Investor Newsletter - Issue 4 August 2010

From the desk of Treegroup President and COO Derek Chichak:

Greetings,

As I’m sure everyone is aware we at Treegroup are deeply involved in a very exciting project located in Peachland in the Okanagan Valley of B.C.  Several years ago the Treegroup team purchased the existing golf course which had been operating in Peachland since 1979.  The course is located on a beautiful benchland above the village of Peachland overlooking Lake Okanagan. Over the past few years we have assembled other adjoining land parcels along with a strategic portion of Crown Land with the intent to develop a new Greg Norman Championship Golf Course and over 2,100 residential units along with a small village and winery.  In December 2008 we received approval for the Area Sector Plan which paved the way to commence detail work on the overall plan.  After many months of consultation and negotiation on Tuesday, April 13th the District of Peachland Mayor, Council and Staff gave unanimous approval to a Master Development Agreement along with 1st and 2nd reading for the rezoning of the entire property.  This is a landmark decision that paves the way to move forward with the exciting development.

Construction of the Greg Norman designed golf course is the next step in the development of the site. Construction tenders were sent out several weeks ago and bids closed on April 15.  We have already commenced removing trees on the site for the new fairways and hope to have other equipment on site to start shaping the golf course early in May. Within two months we will commence work on the roads and infrastructure for the new development which will opens the way for construction of a variety of homes on the site.

This project is being heralded as one of the largest job generators in the area, if not the province, and will essentially determine the future of the District of Peachland.  The master planned community will bring Peachland to the forefront of communities in the Central Okanagan and provide housing, infrastructure and amenities for over five thousand new residents which will double the current population of the district.  Development will take place over the next 10 to 15 years.
 
We now move forward to the next exciting phase which is building the project out.  The next several years are going to be extremely exciting as we watch this new development unfold.  If you haven’t seen the site or details on the project please take a look at our website at www.ponderosaliving.ca and if you’re ever in the area please feel free to contact Scott Dawson at our Peachland office if you’d like to see the development site in person.

Thanks again for everyone’s cooperation and support.
Derek

The following story was written by local Peachland writer Dave Preston and also appears on his blog:

Work on Peachland’s largest development and only golf course is moving ahead with crews concentrating on fire fuel mitigation and fairway clearing. The project is on schedule with a 2011 target for opening the new Ponderosa Golf Course.

The $1 billion Ponderosa development centers on a new 18-hole, 7,100-yard golf course laid out by Greg Norman Golf Course Design. New tee boxes, fairways and greens were surveyed and staked out in the fall and a professional forester was hired to inspect the thousands of trees on and surrounding the new golf course.

Pine beetle has devastated the bench lands around Pincushion Mountain, according to Steve Brewer, an ISA certified arborist. The Ponderosa lands are populated by Ponderosa pine and mixed fir trees and Brewer said his inspection showed that 70 to 80 per cent of the trees are infected with pine beetle.

Most of the infected trees are in green-attack stage, appearing healthy, but infected nonetheless, according to Brewer. They will all die, adding to the significant fire hazard in the area. Brewer noted that the infected trees must be removed to aid in the prevention of beetle spread.

Many of the dead and dying trees have now been removed by forestry crews. Salvageable trees were sent to a saw mill and those too far gone were ground up and used as fuel by the saw mill.

A stack of fir trees in the parking lot of the former club house will be used in the future by Treegroup in the building of a new club house for the golf course. As part of its commitment to the environment, Treegroup is working on a replanting plan to stabilize slopes and valleys with turf grass and a mix of deciduous and coniferous tree species that are adaptable to the local climate.

As work continues, the existing trail network will be maintained and enhanced. While some new land will be cleared for golf fairways and housing, more than half of planned development will take place on land that was previously cleared in the early 1900s.

Development engineers and designers from Greg Norman Golf Course Design worked together to ensure net-zero aggregate removal from the Ponderosa area. This means soil and rock that is removed to make room for new fairways will be used elsewhere on the property, reducing gravel truck trips up and down the mountainside.

Treegroup continues to work with all levels of government on completing the transfer of 60 hectares (148 acres) of Crown land into the District of Peachland. When the Crown land transfer is finalized, beetle kill and hazard tree removal can begin in that area.

The Ministry of Transportation and Infrastructure continues to work with Treegroup on finalizing plans for a new access road to Ponderosa and intersection with Hwy. 97 – a key component of the Peachland-approved Area Structure Plan.

It was nice to see our South Surrey Headwaters Club project mentioned in the Vancouver Sun on November 14 2009

Vancouver Sun Article

It would appear that the online article on the Globe and Mail website has mysteriously been removed shortly after our press release commenting on it.

For optimal viewing please click here to view the original PDF file.

Vancouver, B.C. Treegroup Developments Corp, an established Vancouver developer, is troubled over a recent Globe and Mail article by Jim Sutherland printed October 29, 2009 entitled: The Great B.C Real Estate Bust. According to Norm Porter, CEO of Treegroup, “the article provided a bleak picture of B.C. real estate, is unbalanced and co-mingles B.C. issues with negative national and international events.”

