Move reduces taxpayer risk, gives Vancouver control of project, mayor says
Jeff Lee
Sun
Construction continues at the 1,100-unit Olympic Athletes’ Village on Wednesday. Photograph by: Ian Lindsay, Vancouver Sun
In a move it says will inject stability into the troubled Olympic Athletes’ Village development, the City of Vancouver on Wednesday bought out Fortress Investment Group’s high-interest loan to Millennium Developments.
The decision removes one major obstacle to getting the 1,100-unit village finished in time for the Vancouver 2010 Winter Olympics.
It gives the city access to substantially lower borrowing costs, which Mayor Gregor Robertson said has already saved taxpayers $90 million in interest.
But it also keeps taxpayers on the hook for about $700 million in loans Fortress and the city gave to Millennium, as well as money needed to finish the project.
At 10 a.m., the city paid Fortress the $319.4 million it was owed on the project, including a $4-million interest penalty fee.
The penalty was negotiated down from an initial $56 million as New York-based Fortress, which was hammered by the world financial crisis, decided to accept the city’s lower offer.
An hour later, city manager Penny Ballem briefed city council on the impact of the decision, saying the city is now in control of the project. “Basically, at this time we have now bought out Fortress,” she said.
In return, Fortress relinquished all rights to the project, giving the city control and eliminating a politically problematic “completion guarantee.”
The city is still obliged to deliver the Olympic Village in time for the 2010 Games. But it is now out from under another guarantee given to Fortress by the previous city administration, which required it to deliver market-ready units to Fortress by a certain date.
Robertson said the buyout has unhooked the city from terms with Fortress that had exposed taxpayers to extreme risk.
“We have gone from an agreement that clearly was not in the best interests of taxpayers to an agreement that puts Vancouver taxpayers first,” he said.
“The city was already bearing the full risk of the project with the completion guarantee to Fortress. This way we have control of the project going forward and we can steer it to more positive outcomes that benefit taxpayers.”
The deal was crafted after the Bank of Montreal, the city’s bank since 1886, provided a low-interest line of credit based on the city’s good credit rating. Vancouver used some of that money and also temporarily borrowed funds from the city’s working capital to pay off Fortress.
The city said it now intends to consolidate all of the financing into a single $700-million loan. It will issue a request for proposals for banks within a week. It still needs about $428 million to finish the project. Ballem said the city will negotiate a new interest rate with Millennium within weeks.
But there was little appetite among politicians to pass those savings on to Millennium. Coun. David Cadman said he didn’t think taxpayers should take all the risk with the loans and then pass on the savings to Millennium. Neither Ballem and Robertson could say what kind of rates the city will give the developer.
Millennium is currently paying 9.5 per cent on the Fortress loan, and 9.0 per cent on the $134 million in “protective advances” the city has given it since last fall.
The city has already received one offer from a bank, but will now seek competitive bids from others. Robertson and city finance director Ken Bayne said the refinancing won’t directly affect taxpayers because the project is essentially self-financing.
“At this time there is no direct connection between the financing arrangement we have here and property tax increases,” Robertson said. “This is all financed through our capital finance fund and our property endowment fund.”
He could not say what projects would be delayed because the city had diverted funds from its capital programs.
Shahram Malek, one of the owners of Millennium, said he was pleased with the buyout arrangement. “We’ve got this behind us now,” he said. “It’s a win-win for everybody.”
Hank Jasper, Millennium’s project manager, said he anticipated no problem getting the project finished in time for the Games.
“I’m confident the project is on schedule and will be delivered on schedule,” he said. “It’s been a bit frustrating that some people have used words like fiasco to describe this development, but the fact is, morale is high and people know they’re building something special.”
Ballem said much of the development is on time for completion for the 2010 Winter Games, but some buildings are behind schedule.
The developer and its construction contractors are hiring more workers to speed up work, she said.
“Wow, what a roller coaster,” said Coun. Kerry Jang, who questioned how the city found itself being both a lender and a property developer.
Coun. Raymond Louie severely criticized past city staff decisions, saying he thought they didn’t adequately warn council of the risk of the development when they agreed to underwrite the Fortress loan to Millennium.
He said he was also concerned Millennium would put units into a “fire sale” to generate cash, and he wanted the the city’s investments protected.
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