Investors who have put money into the startup costs of a massive downtown Winnipeg development are waiting on interest payments after finding out their bonds are in default, according to documents obtained by CBC News.

There are also questions about the actual value of the land on which the proposed SkyCity Centre development is to be built.

Thirty-five investors in the proposed SkyCity Centre development from Alberta, Saskatchewan, Manitoba and Ontario bought in for a total of $1.7 million in bonds, according to Ontario Securities Commission documents.

"That's very serious,'" said Al Rosen, accountant with Accountability Research Corporation in Toronto. "This is the indication that they're not earning enough cash to pay the interest."

SkyCity Centre is a proposed 45-storey condo and retail development at 245 Graham Avenue, but construction has yet to begin. The bond issue represents a small fraction of the $44.8 million investors have shoveled into the project, and the City of Winnipeg has promised a $6.5 million grant when the project is complete.

Computershare, a trust company with an office in Calgary, sent a notice of default on April 27 and said the situation was not remedied after a first notification dated Feb. 3.

Investors have put millions into the the SkyCity Centre condo/retail development planned for Graham Avenue, but some have stopped receiving their interest payments. (Fortress Real Developments) The notice also said the nearly $29,000 in fees it is owed are "seriously in arrears." Computershare — which provides record-keeping and administration services — declined to comment on the notice, citing client confidentiality.

Bonds to help fund the startup costs for Fortress Real Development's SkyCity project were issued in 2013.

The issuer of the bonds, LiveWorkPlay Winnipeg Developments, no longer exists as a company. The funds raised from the bonds were loaned to the Fortress Manitoba affiliate that's developing SkyCity, which is also listed as a guarantor in the bond's memorandum of offering.

"A return on investment for a purchaser of bonds is dependent upon the ability of [Fortress's Manitoba-based company] to meet its obligations of principal and interest," reads the memorandum of offering.

A bond investor, who did not want to be identified, said he had received a similar notice of default. He said he was paid several quarterly interest payments which came to a stop last month.

Fortress did not respond to questions about the bond default last week, but did send an emailed statement.

(CBC News Graphics) "We are negotiating leasing terms with several commercial and retail tenants which will allow us to achieve construction financing," said spokesperson Jenni Byrne, former deputy chief of staff to Stephen Harper who is now vice-president of Bayfield Strategy, a communications firm based in Toronto.

Late Tuesday, Byrne sent another email to CBC that said, "I can confirm that the interest payments in connection with these loans will be made tomorrow."

A separate group of investors has sunk around $35.6 million into the project through syndicate mortgages, a pooled form of investment, according to land title documents.

The land title for the Graham Avenue parking lot where SkyCity will be built lists dozens of investors who have put in anywhere between $14,000 and $190,000. Marketing materials say they will receive eight per cent interest paid on a regular basis and the face amount of the investment "is fully registered and secured via a charge against the property."

The money raised through syndicate mortgages is used for startup costs — permits, marketing, the sales centre, initial construction including excavation and building the foundation, plus fees to Fortress Real Developments.

There is an additional $7.5 million worth of mortgages on the property from private lending companies, which brings the total to $43.1 million.

In addition to the syndicate mortgages, Fortress intends to raise up to $220 million in construction financing from banks or other institutional lenders.

Investors who have put money into the startup costs of a massive downtown Winnipeg development are waiting on interest payments after finding out their bonds are in default, according to documents obtained by CBC News. 3:26

In the event the project fails, the construction finance lender gets paid out before the syndicate mortgage investors, a fact disclosed in the investment contract.

This construction financing has not been secured, according to Byrne, who represents both Fortress Real Developments and Building & Development Mortgage Canada, the lead mortgage brokerage that registers the syndicate mortgages.

Documents value land at $37M; assessed by city at $4.4M

Syndicate mortgages are regulated by the Financial Services Commission of Ontario which requires brokers to disclose the current as-is value of the land to syndicate mortgage investors because "security is only as good as the value of the property."

Fortress bought the land, which was and still remains a surface parking lot, for $9.5 million in 2013. The city currently has the lot assessed at $4.4 million.

The stated value of the land where SkyCity is supposed to rise has gone from $18 million in 2013 to $25 million in 2014 to $37.3 million in 2015, according to a series of valuations gleaned from investor documents obtained by CBC News.

The opinions of value were not done by an accredited appraiser from the Appraisal Institute of Canada. The 80-year-old institute represents 85 per cent of valuation professionals in the country.

"We refer to an appraisal that is by a certified or accredited appraiser a best practice," said Anatol Monid, ‎executive director of the licensing and market conduct division at the Financial Services Commission of Ontario in an interview last fall.

'With over 50 per cent of residential units sold ... SkyCity developments are going to be a tremendous boost for downtown Winnipeg,' said spokesperson Jenni Byrne. (CBC News) The regulations do not require an accredited appraiser but Monid said "each investor would have to consider the type of appraisal that is received with the disclosure, and make their determination of risk on that basis."

"I look at those opinions of value and they certainly would not meet our expectations," said Keith Lancastle, CEO of the Appraisal Institute of Canada.

"If you are getting a valuation that is not prepared by a true valuation professional, I would question why," said Lancastle.

The author of the opinions of value said they were confidential and he needs his client's permission to discuss the details. He added there are no governing bodies for people who prepare opinions of value.

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Land valued at $11M, based on successful construction

CBC News obtained an appraisal of the Graham Avenue property completed by a member of the Appraisal Institute of Canada in August 2013. He valued the land at $11 million based on the assumption the building will be completed.

Appraisals based on the project being complete would likely over-value the price of the land, according to the Financial Services Commission of Ontario. Yet investors were told the current or "as is" value of the land on Graham Avenue was as much as $37.3 million, according to investor documents.

Rosen calls the notice of default 'very serious' and an indication they are not earning enough to pay the interest. (CBC News) "They're not as-is values. Because they would have to be based on something other than parking lot fees adding to the value … As-is? Highly unlikely," said Accountability Research Corporation's Rosen.

"You want to ensure the appraiser has valued the property in its current state without any assumptions concerning the successful completion of the property," the FSCO states on its website.

"If the appraiser has made such assumptions, the sale price of the undeveloped property would likely be lower than the value indicated in the appraisal. This would create more risk in terms of recovering your investment."

Several proposed class action suits launched against Fortress and BDMC last year allege they provided investors with an inflated current value for the real estate. These allegations have not been proven in court.

Byrne did not respond to questions about the changing valuation of the property or the value of the mortgages.

"With over 50 per cent of residential units sold ... SkyCity developments are going to be a tremendous boost for downtown Winnipeg and we look forward to the start of construction on both sites later this year," said Byrne.

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