Risk Factors

“Risk” refers to the possibility of loss of principal, or alternatively to a rate of investment return below expectations or requirements.

Dividend income investments such as securities of real estate investment vehicles are generally considered to be a more conservative investment than other securities, but these types of investments still carry a variety of risks that investors need to be aware of. Diversification can be a good way to minimize many of the risks inherent in real estate securities and is something you should discuss with your professional advisor. Before making investment decisions, investors should carefully consider whether investment products/services are suitable considering their financial position, investment objectives and experiences, risk tolerance, and other relevant circumstances. The following is a summary of some of the risks associated with High Castle Investment & Holdings (“High Castle”) that investors should understand.

The existence of material uncertainties may cast significant doubt on our ability to continue as a going concern.

The auditors have issued their opinion on the consolidated financial statements of High Castle. The opinion indicates that the consolidated financial statements were prepared with the assumption that the company will continue to operate as a going concern. The auditors have agreed with the assessment made by the management that continued operations are dependent on the ability to generate future cash flows from operations and acquire additional funding through external financing to support the business plans. No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to High Castle. Even if High Castle is able to obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its investors, in the case of equity financing.

There is no assurance that any Project will be completed successfully.

There is no assurance that the development and sale of properties (the “Project”) will be completed successfully. The potential return to investors depends on the revenues generated by the Project. However, there can be no assurance that such business activities will generate revenues sufficient to meet the return objectives of High Castle.

The Projects are subject to the risks associated with fluctuations in or the volatility of the Canadian real estate market, and specifically, the market for homes, townhomes, and condos. The demand for newly constructed homes, townhomes, and condos in Canada is affected by numerous factors, including, but not limited to, interest rates, inflation, availability of financing, mortgage rules, the supply of residential housing units, participation by foreign investors in the real estate market, and general economic conditions. The real estate market is subject to change, and there can be no assurance that demand for newly constructed homes, townhomes, and condos in Canada will not decline. A drop in the demand for, or increase in the supply of, homes, townhomes, and condos could materially adversely affect the Project’s viability, and, as a result, the Project could be temporarily delayed or canceled altogether.

Housing Market Regulatory Risks

Over the last several years, an unprecedented number of regulatory measures have been implemented by the federal, provincial, and municipal governments and financial regulators, in an attempt to ensure that the Canadian housing market is appropriately regulated and does not overheat.

Changes to the regulation of the Canadian housing market may result in potential purchasers being less willing to purchase residential real estate properties in various cities in British Columbia, and may result in lenders being less willing to lend to would-be purchasers of residential real estate properties in these areas.

Either of these factors, if it materializes, may reduce the pool of potential eligible homebuyers and indirectly reduce demand for newly constructed homes, townhomes, and condos in the Project, which, in turn, could materially adversely affect the Project’s profitability.

The Project will need a significant amount of capital to develop and sell the properties. Unless additional funding can be secured, the Project may be forced to discontinue its development plans and to sell to a third party at a loss.

The Project will not be able to fund its future capital needs from the Offering or from income generated from operations. The Project, therefore, will have to rely on a loan from High Castle or third-party sources of financing, which may or may not be available on favorable terms, if at all. In particular, a construction mortgage will be necessary to secure financing for the properties and servicing financing and construction financing will be required to complete the Project.

Interest rates may fluctuate during the term of the Project and thus affect the cost of borrowing and potentially the feasibility of the Project and the profits of High Castle.

Competition

The market for homes, townhomes, and condos in various cities is highly competitive, with numerous developers undertaking and marketing projects. The Project will compete with several real estate project developers in these areas. These developers own or may in the future develop and/or own developments that compete directly with the Project and may have greater capital resources than High Castle.

Limitations on Liability and Recovery of Damages

Should High Castle be required to defend or settle any claim for damages in respect of the Project, it could have a material adverse effect on the value of High Castle’s interest in the property and the Project, on the ability of High Castle to recover its capital contribution, and consequently, on the return on investment of investors.

Changes in Applicable Laws

The Project must comply with numerous federal, provincial, and local laws and regulations, some of which may conflict with one another or be subject to limited judicial or regulatory interpretations. These laws and regulations may include land use and zoning laws, building codes, land development regulations, utility and infrastructure requirements, and other laws generally applicable to the development of real property. Non-compliance with laws could expose the Project and High Castle to liability. Unanticipated changes in applicable laws could negatively affect the viability or profitability of the Project.

Risk of Change in Investment Return

There is no guarantee that an investment in properties will earn any positive return in the short or long term. The value of the properties may increase or decrease depending on market, economic, political, regulatory, and other conditions affecting the issuer. Investment in the properties may be more volatile and risky than some other forms of investments. The net income earned by High Castle at the end of each phase of the Project is expected to be distributed to investors, which net income may be insignificant or there may not be any net income at all for High Castle to distribute. If the income generated in the early phases of the Project is not significant, then High Castle may choose to dispose of the property or to repurpose the Project, in which case the distributions, if any, to investors may be limited or may not occur at all. Furthermore, subsequent offerings of properties or other securities of High Castle may have a dilutive effect and may negatively impact distributions to investors. All prospective subscribers should consider an investment in High Castle within the overall context of their investment policies. Distributions and any redemption obligations are not guaranteed by an independent third party.

