New details emerge on conditions built into the financing arrangement
Jeff lee with files from Doug Ward
Sun
The City of Vancouver has authorized lending up to $100 million to rescue the financially troubled Olympic athletes’ village project, where construction activity continued Thursday. Photograph by : Ian Lindsay, Vancouver Sun
Only a third of the units in the Olympic athletes village housing development have been sold, but Vancouver officials remain confident that city taxpayers will not be left exposed because of rising construction costs on the $1.1- billion project.
Several new details emerged Friday about the complicated financing arrangements behind the 1,100-unit project that is at the centre of a political firestorm.
The Vancouver Sun learned Friday that when the city sold the 20-acre property to Millennium Development Corp two years ago for $193 million, it insisted on retaining ownership until after the 2010 Winter Games, which meant it also had to post a $190- million loan guarantee on behalf of the developer.
The city also required Millennium’s directors to put up extensive personal and corporate guarantees that could lead to forfeiture of other properties in the event they defaulted.
The deal also includes strict payment deadlines and forfeiture of the False Creek property to the city at any time for failure to meet any of those dates. And the agreement also stipulates that in the event of default the city could simply take possession without having to go through extensive court proceedings.
A senior city official explained the details to The Vancouver Sun as part of an effort to dampen concerns that have arisen in the wake of news that city council quietly agreed to give Millennium and/or its financial backer, Fortress Investment Group, access to up to $100 million more in loan guarantees.
Those concerns have spilled over into the political arena with less than two weeks to go before the Nov. 15 civic election. Vision Vancouver mayoral candidate Gregor Robertson said the city’s provision of such a large loan guarantee should have been discussed in public.
But his Non-Partisan Association counterpart, Peter Ladner, said such negotiations are so sensitive that he is worried the city’s bargaining position is being harmed and he called on Robertson to stop making this an election issue.
“If necessary I am prepared to lose this election to save this project . . .” Ladner said late Friday. “I have spent pretty well all of the day doing damage control on this leak. Every step I go, Vision Vancouver is piling on to this project and adding fuel to the flames.”
Ladner said “this posturing that is going on is costing the city’s taxpayers millions, it’s putting the project in jeopardy, it’s damaging the city’s finances and it’s got to stop.”
Robertson told The Sun he understands some aspects of the loan-guarantee negotiations need to be kept secret right now. But he said the leak of the information had damaged public confidence in the city’s control of the development and council needs to go public.
“If the United States Congress can debate in public a $700-billion bailout of the banking system, surely the city council should be debating plans to give a $100-million loan guarantee to a developer,” he said.
Millennium’s owners, Peter and Shahram Malek, declined to comment.
Ken Bayne, Vancouver‘s general manager of planning and services, would not talk about the agreement, which was made in an Oct. 14 in-camera council meeting.
However, he said the city has at every step of the way ensured it retains ownership of the land until Millennium pays back what it owes.
And he said the property has enough value, even in a declining real estate market, to cover any of the financing
“If Millennium defaults, the property goes to us,” Bayne explained. “We’re in a very solid position.”
Bayne said Millennium has so far received sales agreements on 265 of the 420 units it has put to the market. It has not yet put on sale about 300 units — all of them in prime locations in five buildings.
Bayne said the city retained temporary ownership of the land until after the Olympics because it had given the Vancouver Organizing Committee a guarantee the village would be finished in time for the Games. “We wanted to make sure that in the event the developer ran into trouble or defaulted, we could move in and complete the project,” he said.
Without owning the land, Millennium was unable to get regular construction financing. The city agreed to give Fortress the $190-million guarantee. Millennium put down a $29-million deposit and agreed to pay the city the balance of $170 million (including money owing on a related land transfer) by the end of 2010.
Cost pressures have escalated the construction budget by about seven per cent, or $70 million.
Bayne said Fortress is not in a position to lend Millennium any more money. Without disclosing any negotiations, Bayne said that if the city loans Millennium any money, the developer would still have to pay it back before obtaining fee simple title to the land by the end of 2010.
Once the Games are over, pre-sold units will be transferred to their new owners, Bayne said. Proceeds are first paid to Fortress, which is owed $750 million. The city is next in line, with Millennium coming last. If at any time Millennium defaults, the city owns the land and improvements, he said. Any shortfalls are covered under extensive personal and corporate guarantees offered by the Maleks.
Bayne said the deal is not risk-free and that the city’s exposure is dependent upon Millennium’s ability to sell its units. Although the market is softening, he said the property retains high value and the city isn’t worried about Millennium’s ability to sell all the units.
“This remains one of the most valuable pieces of residential real estate in the country,” he said. “We have no concerns the units won’t be sold.”
The development is part of a much larger plan to redevelop a 50-acre piece of city land between Cambie Bridge and Quebec Street. Bayne said the city will spend about $250 million in rehabilitating the land, servicing the entire site, building a community centre and social housing.
So far the city has spent about $120 million, he said, much of which is being financed through the city’s $1.7-billion Property Endowment Fund.
