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Meet Riaz Mamdani

Strategic Group’s CEO gives his first-ever media interview, which is presented here verbatim

Nov 1, 2012

by Anthony A. Davis

Mamdani, a soft-spoken and youthful-looking 43-year-old father of four, was wearing a light blue shirt, dark pinstriped vest and trousers accented by intensely red socks. He spent 77 minutes outlining his belief that investors have got Strategic, and him, all wrong.

Riaz Mamdani is an enigma in Calgary. And that’s how one of Calgary’s wealthiest men – a former pharmacist and, briefly, a lawyer – who made his fortune in real estate, likes it. But now, as the reputation of his 12-year-old company, Strategic Group, is tarnished by its dealings with collapsed real estate investment company Platinum Equities, Mamdani is stepping into the light.

Stepping out of his glass-walled office, where he often scribbles business notes to himself in grease-pen on the glass office door, Mamdani granted Alberta Venture a rare interview – the first interview he’s ever given to a journalist – to discuss the allegations investors across western Canada are making against former Platinum Equities CEO Shariff Chandran, himself, and others.

 

Why have you decided to speak to Alberta Venture?
RM:
My general philosophy through life and business is to avoid media contact and being in the press…I wanted to provide some elaborations on details (regarding a Canadian Business article in which he did not grant an interview) that I think would have told a bit of a more balanced story. In order to do that, I’m meeting with you today. But it’s just not part of my business plan.

How did you get started in the Real Estate business?
RM:
I took a roundabout way to get where I am today. I became a pharmacist, and then went to law school. And I practiced law for a short period of time. I have developed through my career a real interest in financing companies and was involved and continued to be involved with a number of start up ventures. As I developed these businesses, my businesses needed space for offices. And my office requirements for the startups I was working on lead me down the path of commercial real estate.

Through the early 2000s to today, that real estate part of my organization has become the fastest growing and the most notorious part of my business. We continue to grow our real estate in the last dozen or so years and its focused on value, recurring revenue streams and finding distressed assets. That’s been my business strategy for growing my real estate. I’m happy doing what I’m doing as it relates to my businesses, and I see myself doing that for the indefinite future.

Did you dislike law?
RM:
I determined that my calling, as I’d always known, was in business. I could understand law, and I was an OK lawyer. I wasn’t a great lawyer. But I understood the business concepts and the law around them, and that became my business.

Did your parents have a business background?
RM:
My father and my parents and grandparents have all been involved in business of sorts, in Calgary and in East Africa. (His parents came to Canada from Uganda in the early 1970s when he was a very young boy. They owned stores and real estate. His grandparents emigrated to from India to Uganda.)

When did you meet Shariff Chandran (founder and CEO of Platinum Equities)?
RM:
I believe I met him in early 2006. He was introduced to me by a broker to ask if I would agree to sell his organization a piece of real estate. I believe that was First Street Plaza.

And you became friends?
RM:
Well, we did enough business together and we had enough transactions that we spoke to each other fairly regularly. Outside of that, we didn’t socialize together or spend time with our families or anything like that. I think we had a business relationship.

What was your reaction when you saw that you had been tied into the Platinum Equities debacle as a defendant in the investors’ class-action lawsuit?
RM:
I was surprised. I was disappointed – and somewhat offended. I was all of those things. But I suppose I understand that from a litigator’s perspective that, in a situation like this, you name a whole bunch of people and as you go through [the lawsuit] you find out who did what, and who bears the ultimate responsibility. And I think this is probably a reasonable sort of process for the investors to go through.

If you had a room full of investors in front of you right now, what would you say to them?
RM:
I have had to face some of the investors, and I tell them I feel awful that they lost money. And it’s a very difficult situation to be in that position. I do feel really bad for them and it shouldn’t have happened to them. It didn’t have to happen that way. In my view the losses of the investors are tied to three different events that I think all combined to create the magnitude of losses that we are taking about.

