TORONTO -- The Ontario government took over three trust companies because it feared they had jeopardized their solvency by financing mortgages on 11,000 Toronto apartment units, a Toronto newspaper reported today.
The Toronto Star also reported an informed source said the government is trying to determine the location of millions of dollars in deposits that were to guarantee the mortgages.
The government seized Crown Trust Co., Greymac Trust Co. and Seaway Trust Co. Friday and since then ac:ountants and police have delved into company records.
The companies were involved in the sale and mortgaging of 11,000 Toronto apartments that were sold and resold within several weeks during the fall.
Greymac Credit Corp., controlled by Leonard Rosenberg, the same man who controls Crown Trust and Greymac Trust, bought the apartments for $270 million, then sold them to another company for $312 million, which resold them for $500 million to a series of numbered companies reportedly controlled by Saudi Arabians.
To finance the final purchase of $500 million, the three trust companies approved mortgages totalling $152 million. There were already $230 million in mortgages on the properties and the source said government officials believed the apartments did not generate enough revenue to meet all the mortgage payments.
After the sale, the provincial legislature passed a bill limiting to 5 percent any rent increase based on financing costs in the sale of apartments. That restriction on rent increases could have left the trust companies holding mortgages that were too expensive.
The president of Victoria and Grey Trustco Ltd. said Wednesday he would purchase Crown Trust from Rosenberg but would not buy Greymac Trust because it was 'entrenpreneurial.'
Somerville said Victoria and Grey could purchase majority interest in Crown Trust even before a statement expected next week from Consumer and Corporate Affairs Minister Robert Elgie on why the government seized the companies. He said the timing of any takeover would depend 'on how fast we get the report' from a Victoria and Grey team assessing the value of Crown Trust.
An aide to Elgie Wednesday said the minister would release an 'interim report' on the seizures Jan. 21 and would dis:uss the government action in the legislature, which resumes next week.
Rosenberg wants at least $65 million for both Crown and Greymac but Somerville said his company had no interest in Greymac.
'Greymac is a different type of operation,' he said. 'Crown Trust is a full service trust. Greymac is more ... entrepreneurial.'
Somerville said his company had been approached Tuesday about a possible purchase of Crown Trust by lawyers representing Rosenberg.
'I'm interested in making sure that Crown Trust doesn't ... default,' Somerville said.
Asked if he thought Crown Trust, with $1.6 billion in assets, could go under, Somerville said, 'No, I don't think so .... But I would take them over to make sure they didn't.'
Lawyer Joseph Burnett, whose family sold their 34 percent stake in Crown Trust to Rosenberg for $62 per share only weeks after buying them at $34.50 each, said his family could also be a potential buyer of Crown Trust.
'Who's to say, we don't know where the chips are going to fall.'
The three trust companies were seized by the province after ownership of 10,931 apartments owned by Cadillac Fairview Corp. Ltd. changed hands three times within a month. Their value soared to $500 million from $270 million.
The Alberta government seized Crown Trust's assets in that province Tuesday and the governments of Quebec, British Columbia and Manitoba have taken a wait-and-see attitude.
Crown Trust has branches in Ontario, Alberta, Quebec, Manitoba and British Columbia. Greymac Trust and Seaway Trust have offices only in Ontario.
