Although this isn’t relevant to most readers of this blog, I feel it’s important that I chronicle the events that are happening now with Concrete Equities – because it doesn’t look like anyone else has a blog on which they are doing so. My intention isn’t to turn this into a “Concrete Equities Blog”, but since I have a rather large chunk of money invested with these guys, I think you can understand why this issue is important for me to track.
This morning I received an update from the President of Concrete Equities Inc., via email. If you’re an investor with Concrete Equities, please take the time to read through this discussion thread (UPDATE: it has since been deleted, but Google’s cached version has some of the info) – you’ll learn a great deal about your investment and the status of is. That thread is also where they announce meetings of investors. As for this message from the President of Concrete Equities, it’s hard for me to separate fact from fiction. I think the financials will reveal the truth in time. This is a long message – the first section is about the Mexico investment, of which we have a unit in Santa Clara, and the remainder of the email is about the Calgary investments (we have the Castleridge investment).
Dear El Golfo (Santa Clara) Investor,
At this time, our firm would like to update you on current developments on this particular project. El Golfo de Santa Clara region remains viable for future tourist development. Being the first point of beachfront on the Sea of Cortez along the coastal highway in the state of Sonora it is developing into a great drive-to destination for Americans. When the project began, the coastal highway was under construction and the international airport was being conceptualized. Since that time the coastal highway is near completion and the international airport to service El Golfo de Santa Clara and the Puerto Puenasco (Rockypoint) area is well underway. Also please keep in mind that your investment is a solid, equity based land hold with no mortgage or debt position on your asset.
Throughout 2008, we have had investor partners visit this locale on guided tours to see the progress on the viability of the region. To ensure greater confidence in your investment, we are planning to have an Annual General Meeting on this investment in the Fall of 2009 that will have an independent assessment of the area that you have invested in. You will meet both the Arizona/Mexico attorney and the Calgary/Mexico attorney that facilitated your transaction as well as developers in the region that have in depth knowledge of this dynamic and growing area. We look forward to seeing you at this informative and enlightening session in the very near future.
At this time, I would also like to sincerely apologize to you for the lack of communication that you have had from our firm in regards to this investment. As you may have heard, Concrete Equities, the marketing company that sold your investment, has been involved in a difference of opinion on management of its unrelated projects in Calgary. Please keep in mind that your investment has no tie to any other investment in Calgary and thus the performance of anything else has no detrimental impact on your specific project. It stands alone in performance, management and expertise. However, in light of the public misinformation and the lack of communication from us, I would like to take this opportunity to outline our corporate position on recent events in Calgary and share with you my commitment to full and open disclosure of the status of your investments going forward. I apologize in advance that this letter is anything but brief; however the need to clearly communicate with you is apparent. I understand that most of the information in this letter is relevant only to the Calgary based investments that have no association with the performance of your project in Mexico, it is still critically important that you have an idea of what has garnered our company a lot of attention in the past few weeks.
Since a market peak, events beyond our control have contributed to a decline in the market value of some of our real estate assets in Calgary. Further, in late 2008, actions of a former director of Concrete Equities were brought to our attention that has further consequences on those Calgary based investments. Since this discovery, we have been working diligently to bring solutions forth that have our investor’s best interests in mind.
By way of background, prior to joining Concrete Equities, I was a senior vice president in a commodity producing organization which transacted primarily in Japan, China, Germany, United States and Canada. I also had significant participation in the Canadian softwood lumber trade dispute. Along with those responsibilities I was an executive of a related housing entity that developed in Japan, China, Korea and Iceland. With the experience that I had in business building strategies and international exposure, I joined the Concrete team in May of 2006 in a marketing, brand building and sales capacity. Since joining the business units, I am proud to say that our team has raised in excess of 130 million dollars for various investments in Canada and internationally for thousands of families. I feel a tremendous obligation for every dollar that you have committed to this business
As in many organizations, Concrete Equities executive responsibilities were allocated among a few individuals. Dave Jones was the CEO of Wealthstreet and promoted our investments while Vinny Aurora and I were responsible for marketing and sales of Concrete Equities and another individual was responsible for the daily operations, management of funds, accounting, investor reporting and securities activities.
In the last quarter of 2008, it became apparent that this director failed to perform his duties. As a result, there has not been an annual general meeting for any of the Limited Partnerships and no financial documents, including audited financial statements, have been produced. Likewise, the mortgage on a property based in Calgary under this director’s management for a limited partnership was allowed to lapse.
