15 Jan Storm Mountain: A lesson for investors
If you are ever faced with a decision about whether to stick with a troubled investment or divest and move on, it’s well worth learning from my experience of Storm Mountain Development.
The Canadian company was founded in 2011 to rescue The Foothills real estate project, which faced a seven-figure loss. The decision to invest a further $C15 million saved the project, resulted in a large profit and ensured the development of much-needed housing on beautiful Vancouver Island.
The decision-making process and the reasons for committing to a major investment provide valuable lessons about how and when to invest in real estate.
Always think about what people want
When you consider investing in real estate you are investing in more than land and buildings. You are engaging with communities and the people who live there.
Investors backed Storm Mountain Development because the company convinced them that The Foothills was worth saving, despite the gloom of the financial crisis.
The underlying reason for this really matters: The Foothills is a beautiful, well-planned development on the edge of Nanaimo, near the southern tip of Vancouver Island. It is well-connected to nearby Vancouver, and people want to live there.
If the investment has this sort of basic logic on its side, then it is worth investigating more deeply before walking away.
Be prudent but not fearful
Storm Mountain Development was trying to build an aspirational community as the effects of the global financial crisis were still rippling around the world.
However, the crisis meant that many investors were fearful of losing money, especially in real estate developments because the whole crash was precipitated by the collapse of sub-prime mortgages in the USA.
But, close scrutiny of The Foothills project showed that its potential was far greater than the risk. The company was convinced, rightly as it turned out, that demand for high quality homes in this setting would justify the investment.
Overcoming fear and uncertainty is one of the most challenging problems for investors, especially when those fears and uncertainties are based on very real experiences of loss.
Offering real returns shows confidence
Storm Mountain offers its new investors a 12% annual return, a figure that was always likely to turn heads and inspire confidence. Canadian house prices around the end of 2011 were barely increasing or even dropping, so confidence was low.
The offer of a guaranteed return, along with the prospect of recovering their initial investment, was bold in that environment but it attracted enough investors to continue the project.
Investment always carries some risk, but confidence underpinned by a financial commitment like a guaranteed return is a positive indication.
Money matters but so does community
Once the project had enough capital to proceed, Storm Mountain set up Lone Tree Properties as a subsidiary and collaborated closely with the District of Lantzville to negotiate a new phased development plan.
That plan included a 900-acre park, and ambitious social and sustainability goals which influenced all aspects of the community’s design. Its location, away from the busy centre of Nanaimo, is relatively secluded but still convenient for the ferry terminals to reach Vancouver.
In 2018, Lone Tree donated 730 acres of private land to the District of Lantzville as public parkland with hiking and mountain bike trails, rock climbing and amazing views of the Strait of Georgia
On the first day of sales, the company sold 80% of the homes which were part of the Phase 1 development. That soon rose to 92%, and the sales have enabled most of the investors to recoup their original investments.
This shows the benefit of committing to building an attractive, well-connected development, and engaging constructively with the existing communities.
Aim for long-term success
The success of phase one of The Foothills has pushed the project’s total value to around C$200 million, showing the wisdom of investing heavily in a project which had such good underlying value.
Many such developments were sold off at a loss, as the financial crisis wiped out the value of some portfolios. But you could not deny the draw of an investment backed by the natural beauty of Vancouver Island and a clear demand for homes which offered the combination of quality, location and connectedness to the mainland.
The future of Storm Mountain Development
Storm Mountain Development is now looking to its next developments, with two other projects already underway in the Rocky Mountains of southern British Columbia.
Nelson Landing on the shores of Kootenay Lake, will feature 265 homes and 40 tourist properties, as well as a 78-slip marina.
Wildstone Golf Course and Residential Community in Cranbrook will feature 196 homes alongside a course designed by legendary golfer Gary Player.
If you invest for long enough you will almost certainly face decisions about whether to sell at a loss or stick with something and even increase your commitment in the hope of future profit.
Don’t push money into a development blindly but think about the underlying value and try to understand the factors at play without always assuming the worst, even in a difficult market.
Remember that real estate is not ephemeral, it is something which has value to people and if you understand that value you will be able to make better investment decisions.
Jean-François de Clermont-Tonnerre is Founder and Director of AUM Asset Management. The content contained in the article is for informational purposes only and is the opinion and experience of the author. You should not construe any such information or other material as investment or financial advice.