Some time ago I cautioned about Concrete Equities.
Yeah, that one. For most of us, Concrete Equities existed as only intensely irritating TV commercials, featuring a smug little Albertan with bangs strutting around hulking office towers he was hawking. To its everlasting (hopefully) embarrassment, CBC embraced the company by selling it loads of airtime, and even took one of its principals on as a financial expert on its ‘Dragon’s Den’ show. (A good example of money porn.)
However, for hundreds of other people – many of them in Calgary – Concrete Equities was a wondrous opportunity which has turned into a quagmire. The company’s premise was simple: Secure title to a commercial office building, set up a limited partnership, sell boodles of ‘units’ to small-timers who watch too much CBC, use the money to finance the buildings and maybe sometime in the future (when the buildings soar in worth) remortgage for new millions and distribute it as income to the investors.
Of course, few seemed to ask a basic question: Where’s commercial real estate going?
The answer of course, off a cliff. The recession we all saw coming last autumn has caused commercial vacancy rates to soar, left office buildings in places like Burnaby standing empty, bankrupted strip mall owners and played havoc with REITs. And it’s really just started. Commercial RE is a lagging indicator behind residential, and only now is the effect being felt of business failures, downsizings and cost-slashing.
But all that was sniffable months earlier when the dude with the funny haircut and the foothills je-ne-sais-quoi vacuity in his eyes hit the small screen. I mean, did he think folks were being born outside of town under cabbage leaves?
But, apparently they were. Believing the talk of great cash flow and wildly appreciating properties, investors flocked to lay their money down. To my knowledge, not a single investigative reporter, or even (especially) the CBC, ever dove into claims that were too good to believe in the midst of an unravelling world.
Needless to say, a bunch of Concrete Equities buildings in Calgary are now in receivership. The courts have been busy dealing with actions from the limited partners (the little people) against the general partner (bangs and friends), and so far things are looking grim for investors. So much so that a couple of hundred of them recently staged a protest outside Concrete Equities headquarters.
Meantime the company’s web site has been disabled, and questions are flying around the Internet about projects in Mexico and the status of investor funds. This, of course, is not the only real estate investment outfit to fall off its horse in Alberta, where the cult of property thrives.
The lessons for investors are obvious. Commercial real estate is inherently less stable and more dangerous than residential. Limited partners are corporate cannon fodder. Incredible returns are not credible. Don’t give your money to a TV guy.
And thus, the themes for this week:
The truth about the unemployed. The truth about next taxes. The truth about Canadian subprimes. The truth about greed.
Bless you. My next sermon: The resurrection.
