newsletterspring

2009 Newsletter

THE SHIFTING ECONOMY & ALTERNATIVE INVESTMENTS

Wise men talk because they have something to say. Fools talk because they have to say something. - Plato

We are living in one of the greatest times in the economic history of the modern world. If you listen to the pundits in the media you will quite possibly become filled with fear and lose hope. Many of these so called experts are merely trying to accentuate the problems and not help to find the opportunities that these times invariably bring. These people make it sound as though money has been lost never again to be found. What in fact is actually happening is that we are living in one of the most momentous times in modern history where the balance of financial power is being shifted off the foundation is has rested on for many years. The capital supposedly "lost" in the markets has simply changed hands, as is the case anytime there is a financial transaction.

Individuals, companies and countries who have cash and low debt ratios during this economic cycle will find unprecedented opportunities for creating wealth. This will also be true of economies that are commodity based. These raw materials which are turned into end use products are becoming the currency of the present time. For this reason Western Canada is very well positioned to be even more prolific as world leaders in the new economy that is appearing before our very eyes. With this new reality will be the demand for well thought out real estate investments and developments.

During this time of shifting econimic bases, what we now call Alternative Investments, are quickly becoming the investments of choice hat are 'porfolio anchors', rather than just tools used for diversification. We have gone through many financial shifts and this is just one more. There willbe many others. The key is to learn who to listn to and who to close your ears to. These times will provide opportunites for some and hardship for others. It is up to us to decide what will happn during these interesting gimes.

Ron Aitkens, CFP

President of Harvest Capital Management Inc. and Foundation Capital Corporation

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A SOUND INVESTMENT IN TROUBLED TIMES

They say, “in our life time, we have never witnessed such market uncertainty; maybe since the great depression”. ‘They’ being some politicians seeking to spend a lot of tax payer money and the crisis-loving media. But what is the truth?

There is no question that we are facing some huge challenges in the global economy but I remember in my life time living in an economy with 20% plus inflation and interest rates, people in Canada by the tens of thousands losing their homes and unemployment rates in the range of 11%. I remember our Federal Government running up massive deficits year after year, even in good times.

Current reality is interest rates and inflation historically low; unemployment rates in Canada are also low, especially in the west where we are still facing labour shortages in certain sectors of industry.

As a nation, Canada is faring relatively well, with over a decade of balanced budgets at the Federal level, and one of the most stable banking systems in the entire world. Canadian banks have been minimally impacted by the sub-prime mortgage crisis that most global banking systems have exposed themselves to. When you then consider that western Canada is faring best within Canada, we can at least say from an economic security point of view, as Foundation Capital investors, we’ve invested in one of the best places on the planet.

It is very important to keep in mind with Foundation Capital that we have built within the business plan of all our projects the ability to withstand a cycle of downturn, and then to position ourselves to take advantage of the next wave of economic opportunity and growth.

In other words, every single project within the Foundation Capital portfolio is sound. While some may be impacted from a time-line point of view, these are excellent projects that will be able to move forward as the global economy stabilizes and returns to growth. Even now, many of our projects are in a full ‘go forward mode’ supported by current economic demand. With all our projects, this is the perfect time to get design work and approvals in place, to position ourselves well for the global recovery.Since Western Canada is considered by most economists to be best positioned to move quickly and strongly out of the current down-turn, having your ‘investment’ (like seed) planted in the ground of the rich economic soils of Western Canada is a good thing.

Roy Beyer

Sr. Marketing Director

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PROJECT UPDATES

Airdrie Country Estates

The Airdrie Country Estates site is situated at the intersection of Township Road 264 and Range Road 291 approximately 2 ½ miles east of the Queen Elizabeth II Highway (Highway 2).

The site is situated within the proposed Airdrie East Area Structure Plan which received First Reading on July 31, 2007 (Third Reading is still pending). Third Reading of AEASP is not likely to happen prior to mid-summer 2009, at which time the influences and impacts of the provincial Land Use Framework, the Calgary Regional Partnership plan and the MD’s Growth Management Strategy will be better understood.

Future Land Use Concept denotes the subject site as “Community Residential and Open Space Policy Area (CROS)”. Section 5.3 stipulates that:

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Future residential development in the CROS Policy Area shall be in the form of residential cluster communities and shall be guided by Conceptual Schemes.

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Residential density should range between 2 and 4 dwelling units per gross acre.

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A variety of housing types - mixed commercial and residential buildings and low-rise multi-unit buildings may be considered.