We have a syndicator (Shariff Chandran and Platinum) and it appears from the information we’ve looked at lately the syndicator raised more money than he spent on the real estate. Money that was supposed to go to the real estate didn’t go into the real estate. So a misappropriation there appears to have happened by this syndicator.

The second issue is that right after this real estate was acquired, two things happened: We had the most precipitous drop in the world-wide economy. We had the incredible recession. Along with that recession though came the credit crisis. And the credit crisis also did two things. It made getting financing for commercial real estate extremely difficult. A lot of tenants that would be in the office buildings effectively weren’t able to make decisions, or financial plans and a lot of them had very uncertain futures. A combination then of the recession and the credit crisis was one reason.

And a third was really the tail spin that commercial real estate did at the end of 2008, 2009 and through some of 2010. It was a phenomenal drop in real estate prospects. There was actually a doomsday scenario for office space in Calgary.

The combination of these three things – and if one of then had been missing I think the investors would be in a different place today – but the combination of these three things has caused problems for the investors.

Investors have directed a lot of vitriol towards you, especially since you sold buildings to Platinum at much higher than market prices and were later able to get those distressed properties back through foreclosures. How do you respond to that?
RM:
If I were to look at profits, versus costs, versus loss, I’m pretty sure that my net number is a negative with Platinum, and that’s before the chaos around those we are dealing with today. My business plan is to keep all of my commercial real estate. When Platinum in ’06 and ’07 made me offers through third-party brokers on commercial real estate, they were paying prices that were higher than market. They were paying amounts where it made sense to sell the type of product that I had to guys that were paying a premium for commercial real estate.

In ’06 and ’07 there was a real constraint of real estate product. There wasn’t the same number of office buildings available for sale. And when one did come up, there was a number of buyers for them. And people were willing to pay unreasonable prices for commercial real estate, for land, for all of these things that groups like Platinum ended up paying.

In exchange for those prices, I had to agree to provide terms for closing, so I would get paid over time. In addition to that, I would do a vendor take-back mortgage, either in the form of a wrap mortgage, or an actual second mortgage. I didn’t get all my money on the actual closing day. And in most circumstances, I wouldn’t have even my initial investment out of the project when you take into consideration the head leases I’d done on a number of projects. (Mamdani says those head leases, which are familiar to people in commercial real estate, were agreements where Mamdani agreed to pay Platinum regular payments to top up office rent rates in buildings he sold to Platinum that were below the market rate until Platinum could renegotiate with the lease holders.)

Did you ever ask Shariff Chandran why he was willing to pay such premiums on your buildings?
RM:
As I understood their business model, there was an insatiable investors demand for commercial real estate that caused these syndicators to pay what they were paying. As he explained it, his investors had an incredible appetite and he was providing him product. And they could pay higher prices for commercial real estate because the yield expectations of the investors were so low. So if investors are able to accept the yield and the risk associated with these projects, that perhaps non-retail investors think is too big a risk, that’s the niche these guys were fulfilling.

When you look at all the syndicators that these guys were competing with, whether you look at Concrete or Foundation or Harvest or Signature, this was their niche and how they were doing business, and they had to outbid their competition.

The investors’ statement of claim suggests Platinum bought almost all of its 20 or so properties from you. What did you sell to them?
RM:
I sold Platinum six buildings.

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Did you maintain mortgages on all of them?
RM:
I maintained mortgages on four. (The other two were purchased outright by Platinum)

Were you ever concerned about selling your buildings with mortgages and whether Platinum could honour them, considering the high prices Platinum was willing to pay for the buildings?
RM:
If I were to take a look at the economy in ’06 and ’07, I wasn’t in a position where I could predict the credit crisis, the recession or the bottom falling out of the economy. And I couldn’t have predicted that Platinum – and I didn’t know – was skimming money off the top of what they collected. Not knowing that those things were going to happen, I was off the view that what these guys were acquiring were viable assets. And my best case scenario would have been for them to honour the contractual arrangements we made.

