Finally some decent reporting about the Village by Canwest....only 4 weeks too late, the damage has been done.
Critics of Olympic Village deal are spouting nonsense: Sam Sullivan
By Don Cayo, Vancouver Sun
January 30, 2009 10:31 PM
Critics of Vancouver city council’s role in the Olympic village are spouting alarmist nonsense and taxpayers should relax, says former mayor Sam Sullivan.
Despite at least $125 million in cost overruns and the unexpected need for the city to underwrite up to $850 million (the project’s full cost),
“It won’t add a dime to your taxes,” Sullivan told me in an exclusive interview.
“In fact, it’ll come to be seen as a marvellous legacy — the greenest housing development anywhere. And in the end it will make hundreds of millions of dollars for the city’s Property Endowment Fund.”
The four-term councillor and one-term mayor, who did not re-offer after losing his party’s nomination, had told me in an earlier private chat that he was delighting in being out of the spotlight. He has been planning his next career move — he isn’t saying what, other than it’s not politics — and catching up on the reading and other intellectual pursuits that he had to set aside when he won the mayoralty in 2005.
He’s back into the fray with this interview and an article he wrote for the new city caucus website —citycaucus.com — because, he said, he wants to reassure citizens and defend staff and workers who planned and are building the site.
“People are conflicted when they hear my take on it after listening to the noisemakers and seeing the headlines,” he said. “But I’m telling everyone it’ll have no impact on taxes: Zero.”
The reason? City hall conducts its business with two pools of money. Its operating budget has a one-year horizon — taxes in, services out. But the timeline for the multibillion-dollar Property Endowment Fund is decades. And that’s where the financial hit — if condo prices don’t recover in time to produce a profit — will be absorbed.
Sullivan noted that when he was first elected in 1993, this fund was worth just over $1 billion. Today it’s almost $3 billion thanks to a strategy that not only turned a profit, but also turned City Hall into Vancouver’s largest landowner and developer. And it helped finance countless worthy amenities, including thousands of social housing units.
If the whole Olympic village deal turns into a dead loss — an almost inconceivable outcome as it would mean zero value for hundreds of new waterfront condos — the upshot, he said, would be that the fund’s profit over the last 15 years would total just $500 million instead of $1.5 billion.
A more realistic risk, he said, is that the current slump in condo prices and sales could pare the fund’s 15-year profit from $1.5 billion to something in the range of $1.3 billion.
“And how many cities would just love to have that problem?”
Still, I noted, some critics argue that governments should not be involved at all in the business side of development. He responded that, if this were the case in Vancouver, the city could never have accumulated the huge endowment fund it uses to finance its big projects.
Sullivan also argued that, when the Olympic village costs are tallied, it’s unfair to count all of the roughly $300 million the city invested in site preparation. This included not only things such as roads and utilities, but also shoring up the land itself so it won’t slide into False Creek.
The Olympic village, he said, will occupy only about a sixth of the developable land that benefits from this work. So this cost must be apportioned to future projects, as well as the one under way now.
Sullivan noted that he no longer has the benefit of briefings and research from city hall staff, and
he didn’t know why — if the picture is still essentially rosy — the city’s credit rating has been put on watch by one agency and down-graded by another.
“One reason it was so high in the first place was the Property Endowment Fund,” he said.
And now, “Maybe it’s the headlines. They [ratings agencies] read this stuff, too.”
But he returned again and again to the quality of the development — the 50-per-cent parkland, the mix of market and non-market housing, the quality of amenities, the completion a 22-kilometre walking and bicycle path — to underscore his faith that the Olympic village is near-certain to turn a profit over time.
And the endowment fund will also be an asset long into the future if it’s managed properly, he said.
“Most cities cannibalize their land holdings and use them to subsidize taxes,” he said. “If our city councils continue to have the discipline to protect these assets, we’ll have future city councils that are able to do equally impressive projects.”
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Millennium speaks, says the job will get done
GARY MASON
[email protected]
January 20, 2009
A tight construction timeline on top of Olympic obligations it assumed from the city of Vancouver put the builder of the controversial 2010 athletes village in a tough spot before a single nail was pounded, says the owner of Millennium Development Corp.