In addition, the projected return forecasts are based on various assumptions and subject to a number of variables and other factors related to the Project. In the event that the actual outcome of these variables and factors are inconsistent with the assumptions made in formulating the forecasts, the forecasts will not be indicative of the Project’s actual financial results and the projected investor returns outlined therein will not be representative of an investor’s ultimate realized return. There can be no assurances that the forecasts will prove to be accurate, and investors may sustain a loss.

The Partnership May Have a Substantial Amount of Debt

High Castle may have substantial debt. This debt could result in the increased risk of potential insolvency of High Castle, which will have a significant material impact on High Castle and its ability to continue operations. It is expected that the lenders of any debt financing entered into by High Castle will, unless such lenders determine otherwise in their sole discretion, place restrictions on High Castle's ability to make distributions on the properties until such financing has been paid in full. In addition, lenders providing financing with respect to the Project may require that High Castle provide to such lenders security in the property and the Project and other assets of High Castle, to secure the indebtedness of High Castle under such lenders’ financing, which may further delay High Castle’s ability to make distributions on the properties.

Default on Indebtedness

If High Castle defaults on the repayment of any indebtedness, including unpaid obligations to builders, contractors, and tradespeople, or becomes insolvent, the creditors holding such indebtedness will be entitled to exercise available legal remedies against High Castle, including, among other things, preventing any distributions on the properties, declaring the full amount of such loans immediately repayable and exercising the right against the assets of High Castle, including the property and the Project. There is no assurance that there will be assets available to recover any portion of an investor's investment.

Encumbrances, Conditions, and Covenants on the Property

The property may be subject to encumbrances, conditions, or covenants that could negatively impact the completion and development of the property. The property may be subject to liens, mortgages, easements, and other similar encumbrances that may restrict the use of the property, limit access, or otherwise affect its value. Additionally, the property may be subject to various conditions or covenants that require the satisfaction of certain obligations or restrict the use of the property in specific ways. These conditions and covenants may impose additional costs or restrictions on the development of the property, resulting in delays, increased expenses, or even the inability to complete the Project. Therefore, you should carefully review all relevant documentation to fully understand the nature and potential impact of any encumbrances, conditions, or covenants before investing in the property.

Broad Authority of the General Partner

High Castle’s general partner is granted broad authority under the Limited Partnership Agreement to manage and control High Castle’s business, which includes the development of the property. As a result, investors do not have the ability to manage or control the property or to select a different developer for the property. This lack of control may result in decisions by the general partner that do not align with your investment objectives and could potentially lead to a negative impact on the performance of High Castle. Therefore, you should carefully review the Limited Partnership Agreement and associated documentation to fully understand the scope of the general partner’s authority and the associated risks before investing.

General Economic Conditions

The success of High Castle’s activities will be affected by general economic and market conditions, such as interest rates, availability of credit, credit defaults, inflation rates, economic uncertainty, and national and international political circumstances (including wars, terrorist acts, or security operations). The revenues generated by High Castle may be adversely affected in the event of disrupted markets and other extraordinary events in which historical pricing relationships become materially distorted. The availability, terms, and cost of mortgage financing and other types of credit may be less favorable in disrupted markets.

Limited Operating History

High Castle is a newly organized entity with no operating history. There is no assurance that High Castle will be able to successfully implement its business plans or operate profitably over the short term or an extended period.

Environmental Risks

Environmental legislation, policies, and standards have become increasingly stringent in recent years. Under various environmental laws, High Castle could be liable for the costs of abatement, removal, or remediation of hazardous substances present or released on, at, or under the property. The failure to abate, remove, or remediate such substances, if any, could adversely affect the ability of High Castle to sell the property or to borrow using the property as collateral, and any such failure could also potentially result in claims by private plaintiffs. In addition, enforcement actions could be taken against High Castle by governmental authorities in connection with such substances, including, but not limited to, fines and penalties and orders requiring High Castle to take steps to study, contain, stop, or remedy contamination. Such orders can be issued against property owners even in circumstances where those owners did not cause or contribute to the contamination.

Arbitrary Determination of Price

The sale price of properties was arbitrarily determined by management, having regard to the size of the offering and the Project’s anticipated financial needs, and is not necessarily related to the Project’s asset or book values, net worth, or other relevant criteria.

Nature of Trust Properties and Partnership Properties

Neither High Castle nor its subsidiaries will hold registered title to the property. Trust properties and partnership properties, in and of themselves, do not represent a direct investment in the property. As holders of trust properties or partnership properties, investors and limited partners, respectively, do not have the statutory rights normally associated with ownership of shares of a corporation, such as, for example, the right to bring “oppression” or “derivative” actions.

No Participation in Management and Reliance on Others

Investors will have no right or power to participate in the management or control of the business of High Castle and thus must depend solely on the ability of the trustee and the general partner, respectively, with respect thereto. In assessing the risks and rewards of an investment in High Castle, potential investors should appreciate that they would be relying on the good faith, experience, and judgment of the trustee and the general partner, as applicable, and their ability to manage the business and affairs of High Castle, as applicable.

Limited Marketability

There is no market for the securities of High Castle, and it is not anticipated that any market will develop. In addition, the Declaration of Trust and the Limited Partnership Agreement impose restrictions on the resale of trust properties and partnership properties, respectively. As a result, it may be difficult or impossible to resell the securities.