“Specifically, the article painted a broad brush of gloom and doom for B.C. and fails to adequately realize the profound impact of the collapse of the credit markets worldwide, the consequences of the fall of oil prices on Western Canadian homebuyers and the debilitating result of the stock market collapse,” said Porter.

The article focuses particularly on the Okanagan region, an area that has been hard-hit. Porter noted that Treegroup has just announced the development of the 400 acre Ponderosa project in Peachland, B.C. and felt compelled to put into context and perspective another side of the Okanagan story not being told by the Globe reporter.

Mr. Porter notes that: “Mr. Sutherland makes some good points, but he skirts the real issue. The conclusion that Mr. Sutherland should have come to is that all these projects failed because of one common element. They are located outside existing communities where there is no social infrastructure and community to provide the market for a broader base of housing type that would have ensured success of these projects in all market cycles.”

“The point of differentiation with our project” stated Porter, “and the reason why we will succeed, is that we are located in the existing community of Peachland, which has over 100 years of local history, and social and town infrastructure that gives us lower offsite costs than more remote locations. By social infrastructure, I mean the elementary schools, the seniors centre, boys and girls clubs, churches, and other community activities.”

Porter stated “when planning the Ponderosa project, we specifically addressed the challenges such as those identified by the projects named in the Globe article. Apart from the stunning location of the Ponderosa property, and the diverse mix of product types that will appeal to all buyer demographics, the project has a sound business model that is a core value of Treegroup.”

The model is based around a minimum of debt, strong capital backing, and an experienced development team with broad real estate and business backgrounds. Porter noted that “our experience has shown us that to succeed in real estate development through all market cycles, location is the critical difference, followed closely by experience, and finally the business model.”

“The article correctly suggests that the fundamental attractions to B.C. and positive demographic trends will continue and lead to recovery, and reinforce the fact that the Okanagan is the fastest growing region in Western Canada. We purchased the Ponderosa lands at the right price and will be building infrastructure when building costs are more reasonable,” said Porter. “We know we are in a position to benefit from the improvement in the real estate market, and, as Mr. Sutherland states: “building a town (now)…begins to seem like a prudent idea”, which is exactly our point!”

Treegroup Developments Corp., a British Columbia company with over 25 years of experience in land development and construction are the developers of Ponderosa and several other lower mainland communities.

Included in this release is a copy of the letter to the editor Porter sent the Editor of the Globe and Mail ROB.

Ms. Elena Cherney The Editor Report on Business The Globe and Mail

Dear Ms. Cherney:

It is with considerable interest that I read the provocative article of October 29, 2009 relating to the “The Great B.C. Real Estate Bust” by Jim Sutherland.

Mr. Sutherland makes some insightful comments about the factors giving rise to the explosive real estate development in B.C. over the last thirty years being:

* Anti development sentiment arising from environmental consciousness * Impact arising from creation of the 1973 Agricultural Land Reserve * Accessibility of Capital * Inexperience of many developers * Impact of “West Jet Effect” on BC developments * Demographics

However, Mr. Sutherland paints a pretty bleak picture of B.C. and in particular the Okanagan which in my view is unbalanced, lacks context and comingles B.C. issues with national and international events.

Specifically, he fails in his article to adequately realize the profound impact of the collapse of the credit markets worldwide, the consequences of the fall of oil prices on Western Canadian homebuyers and the debilitating result of the stock market collapse.

The article points out that the main challenges faced by the various projects were:

* High ratio debt financing * Under capitalization * Lack of development and even business experience * Poor market timing * Isolated resort developments

Treegroup Developments Corp., our company, has just announced the development of the 425 acre Ponderosa project in Peachland, in collaboration with Greg Norman and in partnership with the Westbank First Nation. We feel compelled to put context and perspective into Mr. Sutherland’s assertions with respect to our project.

The point of differentiation with our project, and the reason why our business model is very sound, is that we recognized and directly addressed the challenges faced by the projects named in the article. Apart from the stunning location of the Ponderosa property, and the diverse mix of product type that will appeal to all buyer demographics, our business model also has the following components:

1. Minimal Debt Model 2. Extremely well capitalized 3. Experienced development team and partners with a broad base of real estate and related business experience 4. Timing is perfect. We purchased the land at the right price and will be building the infrastructure at the right price 5. Our location in Peachland has many attributes not present in the projects referenced:

a) existing infrastructure with little offsite costs;
b) a social infrastructure that has 100 years of history;
c) a planned expansion of an existing community, not a resort development;
d) a golf course amenity has existed on the property since 1979

The article correctly suggests that the fundamental attractions to British Columbia and demographic trends will continue and will eventually lead to recovery.

Our commitment at Treegroup is to adhere to the principles which are the foundation of our business model and which experience demonstrates and the article correctly states are well founded.

Challenges yes but let us put context and perspective to B.C. real estate development – it isn’t just bust or bubble – it is a cycle, just as it is elsewhere, and we can and will succeed if we seek solutions to the challenges we face.

Sincerely,

Norman Porter
Chairmain and CEO
Treegroup Developments Corp.

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