NEW: A Transportation Planning Study of the North Balzac/East Airdrie Area dated July 2008 identifies a Future Road Network and Road Classification for the area. The Executive Summary of the study proposes Township Road 264 as an expressway with a 60m right of way connecting Range Road 291 (southeast corner of the subject site) to a future interchange at Queen Elizabeth II Highway.

NEW: The study proposes Range Road 291 along the eastern boundary of the subject site be a primary collector requiring a 27m right of way.

NEW: A number of the senior members of the Foundation Capital development team are now fully engaged in addressing key issues, including most specifically water sourcing for the entire East Airdrie and Balzac regions.

While details on water sourcing issues can not be made public at this time, we want to confirm and assure Airdrie Country Estate investors that good progress is taking place and Airdrie Country Estates is very much a priority in moving this project forward. The opening of the CrossIron Mills Mall this coming August underscores the need for affordable housing in close proximity to where as many as 4,000 workers will be employed.

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Rocky View Country Estates

The subject site is situated at the intersection of Township Road 264 and Range Road 12 approximately 2 miles west of the Queen Elizabeth II Highway (Highway 2) and the Hamlet of Balzac. The site is ½ mile south of the City of Airdrie city limits.

West Balzac Area Structure Plan (WBASP): The Rocky View Country Estates site is situated within the approved Balzac West Area Structure Plan which was adopted by the MD of Rocky View Council as Bylaw C-6433-07 on April 3, 2007.

Table 1 outlines that the type of development in the “Residential” portion is intended for “comprehensively planned communities with gross residential densities of 3 to 5 dwelling units per acre averaged over each section (square mile) of land”, and that these areas:

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Will consist of residential and local commercial land uses

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Will contain full municipal services

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Will require Comprehensive Conceptual Schemes covering a minimum of ¼ section, and,

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Will have the Open Space network tying into the regional system.

Appendix A: Generalized Land Use Concept and Conceptual Road Network identifies both Township Road 264 and Range Road 12 as higher order roads. Township Road 264 is proposed to ultimately connect to the east with a future intersection/interchange with Queen Elizabeth II. Range Road 12 is proposed to ultimately connect to the south with the City of Calgary and to the north with the City of Airdrie.

NEW: The Next Step recommendation is to commence the preparation of the preliminary Concept Plan. A number of the senior members of the Foundation Capital development team are now fully engaged in addressing key issues including most specifically water sourcing for the entire of the West Balzac region.

While details on water sourcing issues can not be made public at this time, investors can be assured that good progress is taking place and Rocky View Country Estates is very much a priority towards development.

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Elbow Valley Country Estates (Legacy Community)

The draft Plan 8 Area Structure Plan was developed over the past three years and then rejected this past fall by Council members of the MD of Rocky View because of changes during the development period. The planning of details in building what would have been a City of 60,000 west of Calgary became overwhelming and impractical. The vote by the MD to reject the Plan 8 Area Structure Plan was on the surface a huge setback; but in reality may very well have been the best thing that could have happened towards the actualisation of the Elbow Valley Country Estates project.

The MD of Rocky View Council has since requested that a new process be initiated to reflect current circumstances and resolve outstanding issues. The new approach to be followed is identified as a Community Development Strategy (CDS). The MD members voted 8 – 1 in favour of this new plan. The settlement pattern and infrastructure system for the CDS will be implemented through something called a “Neighbourhood Area Structure Plan”. Elbow Valley Country Estates, together with one or more adjacent parcels of land (consisting of about 750 acres) represent one of five or six Neighbourhood Area Structure Plans within the original Plan8 area.

Elbow Valley Country Estates and neighbouring properties are literally next in line in the Elbow Valley development corridor (see regional map) and thus projected to be the first of the Neighbourhood Area Structure Plans to be considered for approval.

Elbow Valley project can now be developed as a standalone community with all utility services provided and maintained by a private sector utility services provider. This will include the management of water, wastewater and stormwater, geoexchange for heating and cooling, and solar technology to supplement geo-exchange heating plus electricity generation. Solid waste management will generate methane to be used by microturbines to generate electricity.