You know the exempt market regulations when it comes to selling limited partnerships in real estate. Did you have any inkling that Platinum was withholding required information from its investors about what they paid you for buildings, or about unauthorized mortgages?
RM:
We did not know the magnitude of the misdeeds that were going on. We relied on Platinum’s lawyers (who are also named as defendants in the class action lawsuit) for legal opinions for things like mortgages. The same lawyers that I guess prepared the documents investors got [as part of offering memorandums.] It’s not something that we really focused on.

If you believe that investors were swindled by Chandran, and empathize with them, why didn’t you jump aboard with them in efforts to recover missing money?
RM:
With the exception of one transaction, I had legal interests that are a little bit different than the investors. I had mortgages, assignments of rents. These guys had an equity investment. I feel awful for them, and I’d be happy to help. But there was no real teaming-up that could be done because our security was different and our interests were different, except for the Leben REIT.

In the Leben REIT, I was just like every other investor. I invested $600,000 and I think the value there is exactly what all the other investors have.

And you extended a $10 million line of credit to Shariff Chandran, why?
RM:
Leben REIT needed a line of credit to acquire real estate. So they used my funds to acquire real estate for their REIT, which they ended up selling for a lot more money. It’s part of a good business plan to have an operating line of credit. I provided them that money so that could go make acquisitions.

From the proceeds of the sale to Whiterock, my line of credit was paid. When my line of credit was paid, there were lots of Whiterock warrants left over. I don’t have them, and I’ve never had them and I was paid in full. I believe that at the time of sale, there was $3 million outstanding, and I was paid in full.

I didn’t lose money in my line of credit for Leben REIT, but I was a limited partner in Leben REIT just like the other limited partners, and there it appears I’ve lost money and I’m in the same position as the rest of the limited partners, and I’m looking for answers.

You said you have empathy for the investors and would like to help them.
RM:
But I don’t know what it is I can do. It appears to me that we have Platinum that has done a lot of misdeeds, and in order to deflect criticism, they are pointing at someone else. And the investors are believing it. And that puts me in an awkward position that the investors bring me in. And that’s just not the case.

Since Platinum began to collapse, have you spoken with Shariff Chandran?
RM:
We haven’t spoken in almost a year.

Were you aware that Shariff Chandran was facing some issues with the Alberta Securities Commission and the real estate commission?
RM:
I wasn’t aware that he was facing issues with the Alberta Securities Commission and after I had done business with him, and after I had done business with him, he indicated to me that he was facing some issues with the real-estate board. My understanding was that they were resolved. I don’t know anything more than that.

You mentioned in an email that you are taking legal actions against Platinum. What are those?
RM:
There are current (legal) actions outstanding that involve things like commercial real estate and debts that weren’t paid, and those continue.

In just one of the allegations, they say you bought the Optima building in Calgary for $9.4 million and sold it six weeks later to Platinum for $14.8 million. Is that correct?
RM:
I think those numbers need to be considered a little more closely, and they will be better articulated in my statement of defense. By background I can tell you that the six-week number isn’t accurate: a project like the Optima building would be put under contract months in advance of closing and my recollection is there was a whole bunch of leasing and capital improvements that happened through that period prior to closing of the sale. And then my recollection is there was a bunch of under market rents that we had eased in order to optimize the value of that property [before selling it to Platinum.]

As you know, after Platinum bought buildings from you and others, they began to decay, repairs were not done, tenants grew unhappy and left, mortgages were not paid. Was Strategic involved in the management and maintenance of Platinum buildings in any way?
RM:
No. We only got involved in the management once the covenant of the mortgage was broken. And even in that circumstance, we wouldn’t have been [directly] involved: The courts appointed receivers, which were the top three accounting firms in Calgary, to manage this real estate to take it out of the hands of the guys that were destroying it, and to market the real estate to optimize the value. That’s what these law firms and accounting firms did during the foreclosing process. And I didn’t start the foreclosure process in a number of those circumstances.

