – and no progress – later, Fortress Real Developments found themselves backtracking.

“Because of the delays that have been experienced with excavation, we are now expecting occupancy in the spring of 2019, rather than in late 2018, which was the initial 1000 day timeline,” Natasha Alibhai, a brand communicator for Fortress, told Global News in an email dated June 15, 2017.

At the time she claimed “the final stages of the excavation of the site, with the required shoring of the side walls and corners, is nearing completion”.

The next step would have been to pour the foundation, but Fortress was still waiting for a building permit from the city. In September 2017, workers from Double Star Drilling began removing construction equipment from the site. Just days later Capital Pointe was given their new two-year building permit; much to the chagrin of city councillors.

“I understand that the city was legally bound to issue that permit, but what I can’t accept is that we don’t have the necessary bylaws and restrictions in place to stop this kind of uncontainable delay,” Ward 2 City Councillor Bob Hawkins said.

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READ MORE: UPDATE: Seven years later and the Capital Pointe project still not off the ground

Although the city was legally required to extend the contract, it had the option to declare the permit is expired if “meaningful construction” had not begun within six months. Thursday, the opted to give the company another two weeks.

Capital Pointe isn’t Fortress’s only project that’s seen more action in City Hall than it the dirt. Fortress Real Developments is the company behind Winnipeg’s SkyCity, Edmonton’s Jasper House, and Barrie, Ontario’s Collier Centre (which has since been turned over to the property development company).

The SkyCity development has been ongoing for over five years, and like Capital Pointe, it remains nothing more than a parking lot.

The 47-storey development was announced in 2013, with construction expected to begin in 2015.

More delays meant construction was now expected to begin in to the spring of 2017.

Finally, in a January update on their website, Fortress said they plan to begin construction in the spring/summer of 2018.

In Edmonton, Fortress, along with Toronto condo developer Lamb Development Corp., promised a 36-storey luxury condo called Jasper House. It had plans for a pair of $1.5 million penthouses, and condos began at $239,000. The development was announced in 2014, and roughly half of the condos were sold. Construction was expected to begin in 2015.

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By 2017 the site was unchanged, and the development was cancelled. Lamb Development was forced to refund everyone who had purchased a condo.

“We were unable to meet the critical dates contained within the purchase and sale agreements, and felt that holding buyers to contracts signed in excess of three years ago was an act of poor faith,” Lamb Development stated in an email to Global News.

Fortress claims they still have plans for the property. In a statement on their website they claimed they planned to “reposition the project as a potential rental apartment development.”

Lamb and Fortress have also teamed up on another Edmonton development called North: a 45-storey luxury apartment tower. Like the others construction has yet to begin, but this development is set to continue without Fortress Real Developments involved. According to the Fortress website, Lamb Development is working on purchasing their interest in the site, which should take up to two years.

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Like Capital Pointe, SkyCity, and Jasper House, North awaits construction.

The complaints around Fortress go deeper than a handful of never-ending, or more accurately never-starting, developments. The firm is an industry leader in syndicated mortgages but according to Thomson Reuters, in 2013 the Canada Revenue Agency (CRA) suggested those mortgages may be a Ponzi scheme.

A syndicated mortgage is when two or more investors invest in a specific mortgage. They’re mainly used by developers to gather the capital, and equity, needed to finance the beginning of a development, before a sales team can begin selling the property.

The CRA’s allegation was one of many levelled at Fortress calling into question the way syndicated mortgages involving their company were sold.

Reuters claims that in the past decade “more than 20’000 retail investors have put as much as $1.5 billion into syndicated mortgages, mainly in Ontario. Roughly 90 per cent of those investments have ended in a loss or are at risk of doing so, and Fortress projects make up more than half of the investments.”

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They go on to note that the Financial Services Commission of Ontario (FSCO), the governing body in charge of mortgage brokerage, opened at least 17 Fortress-related investigations, and in at least 10 FSCO staff found possible breaches of Ontario law.

Despite this, each case was closed without action being taken, including the case that was opened after the CRA suggested that the syndicated mortgage investments were “Ponzi like in nature.”

Reuters reports that Fortress took a 35 per cent cut of the funds raised from syndicated mortgage investments, and split roughly half with the brokers as commissions and fees. They add that the industry average for brokers is dramatically smaller; typically just two to four per cent.

While Fortress is not a mortgage broker, and cannot sell syndicated mortgages, Fortress co-founder Vince Petrozza was a licensed mortgage broker with Building Development and Mortgages Canada Inc. (BDMC).

BMDC was heavily involved with Fortress developments, and sold syndicated mortgages on Capital Pointe, Jasper House, North, and SkyCity, among other Fortress developments.

On February 2, 2018 the FSCO issued orders for $1.1 million in administrative penalties to four brokerages following an investigation into Fortress-related syndicated mortgages. BMDC, and three other brokerages which market Fortress products as their primary line of business, were fined.

In addition, BDMC had its mortgage brokerage license revoked, as did Petrozza.

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Despite their heavy involvement, Fortress was not party to the settlement, because they are not technically a mortgage broker.

Fortress narrowly escaped a $27.5 million dollar class action lawsuit in 2017 in the same manner. Ontario Superior Court Justice Paul Perrel struck down the statement of claim in four proposed class action lawsuits against Fortress Real Developments, saying “the plaintiff had no legal standing to bring claims against them.”

According to Thomson Reuters, the RCMP launched an investigation into Fortress Real Developments in 2016. The RCMP could not confirm this information.

editors note: an earlier version of this story called the SkyCity development a “hole-in-the-ground.” Fortress Real Developments noted it is a “revenue-generating parking lot.” This has since been updated.