Because the community will be completely independent, there is no requirement for Regional Services proposed by the Calgary Regional Partnership. Thus, we believe that we are in an ideal position to proceed with the development and implementation of this unique environmentally sustainable community. We are confident that the MD of Rocky View will endorse the concept and allow us to move forward in a timely fashion with the first of the Neighbourhood Area Structure Plans. The Terms of Reference for the Community Development Strategy accepted by the MD Rocky View Council at its January 27, 2009 meeting are posted on Foundation Capital’s website under the updates category. The document explains the approach which will be followed in implementing the revised planning strategy.

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Foundation Place

Project Update: Foundation Place has undergone a series of design improvements since its inception. Working together with the architectural team at Poon McKenzie and the City of Calgary planning department, the development team has worked creatively to address the issues of both the community, and the administration of the City of Calgary.

Improvements include:

- The addition of a 5th floor to the original 4 floor design.

- Revisions to parking arrangement will save one full level of underground parking, which will translate to substantial cost savings.

- Updated tinted glass and spandrel exterior, added the necessary elements which enhance the building’s overall modern and sleek design and to its curb appeal.

- Use of high-efficiency lighting and heating systems will contribute to overall lower operating costs for tenants, which shall provide a competitive marketing edge over other older buildings that may be available for lease.

- Additional landscaping was added to the south portion of the site in order to maintain a proper transition between the existing mixed use commercial/residential building to the south, and Foundation Place. This is consistent with Foundation Capital’s and the development team’s thoughtful design and approval strategy which in turn has helped move this application throughout the approvals process.

- A uniquely positioned penthouse with viewing terrace allows a more interesting articulation in the design and may afford higher rents for that particular floor.

- More efficient floor plan designs allow for multi-users and easier partition of space.

The development team, along with Poon Mckenzie Architects will have the ‘development permit drawings submission’ ready by the end of February, 2009. The submission will then be given to the City for the first stage of approvals by early March. After this, detailed architectural and engineering drawings will be prepared for submission for final approval. A ‘foundation permit’ could be available by early June and excavation of the site would commence shortly after.

Foundation Capital and the development team are excited with the design direction that this project has taken and we look forward to receipt of approvals over the next few months and construction to commence shortly thereafter. Further updates will be provided through newsletters and client appreciation night events.

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Benchmark Capital

This is a residential investment fund that pays investors 12% cash flow OR 15% accrued interest. this was fully subscribed in April of 2007 and continues to pay investors excellent returns.

This project did face challenges as a result of the USA sub-prime mortgage crisis in being able to acquire and sell as many homes as what the business plan calls for. Mortgage access issues have been largely resolved. With favorable mortgage availability , we expect to see more homes move in and out of Benchmark inventory over the coming months.

A report by Canada Mortgage and Housing Corporation released February 18th, 2009, project that the housing market in Alberta and especially in Calgary will rebound and lead the nation by early 2010. Spring of 2009 is already indicating a healthier and more sustainable growth housing market right across Alberta, especially in the Calgary area.

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Where Land, Life and Opportunity Merge

Spruce Ridge

Work on the Spruce Ridge project is progressing well.

We are currently heavily engaged in our community relations program. We are also in the process of doing our back ground studies which includes effort in the fields of environmental, ecological, hydrology, hydro-geological, archeological, geotechnical, and agricultural studies not to mention survey work. This work is both detailed in nature and time consuming since some of these studies need to be conducted in the winter and some in the spring and summer. The thoroughness of this work is vital to the success our land use re-designation application.

With respect to our community relations (A. J. Pottinger and Associates Ltd.) and planning work (Zeidler Partnership Architects), our team has most recently been communicating with the MD of Foothills staff by way of some informal pre-application meetings to map out the process of developing and preparing our land use re-designation application in the context of current and emerging policies, and in line with community trends and the perceived needs of the community. We will soon begin engaging the community in a series of public charrettes. The first of these will be to explore development principles and to acquire community input.

In the context of sustainable water management, we have, along with Dr. Bruce Jank, Abbas Zaida engaged EBA Engineering and Westhoff Engineering Resources Inc. to develop our sustainable water management strategy and plans. Water management is one of the most challenging components of our development package and we are happy to say that this team is the strongest we have ever worked with. We look forward to exceptional innovation in the world of sustainable green engineering.

Land use economics is an extremely important aspect of the success of any sustainable development. In the uncertain world of economics we are witnessing this is even more important. We continue to explore land use possibilities in both detail and comprehensively to maximize land use synergies to maximize land values. This is to ensure our development will not only benefits our investors but also benefit the community. Our goal is to maximize annualized return on investment, to ensure contextual integrity with the surrounding area and to provide maximum benefit to the community.