On our about December 4, 2008, this director left on an indefinite holiday to Mexico due to an alleged illness. Upon the remaining directors reviewing the corporate documents of the Limited Partnership, the extent of the incomplete responsibilities and duties were becoming more apparent.
Accordingly, on or about December 24, 2008, Vinny Aurora and I visited this director at his residence in Puerto Vallarta, Mexico to confront him with the incomplete duties. At this time we terminated this gentleman’s involvement with Concrete Equities and with all the Limited Partnerships.
As a result of these discoveries, we were faced with a daunting task. We had thousands of investors with hundreds of millions of dollars invested across Canadian and International investment projects and an information gap since the very first project began in 2006. This lack of information was apparent both to us on the executive level and most importantly to you on the investor level. To you our investor who has built this business with your confidence and trust, we owe a great responsibility.
Our objective since then has been to figure out a full and complete solution for every single family that has supported us. On December 27, 2008, faced with the challenge of reorganizing and restructuring a business with no reliable information since inception, I was appointed as a director. Dave Jones, a former director, was brought back on board as CEO, and Vinny Aurora as a director assisted in the transition to the new Concrete Equities. At this time for our Calgary and Canadian assets, we assembled some of the brightest real estate minds along with reputable accounting firms recognized nationally. In Mexico, we are leaning on advice from award winning architects and developers. We have retained counsel that has represented some of the largest developers in Mexico with strong political affiliations. All of these steps have been taken to maximize the performance of your investment and ensure greater confidence in your project.
Within 30 days of being appointed as a director, we contracted an independent accounting firm to complete a full recreation of all transactions since inception for the various entities. Since January 26, 2009 till today over 700 hours have been spent assembling full financials from individual transactions in each of the Limited Partnerships.
Due to the incomplete duties of our former director the cash flow investments in Calgary lacked timely and relevant information that is required for regular updates. I believe this has created confusion in our Calgary projects and has led to concern in our international assets.
In response, and to represent the interests of concerned unit holders, a steering committee was formed independently and without the endorsement of Concrete Equities. This committee has been very active and vocal in drawing public attention to the issues surrounding the Calgary investments, and many of its members have been in contact with Concrete demanding information and answers. I would like to take this opportunity to thank and commend this steering committee that has been so committed to their investments and to the investments of the collective. We at Concrete are equally committed to the cause of the steering committee, even though this commitment may have become lost in the public positions that have been taken due to mistrust created from a lack of information. We recognize that regardless of the actions of the previous director we are responsible for the information or lack thereof, and are taking steps to right this wrong.
Unfortunately, some individuals related and unrelated to your investments have favored tactics of rampant speculation, and have rallied investors to fight against Concrete. These tactics have resulted in visits to Concrete director’s homes, threats on their lives, personal harassment of staff and their family members at their places of residence and on personal phone numbers. Although their commitment to a cause is commendable, the information that they have rallied around has been a little misguided.
What concerns me is that certain steps in the Calgary based assets have been taken or proposed that are not in our opinion in the best interest of the investors. To clarify some points of misinformation:
(a) The mortgage at SNC Lavalin (SNC) lapsed in the fourth quarter of 2008 due to the previous director that was in charge of that responsibility. The new ownership structure maintained the relationship with Standard Life to have a continuance well into the second quarter of 2009 even though this mortgage had lapsed. The ability to extend the Standard Life mortgage maturity was due to the strength of the positive business relationship.
(b) The replacement General Partner for certain of the limited partnerships being proposed by the steering committee as “Lavalin LP” for at least three current Calgary assets, including Deervalley/Millrise, SNC Lavalin and Castleridge creates a potential cross-liability among partnerships. This is particularly dangerous given that the analysis of all transactions between the partnerships has yet to be completed. In this structure, proposed by the steering committee, the investors in Castleridge would be possibly inheriting the liability in SNC which is already obvious and vice versa across all other projects. I do not believe that this is in the best interest of the collective nor was this properly understood by all investors, if ever explained at all.
(c) Investors have been provided property management reports supporting some circumstances of positive cash flow without fully appreciating additional expenses, loans, and transactions beyond just the property management reports. They have not been considered, but are liabilities of the limited partnerships, and ultimately will become the responsibility of the General Partner to manage.
