Nicely done Globe!
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."
And what did Canwest publish today???
City considers releasing Olympic Athletes Village information
VANCOUVER - Vancouver council will consider a request today to review and release all in-camera reports, minutes and motions relating to the Olympic Athletes Village.
Councillor Geoff Meggs told Mayor Gregor Robertson's office that he's already asked Frances Connell, the city's director of legal services, to review all of the documents relating to the development and determine whether they can now be made public.
Staff in Robertson's office said Meggs wants to stop the incessant leaks that have spilled out over confidential dealings around the city-backed development.
The request comes as the city's external auditors, KPMG, work to finish a review of all of the decisions and transactions behind the
$1 billion development.
The auditors are expected to file their report to the city by the end of January.
Crucial reports have already been leaked relating to the last council's decision to give project lender Fortress Investment Group a "completion guarantee" and Millennium Developments a $100 million loan.
Those documents have already been posted to The Vancouver Sun's website at
www.vancouversun.com/insidetheolympics.
[email protected]
© Copyright (c) The Vancouver Sun
Vancouver should directly finance Olympic Village project: city report
Vancouver Sun
Vancouver city staff are recommending that the city begin making plans to directly finance the Olympic Village project after current lender Fortress Investment Group has cut off funding.
A report authored by director of finance Kenneth Bayne outlining the city's financial options in the project is being put to council today.
It recommends that Bayne be authorized to start talking with potential lenders "to put in place a flexible, revolving bank facility with a term of up to four years." It also recommends the city fund construction costs due next month, as negotiations with lenders may not be in place on time.
The report explains that Fortress has said it won't lend beyond its current $317 million commitment under the current deal.
"The lender has indicated that going forward, their involvement will result in a higher interest costs and/or in a smaller loan facility," reads the report.
"As a result, the developer and/or the City will have to identify the balance of the project financing from alternative sources."
Comments from city manager Penny Ballem in the report note that directly financing the project is a "highly unusual role for the City," and adds that it could mean a lowered credit rating and higher borrowing costs for the city.
© Copyright (c) The Vancouver Sun
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