Vancouver, the Developer

Vancouver Sun

Commentary

The City of Vancouver has effectively become the real estate developer responsible for the delivery of the Olympic Village to VANOC for the 2010 Games. The original developer Millennium was unable to secure financing, and meet the original project specifications. By buying out the original financing, and putting in place new oversights, the city has wrestled this potential disaster to the ground. The only remaining issues would be the accountability and profitability of the project. Millennium is just the general contractor now, for a half-billion dollar project. With the necessary oversights and periodic detailed inspection, the Olympic Village may yet become a proud and lasting achievement, a legacy from the 2010 Olympics.

Mayor Gregor Robertson and his City Council delivered on one of the campaign promises.

Excerpts

The City of Vancouver has bought out Fortress Investment Group's financing of the $1 billion Olympic Village, city officials announced Wednesday.

The city confirmed it bought out Fortress on Wednesday for a total of $319,494,235. It paid a $4-million buyout fee but says Fortress started at $56 million, went down to $19 million and finally to $4 million.

City manager Penny Ballem said the deal allowed the city to cut out high interest rates charged by Fortress.

The city now has a $400-million line of credit with Bank of Montreal, the city's bank since 1886.

The bank is charging 3.25 per cent, far under the 9.5-11.5 per cent Fortress wanted.

Ballem was meeting with council Wednesday morning to tell them arrangements have been made to assume the $750-million loan Fortress made to Millennium Developments.

In October Fortress stopped advancing money to Millennium for its monthly construction draws after it claimed the developer was "out of balance" on its loan requirements. That forced the city to borrow $100 million from itself to pay the monthly draws and provoked the council into asking the provincial government for special legislation allowing it to borrow an unlimited amount of money in order to consider removing Fortress as the lender.

The city says the current estimate of total financing needed is $690 million. That includes $322 million to buy out Fortress, $292 million on remaining construction advances, and $76 million in interest and financing. The city says that leaves $330 million in estimated available working capital.

"Wow, what a rollercoaster!" said Coun. Brent Jang. He worried that Millennium now might shift costs on its market project over to the city social housing side.

Ballem said the city is aware of the potential and has quantity surveyors on site to make sure oosts are fairly meted out.

Ballem said the city will begin negotiations with Millennium later this week and that most of it will relate to interest rates the city will charge the developer.

Coun. Raymond Louie said he was concerned that there would be a "fire sale" of units by Millennium and wants the city investments through the loans protected.

Ballem said the city won't be allowing a fire sale and she doesn't believe Millennium wants that either.

Ballem said many of the units are on schedule but there are several buildings giving Millennium trouble.

She said the construction companies have been hiring more workers to get the buildings on schedule.

Ballem said the community centre portion of the project is being revised.

The decision to buy out Fortress came a day after council was told that the social housing component component costs had risen from $65 million to $110 million.

Ballem said Millennium is currently being charged 9.5 per cent on the money it got through Fortress, which is now owed to the city. It also is being charged nine per cent on the $133 million in protective advances the city made to Millennium since Fortress stopped advancing money in October.

Both COPE councillors David Cadman and Ellen Woodsworth hinted in council that they don't want the city to pass on to Millennium the low interest rates it can get with its credit rating.

Cadman said he thought the city should charge a rate that reflects the new risks it has now assumed.

Ballem said these are difficult times for any developer and Millennium is doing what it can. She said a real estate advisory committee recommended the city keep Millennium as the developer.

Coun. Heather Deal said it was a relief for the city to be out from under Fortress's completion guarantee.

Ballem said the restructuring will likely save the city $100 million in financing and construction costs. She noted the $4 million buyout fee equated to two months' interest on the Fortress loan.