We believe that this development will be among the leaders in fully integrated sustainable green development not only in Alberta but also in Canada. We are proud to be working with the most conscientious and capable team of professionals to achieve this goal.

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Railside Industrial Park

Sold out to Investors as of September 2008, Railside Business Park is an exciting industrial park project that is proceeding as we speak.

Report from AD Williams (Engineering): The first phase of the Millet Railside Business Park will be completed in the summer of 2009. The on-site Water and Sanitary Services are installed along with individual service connections. The off-site connections will be installed at the start of the construction season. The off-site portions are approximately 25% of the total Sanitary Main and 20% of the total Water Main. This work is estimated to take approximately 21 site days and is scheduled to be performed in parallel with the Surface Works portion of the contract. The Surface Works contractor will also be commencing work at the beginning of the 2009 construction season. This contractor will be shaping the subgrade, placing gravel and paving the interior roads along with constructing the intersection onto Highway 616. Once the paving is complete, topsoil will be spread in the ditches and on the Municipal Reserve. This work is expected to take 60 days from commencement. The start date will be dictated by frost levels. Historically, construction has begun between May 1 and May 31. Therefore, it is expected that construction will be completed by July 31, 2009.

General News: The turmoil in the financial markets has had a negative impact on the decision of companies to start new construction projects right across North America. That is also true of new projects in Alberta. Although we’ve had a large number of inquiries, the mood of businesses is generally to ‘wait for the markets to settle’ before starting any new construction projects. This is fully understandable, given the kind of market upheaval we have seen in recent months south of the border.

Thankfully, our business plan was specially designed to handle a downturn with very little risk to the investors. Investors own the land mortgage free so if it takes a little extra time to sell the lots, that’s okay. That’s exactly what land development veterans do, they wait for the demand to return and then sell. We do not need to fire sale the lots in order to make payments.

On the other hand, we have had 2 very serious enquiries involving 74 acres of Railside. We are presently doing engineering and design work for a CP Rail spur line to connect Railside Business Park directly to the CPR North-South mainline. Such a spur line will only be built if we have a commitment to purchase lots but should that happen, the entire project will be enhanced in that the spur line will be available to others in the Business Park.

Discussions are currently underway with CP Rail in regards to construction and implementation of rail access to the site.

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Foundation Mortgage

Foundation Mortgage Corporation is a cash flow investment Bond that pays 11% annual interest income by way of a monthly direct deposit. This was a $15 million offering that is now fully subscribed.

If RRSP money is used to invest, a cash payment is directed into the investor’s RRSP account; otherwise the deposit is directed into the investor’s bank account. Monthly payments are made on the last day of the month with a record of 100% onetime deposit.

Developed exclusively for our investment partners, Foundation Mortgage investments enable the Harvest Group of Companies to finance carefully selected and high quality commercial, industrial, residential and raw land acquisition opportunities in Canada.

The Bond is secured by a mortgage position on the properties acquired. Foundation Mortgage money is currently invested in a number of quality Harvest Group acquisitions.

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Liberty Crossing

A $7.5 million quality commercial real estate investment that sold this past November in record time; a strip mall located in Red Deer along ‘Gasoline Alley’ immediately adjacent to the new Theatre and the Costco. This was a Harvest Capital style investment, the 25th project brought to Investors by the Harvest Group of Companies. The project was released at noon on November 7th and sold out 52 hours later at 4:00 pm on Sunday, November 9th.

We were very surprised with just how quickly this project sold out but then in thinking about it, it did make a lot of sense. People really like the tangibility in that they are part owners of a quality piece of Real Estate that they can see and touch. They love the security of investing in a fully leased building with triple-net leases signed with very solid companies along with the value the tax savings benefit provides through our unique Limited Partnership structure at $10,000 per Unit. Investors also appreciate the value of investing with a Company with an exceptional track record, one that has been in this business for a good number of years.

It is noteworthy that this project was made available to our investors in part because we were able to buy it at very good value. In other words, the moderated real estate prices in Alberta are providing all kinds of opportunities for investors that just did not exist two years ago in a hyper inflated climate. The first of the quarterly cash distributions to our partners were sent out in late January. The T-5013 form will be mailed to Unit holders by the end of March which will in turn provide significant tax savings benefit to investors.

We look forward to being able to bring more of these kinds of projects to our investors in 2009 including another strip mall right in the City of Calgary with a great location and excellent tenants. That will be available to investors by early April, 2009.

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