David Baines
Sun
In my May 21 column, I issued several cautionary notes to anybody who might be considering an investment in the proposed ParaYso Hotel project in downtown Vancouver.
“If you want to live dangerously, then the ParaYso Hotel project at 620 Seymour St. might be just the investment for you,” I said in my column.
Since then, I have made further inquiries which not only reinforce my initial view, they elevate it to the extreme-risk category.
The project is being developed by Graham Alexander through his company, Rancho Santa Monica Developments Ltd. As proposed, the project would be 14 storeys high and contain 91 suites. Total projected cost is $27 million.
To finance the project, Rancho Santa Monica is selling convertible debentures paying 10.75 per cent per year. At least one meeting has been held to solicit funds from investors.
As noted in my earlier column, my first concern is with Alexander. He worked as a computer salesman at Future Shop until December 1997 when he became licensed as a stock broker at Canaccord Capital. He worked there until May 2000 when he was fired.
The Investment Dealers Association of Canada conducted an investigation into his dismissal and in June 2003, Alexander signed a settlement agreement in which he admitted to several serious transgressions:
– In March 2000, he accepted an order from a client to buy 20,000 shares of a junior company for $48,049. The client told Alexander that a corresponding sell order for the same number of shares would be entered simultaneously through an account he maintained at another firm.
“Mr. Alexander accepted the order notwithstanding his concerns that doing so would constitute a manipulative trading practice,” the settlement agreement states.
– When the client failed to settle this transaction, Alexander agreed that if he deposited $8,000 into his account, he would give him another 40 days to settle the debit balance.
Alexander admitted he entered into this agreement “without the knowledge and consent of Canaccord.” When the account was finally liquidated, Canaccord was left with a $13,000 debit balance.
– The same month, another client told Alexander he wanted to sell 100,000 restricted shares of the same junior company for $150,000, and if Alexander found a buyer, he would pay him a finder’s fee of $15,000. Alexander arranged for a group of buyers (one of whom was a client) to buy the shares and collected $7,500 of the fee.
“Mr. Alexander had concerns that the purchase of the restricted shares would contravene provincial securities laws, but failed to notify Canaccord,” the settlement agreement states.
For these transgressions, Alexander was ordered to pay $35,000 in fines and costs, and he was slapped with a two-year licence suspension. He never returned to the brokerage business.
My second concern is with Alexander’s company, Rancho Santa Monica, which is trying to raise money to develop the property. Its shares are quoted on the over-the-counter markets in the United States (the pink sheets and the OTC Bulletin Board), but barely trade — the last trade was on May 21 at 89 cents.
The company has minimal operations. It manages an 11-suite hotel near Tulum on the Mayan Riviera. During the six months ending May 31, total revenues were $48,497 and the net loss was $2,519.
The only property the company owns is a piece of land behind the hotel, which it acquired in late 2005 for $80,000 in cash and notes. It is proposing to build another 15 suites on this property, but it is not clear where it will get the money.
The company’s most significant asset is an agreement to buy the property at 620 Seymour St., where the hotel will be located. Alexander has paid a $50,000 deposit on the total purchase price of $5.5 million. Another $2.45 million is due in installments over the next year, at which point the vendor will take back a $3-million mortgage.
As noted, Rancho proposes to finance the project by selling convertible debentures to investors, but the only security that is being offered to investors is a general charge over the assets of the company.
That amounts to virtually nothing. Due to Mexican law, the Tulum property cannot be pledged and there are severe resale restrictions. As for the Seymour property, the company won’t own it until April next year, when the last cash installment is due to be paid and the vendor provides a mortgage loan for the balance. In the meantime, investors are seriously exposed.
After I noted this, Alexander said he would try to alter the terms of the purchase agreement so investors could obtain a charge over the property. When I asked him later about this, he refused to answer the question:
“Why don’t you do a property search and see what has been registered on title in favor of our investors? Have you thought of that?” he goaded.
When I conducted a search, I noticed the agreement for sale is not registered on title. This strikes me as a significant omission. Registering the agreement would prevent the current owner from selling, transferring or encumbering the property without discharging the agreement.
I also noticed that Alexander had filed a caveat (a type of lien) on the property. The caveat refers to the purchase agreement and notes it did not specify that the $50,000 deposit was to be applied toward the purchase price, and the owner has refused to acknowledge that it did.
“On or around June 26, 2008, Alexander requested that the owner [L’Ena Enterprises Ltd.] return the $50,000 to Alexander, however, the owner has refused,” the caveat states.
The caveat also claims “a legal and beneficial interest in the property.” So, yes, the caveat helps protect investor interests pending resolution of these matters, but there is no assurance they will be decided in their favour. Indeed, the fact there is a dispute may not augur well for its eventual completion.
Another concern is that Alexander has not obtained the necessary permits from city hall to build the hotel. He says the company is in the “submission stage,” which may mean application has not even been made. The June 13 edition of Commercial Property News quoted Alexander as saying the project is in the “pre-application stage,” which indicates nothing has been filed yet.
A further concern is that Alexander announced on June 13 the company had “signed a letter of intent with the Onni group of Companies to build, joint venture and develop the hotel site in Vancouver.”
The release said the Onni Group, which has built well over $10 billion worth of developments across Canada, “is working with Rancho Santa Monica Developments to make this development a reality.”
This was indeed a coup for Alexander and his project. Unfortunately, it was incorrect. A few days letter, he retracted the release. The agreement had not been signed with Onni, but rather with Nick De Cotiis, a long-time former Howe Street promoter who has nothing whatsoever to do with Onni. In fact, he has been embroiled in a bitter and protracted dispute with those members of the De Cotiis family who are involved in Onni.
Asked how he could report that Onni had signed the letter of intent, Alexander replied: “Have you ever made an error in your life? I’m only human.”
My final concern is that I was unable to conduct a civilized exchange with Alexander. He was insulting, sarcastic, irrational and evasive. While he was an “up and coming developer,” I was an “untamed animal in the wild willing to write lies and misreps in order to get a cheap laugh.”
“People want to read about success stories, not an article written about some half insane reporter who will do anything possible to write a lambasting article on good people like myself,” he said in an e-mail.
“There is no one in Vancouver other than Mr. Baines himself who finds funnyness [sic] with what seems his querky [sic] sense of humor, to not print this at all.”
Alexander is wrong again. I don’t find anything remotely funny about him or his project.
© The Vancouver Sun 2008