To find a solution, certain critical steps need to be taken to act in the best interests of the unit holders and ensure preservation of the underlying assets of the partnerships and the maximization of value of these Calgary based assets.
As evidenced by materials filed in the Court of Queen’s Bench of Alberta two weeks ago, our immediate priority is to grant full access of the limited partnerships books and records to a respected independent accounting firm (Ernst & Young) to act as an interim receiver that would report to the court with the clear mandate to:
(a) Carry out a review and assessment of the Limited Partnership’s, assets and liabilities;
(b) Protect and preserve the assets and undertakings of the Limited Partnership;
(c) Determine the extent of the former director’s irregularities and if any further action, legal or otherwise, is required to protect the Limited Partnership’s interest; and
(d) Report to stakeholders and advise on the most commercially reasonable way by which the value of such business and assets can be maximized whether by way of continuation in its present form or the sale of the assets and undertakings of the Limited Partnership to maximize the value of its business and asset,
so that an informed decision can be made by the limited partners and other stakeholders as to what steps and proceedings should be taken on behalf of the Limited Partnership to maximize the value of its business and assets.
This wide-sweeping mandate will shine a bright light on the activities of the partnerships and maximize the value to investors.
It is unfortunate that this mandate has been construed as a filing for bankruptcy or an implication that there is no value remaining in the Calgary based investments.
The filing, pursuant to the Bankruptcy and Insolvency Act, was a necessary step to enact a court-sanctioned cessation of the misinformed acts of some stakeholders to allow the time required to assemble critical financial and operational information. I am pleased to say that since this filing, Concrete has been permitted the time to provide books, records, and analysis to Ernst & Young supporting the creation of a current financial picture of your investments.
We are confident that these steps will ensure that investors in the limited partnerships will become fully informed of the status of their investments. In addition, we are confident that equity still remains to support the value in the Calgary based projects.
Our objective is to maximize shareholder value by instituting this court monitored restructuring of all the investments. Attempts of reaching a restructuring consensus solution outside of court was proposed to the steering committee. We recognized the lack of information and our plan was to assemble information collectively with the investor committee to reach a number of solutions for each asset and have them presented at an Annual General Meeting to all investors. This agreed plan was not followed through and thus the court appointed process for finding a solution had to be initiated. Further court applications were filed by the steering committee to restrict the ability of the General Partner to call an Annual General Meeting on the Calgary cash flow investment projects. A court application was then filed by the General Partners to request the appointment of an interim receiver; this should not be misconstrued as an attempt to maintain control by Concrete. It is in actuality the opposite, we are relinquishing control to a non-partisan group that will find the solution to the real estate. Upon completion of this work, investors in the related projects will have a clear picture on the status of each asset and informed expert information on the most commercially reasonable way to maximize shareholder value on a go forward basis.
The situation we find ourselves in is larger than any individual, committee or corporate brand. A decision must be made to implement a process to consider approximately 4,000 families that have their hard earned investments in a multitude of projects. Considering the confusion and the lack of information that has caused mistrust, I am confident this is the best strategy to not only find the solution for every investment but also to assist in holding accountable any individual that might have committed irregularities and/or was negligent in duties due to the limited partners and the General Partner.
I sincerely appreciate and commend individuals in the steering committee that have voiced their concerns, but please understand that our objectives are completely aligned – the maximization of your investment and the protection of your assets. We are not fighting for control, quite the opposite we are relinquishing control to a process and protocol that is in the best interest of all the families across the investments. When new management took over the business in 2008, we had two options to work to protect our personal reputations and jeopardize the investments of the many or potentially call into question our reputations and work for only one purpose, righting the alleged mistakes of a past director and rebuilding your faith in your investment. We chose the later.
Please remember that your investment is not tied to the performance and status of any other investment nor is it tied or legally bound to Concrete Equities. Your investment is in good standing irregardless of rhetoric that you have heard and we endeavor to further build your confidence in your asset at an Annual General Meeting that will have a panel of Mexico experts familiar with the region that your asset is in.
Thank you for the time you have taken in reading this. We have had thousands of calls and unfortunately we have not been able to respond to each one and thus we have attempted to clarify any misconception in this letter to you, our valued investor.
Please visit our website for regular press releases and other relevant information during this time of transition, www.concreteequities.com.
Concrete Equities Inc.