What’s the deal with city’s $100-million real-estate gamble?
Miro Cernetig
Sun
In a private meeting, city councillors authorized lending up to $100 million to help the financially troubled Olympic athletes’ village project, where construction activity continued Thursday. Photograph by : Ian Lindsay, Vancouver Sun
Could the Olympics bankrupt the City of Vancouver, or put it in a financial straitjacket for decades to come?
I’ve never even considered that as a remote possibility. Until now.
If one starts probing into the city’s deal — let’s call it what it is, a $1-billion real-estate gamble — for the Olympic athletes’ village, the alarm bells start ringing in full force. Vancouverites — that means us, fellow taxpayers — have been heavily exposed by our political leaders and public servants.
The basic numbers (at least the ones I can wrest out of the cone-of-silly-secrecy at Vancouver city hall) are these:
A few weeks ago, in a closed meeting, city councillors unanimously agreed to “help” Millennium Development Corp., which is building the Olympic village. The city will lend up to $100 million to Fortress Investment Group, a Wall Street hedge fund manager, which in turn will be lending about $700 million to build the athletes’ village on the south shore of False Creek.
Fortress, its stock price now trading at under $4 from its 52-week high of $19.50 — it dropped 12 per cent Thursday — has also been given $190 million in loan guarantees from Vancouver taxpayers. The executives at Fortress and Millennium probably feel pretty happy about how it’s working out. In the current financial meltdown, they’re backed by an entire city.
Taxpayers should be less thrilled. Total exposure per ratepayer? Probably in the range of about $2,000 apiece.
But it could get scarier. Lots scarier.
There are 15 months to go before the 2010 Winter Games start. The city, in an agreement with the local Olympics organizing committee, must deliver the completed 1,100-unit Olympic village by October. If it does not, serious financial penalties may begin to kick in.
What are they? Well, the city won’t say. Vanoc won’t say. That, too, is a big secret.
That culture of secrecy alone is disturbing. Two taxpayer-funded entities — which like to see themselves as corporations, but are in essence supposed to represent the public interest — refuse to say how high the financial risk is for taxpayers.
The city might face huge penalties. In the unlikely (though not impossible) event the whole house of cards collapses — with Fortress’s funding evaporating or Millennium pulling out of the athletes’ village — the consequences would be dire.
How on earth did we get to this precarious moment?
In the next few days, you will hear that it’s all the fault of the global credit crunch, that nobody saw the meltdown on Wall Street coming. But the truth is that Vancouver city councils — and senior bureaucrats — tossed prudence out the window.
The hard reality is they have exposed citizens by crafting a poorly constructed real-estate deal. Let’s put the risk in perspective: The nearly $300 million in loan guarantees, if fully drawn down and reneged upon, would represent about 30 per cent of the city’s annual budget.
You will also no doubt hear from our city leaders that you don’t have to worry. If it all goes bad, the city will take back the development, and then sell it off to cover any exposure
Oh, really? That will be quite the trick in what could be a multi-year downturn in the real-estate market. What are the lost opportunity costs of all this public capital?
The truth is Vancouver taxpayers have been let down. Our councillors will happily let the people in on their micro debates over the future of bike lanes, laneway housing and $173 transit fare fines.
But when it comes to the big stuff, they drop the cone of silence, go into in camera meetings and sign a deal that has left citizens at the mercy of a Wall Street hedge fund and the vagaries of the global financial crisis.
It’s time to lift the veil of secrecy. Let’s see the Olympic village deal in full.