We had first lenders, lenders ahead of me, that Platinum had stopped paying, and they started legal proceedings and taking action. We had Platinum collecting rent and not making mortgage payments, not making utility payments, not paying property taxes. All these things lead to the courts appointing receivers to better manage the real estate. And the real estate deteriorated to a level where the receivers went out and marketed the properties through a proper court-supervised listing process. And in some of those circumstances, I ended up acquiring the real estate because the sum of my debt, plus the existing first mortgage was so much higher than what the real estate could fetch in a deteriorated condition during the depths of the recession. That is why I have that real estate.

You can’t say this was my plan from the onset, which is the allegation. For me to have that, I would have to have had the knowledge that 2007 was the top of the market right before I sold. I would have to know that in ’08 and ’09 we were going to have a recession and a credit crisis, and the bottom was going to fall out of commercial real estate in Calgary. And then would quickly recover. If I would have known that, I could have planned a situation like this. But that’s just not a realistic proposition. I can not take credit for things like the credit crisis and the recession.

There is easier money to be made in a more ethical manner. We have a legitimate business plan with all of our businesses, including our commercial real estate.

Despite the recession, credit crunch and increased vacancy rates that occurred in Calgary in 2008/2009, in your opinion, should the buildings Platinum purchased from you have been able to withstand those factors?
RM:
Properly managed buildings with happy tenants where lawns are mowed, roofs are fixed and air-conditioners looked after, don’t have higher than market vacancy rates.

When you go to bed at night, thinking about this situation, and the collapse of other real estate investment firms like Concrete Equities, what goes through your mind?
RM:
What is the underlying common denominator? I don’t know. Is it stupidity? Is it greed? Is it being crooked? Stupidity is forgivable. Greed is understandable. But theft, I think these people (the investors) have an issue with.

You know that people are thinking that Riaz Mamdani is a very, bright and intelligent kingpin in all of this. How do you square that?
RM:
I think that that’s a misconception that has evolved over time to give Platinum a way to deflect the criticism that was coming their way. At the top of the market, they were trying to convince everyone that they were absolute geniuses and I was a bit docile for selling them all this real-estate. As they developed all of this real-estate, blaming the guy who sold you the real-estate became the easy way out, so I recognize that that’s the picture that’s been painted. But that’s the picture that’s been painted by people trying to deflect the blame my way.
The investors don’t know me, and until the investors put questions to Chandran, his involvement – or my involvement as the lender – is something that wasn’t an item for discussion. Only when they had their challenges did they deflect their criticism at me. When you look at the over 20 buildings that they acquired, including Leben REIT, I only sold them six buildings. It’s obvious that I’m not the common denominator. They’ve lost all but two of those buildings.

In the statement of claim, it says that you were involved in every property.
RM:
And that’s simply not true.

And you mean that the implication of collusion is false?
RM:
I think we need to appreciate that I didn’t want to acquire these buildings back. We had a situation where, when I sold all of these buildings to Platinum, I kept my guarantee on all of these mortgages and Platinum stopped making mortgage payments. So the banks were suing me. I was getting named in lawsuits on the 744 Building because I guaranteed the loan. I was getting sued on Deerfoot Court because these guys weren’t paying out the first mortgage. The value of the real estate, because of the mismanagement, had deteriorated to the point where my guarantee was at risk. The receivers did their best to sell the real-estate for the maximum dollar and through the process I wrote cheques for millions of dollars – and I’m not exaggerating – to keep the mortgages while Platinum was collecting the rents and not paying the mortgages. Because of my guarantees on those loans, my cheques totaled millions of dollars. That’s a painful process to go through and the only way to end it was to let them go to foreclosure, and even through foreclosure the receiver had to get the best price they could. And even in foreclosure, I didn’t acquire all of the real estate. I was happy to let others take whatever real-estate suited them.

For the full article on the investor class action lawsuit against Platinum Equities, click here.

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