Financial problems for Kelowna Mountain development
Investors now know the full details of the risk they incurred by purchasing shares in the development scheme dubbed Kelowna Mountain.
Variously pitched as a multi-sport adventure tourism site, housing development and ice wine vineyard since founder Mark Consiglio first went public with the plan in 2006, the B.C. Securities Commission suspended sale of shares in the limited partnership which now owns the mountain on Aug. 13 as the paperwork explaining the investment was too light on details.
In an effort to have this Cease Trade Order rescinded, Consiglio, acting on behalf of Kelowna Mountain Development Services, general partner to the new owner, Kelowna Mountain Limited Partnership, outlined an offer for those who bought shares to get a full refund this fall.
The offer was valid through Nov. 4, and promised the full amount back, although investors would lose any interest that would have accumulated since their purchase was made, and those who bought multiple shares might receive a promissory note for the future sale of shares instead of money.
Among the documents now on record with the securities commission, and mailed to investors with this offer, it’s made clear the mountain faces potential foreclosure owing to Consiglio’s debts and notes that there is no obligation for the developer to make good on the original pitch.
“Some of Kelowna Mountain’s promotional material suggested that you would receive a residential lot and golf membership in a resort-style community…As described in the updated OM, this is only one development scenario. Kelowna Mountain is not obligated to develop the property in this way or at all,” the letter states.
The new offering memorandum (OM) referenced is a requirement for upstart ventures used in place of a prospectus, which outlines the full financial details and business plan for a company. It is generally used if the cost of developing a prospectus is too onerous for an upstart venture.
It was off the details in this original OM that $22 million in Kelowna Mountain shares were sold before the commission stepped in.
The history of financial transactions now available indicates this $22 million has not been used to entirely cover off the debts Consiglio’s previous companies incurred, debts now registered on the title of the land the Kelowna Mountain Partnership owns. The investors were made aware of this in February of this year.
Consiglio purchased the property in the early 2000s for $7.4 million, went public with his development plans, then formed Kelowna Mountain Limited Partnership in 2011, a company which would offer up to 849 shares in the vision, at varying prices, in five separate releases.
He then sold the original property to this new company for $37.3 million. His own companies owed $18 million, however, and the debt was financed against the title of the four land parcels that make up Kelowna Mountain. This debt then became the responsibility of the new limited partnership once the sale went through.
The first round of shares sold for $39,995 and purportedly raised $12 million, which Consiglio transferred to his own companies to complete the sale, with the rest to come from the future sale of shares.
Kelowna Mountain Partnership has now paid $23.6 million to Consiglio and, while he has paid down the debt, some $4.85 million is still owed on the Kelowna Mountain property with threat of foreclosure looming. The original lenders Consiglio owed money to want their money back.
According to the OM, in February of this year an extraordinary annual general meeting was called for Kelowna Mountain Limited Partnership in to deal with the problems and the partners, all of the new shareholders, authorized the company to borrow up to an additional $35 million to cover debts.
As the commission put an end to the only revenue source in August, Kelowna Mountain currently has no revenue to back the stream of borrowing. Reports from a grand opening held on the mountain this summer suggest the investors are primarily Chinese nationals.
There is an immigration stream which allows foreign investors willing to invest a substantial sum in Canadian businesses entry into Canada; however, none of those interviewed suggested this was a reason for making the investment.