In the company's only interview since controversy around the Olympic village erupted anew two weeks ago, Shahram Malek outlined for The Globe and Mail the series of challenges he says his company faced while building a mammoth, politically sensitive development in the throes of what may be a once-in-a-lifetime recession.
One of the first snags Millennium faced concerned financing, which became difficult to secure because the city maintained title to the land.
"Because of the undertaking it made to VANOC [the Vancouver Organizing Committee for the 2010 Games] the city put fairly onerous restrictions on the land," Mr. Malek said. "And because of those commitments it didn't want to turn over title. For a typical project it takes six to nine months to get bank approval for a loan. We talked to Canadian lenders and others and the first thing they said to us was: 'This title is not financeable.' "
There were banks still willing to work with Millennium, but they wanted to syndicate the loan - divide it among a number of institutions.
"They couldn't or wouldn't do the whole thing and that was a key issue," Mr. Malek said. "But we didn't have time for syndication because it would have taken nine months to a year that we didn't have. It may have been easier if we had title, but that was not something the city was prepared to give up because of its commitments to VANOC."
With the clock ticking on the project, Millennium was forced to turn to New York hedge funds, known for assuming riskier projects at higher interest rates. Well aware of the desperate situation that Millennium was in, Fortress Investment Group agreed to advance a loan of $750-million at a staggering 11-per-cent interest rate.
Did Fortress gouge Millennium, knowing it had few, if any, options available?
"That's one way of looking at it, but we've never seen it as people extracting something from us or having us over a barrel," Mr. Malek said. "If we had not had the timeline issue we would have had time to negotiate a better deal, prime plus 1 or 2 per cent. We would have made each phase subject to presale, which is standard. You build one building, get the presale, then build the next.
"We didn't have that option here. We had to build all the buildings at once, regardless of presale, which is another thing that concerned the banks. So Fortress agreed to help us out."
Far from being the disaster for taxpayers that it's being portrayed, the city's agreement with Millennium was "brilliantly" negotiated by its staff "because every single obligation the city had [to VANOC] has been passed on to a private developer."
For instance, Mr. Malek said, there are "carrying costs" incurred during the six months the condominium units will be in the hands of the athletes and the International Olympic Association. Those costs include protecting assets, such as granite countertops and some of the other high-end finishings.
Millennium had to put in carpet, which it will have to rip out and replace with hardwood floors after the Games. To satisfy IOC security standards, extra elevators and stairwells had to be added to all the buildings in which the athletes are staying.
"We estimate that those carrying costs, including interest charges, add up to about $70-million," Mr. Malek said. "Those are Olympic-related costs we are assuming."
When you throw in the costs for soil remediation and site cleanup - about $25-million, which Millennium thought the city was paying for - and the price tag associated with the city-mandated edict that the complex be built to the top environmental standards in the world, Mr. Malek estimates Millennium has spent almost $130-million - on top of the nearly $200-million it paid for the land - on areas that technically should have been covered by the city.
"In total, that's almost $330-million the city is getting first before we get a cent," Mr. Malek said. "It's a sweetheart deal for the city."
Addressing a host of other issues, the developer said:
When looking at what the yet-to-be-sold condominiums (about 475 out of a total of 737) might sell for, you can't look at what they would fetch on the market today. "You have to look at maybe two, three years out. We haven't moved our waterfront properties yet. We will easily sell the remainder at a price that will allow us to break even in the worst possible scenario."
All of the funds built into the budget to cover interest charges may not be needed.
The city and taxpayers are well secured. "What we can assure taxpayers is that any money we've borrowed on this project is secured in terms of the value of our asset and other guarantees we have made. Taxpayers will not lose a cent, I guarantee you."
Millennium does not regard the $100-million loan the city advanced the developer in October as a bailout. "There has not been a bailout ... I think everyone recognizes no developer is a bank and the financial environment is very different than what it was two, three years ago. I was talking recently to one of the largest developers in North America who is having a hard time raising $50-million in a line of credit."
"We are still the developers on this project," Mr. Malek said. "We are convinced 110 per cent we will complete it and the value is going to be there. It will be a profitable situation. People need to believe in us."
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