City Might Recoup Its Lansdowne Money In 147 Years

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At the current rate of revenue obtained through the Lansdowne waterfall agreement, the City of Ottawa should recoup all of its $211-million investment in the project in 147 years from a private consortium with which it partnered in the redevelopment.

Financial figures obtained from the City of Ottawa by The Bulldog this week show that in the first three years of the waterfall agreement, the municipality received $1.43 million in each of the first three years of the project.

“To date the only revenue accruing to the City is the L1 – Additions to Lifecycle Fund. $1.427M is accruing each year, and so from 2015 to 2017 we would have accrued three year’s worth, or $4.281M,” said Isabelle Jasmin, the deputy city treasurer this week in an email to The Bulldog.

A report from Gordon McNair entitled “Lansdowne: a success story of redevelopment in the heart of Ottawa” showed the City of Ottawa poured $211 million into the project.

Those costs included:

  • $167 million for renovating the stadium, arena and the municipality’s share of the parking garage. The city secured air rights over the garage and the retail area;
  • $44 million for the construction of a park on the site.

The McNair report praised the agreement between the city and Ottawa Sports and Entertainment Group:

“Significant due diligence was required to complete the Project Agreement between the City and OSEG. It sets out the financial and other fundamental elements of the relationship between the parties for the project and provides a framework for the development-specific agreements, including the stadium and retail leases and multiple reciprocal agreements between the components to achieve synergy as one redeveloped site.”

While the municipality continues to own the land in the historic location, OSEG is leasing the property at a nominal fee for 30 years with two 10-year options. The land prior to the redevelopment was one of the most valuable undeveloped properties in downtown Ottawa.

The $167 million used to refurbish the arena provided homes for sports teams such as the Ottawa Redblacks, Ottawa Fury and the Ottawa 67s. At present Mayor Jim Watson has not been asked for money for a new home for the Ottawa Senators on LeBreton Flats. However Watson has refused to pay half the costs for remediation of polluted land on which the Senators would develop despite the fact that it is city policy to do so when developers build on such brownfields.

Watson justifies this stand by saying that the City of Ottawa should not support professional sports teams despite pouring tens of millions into Lansdowne.

As well, the Lansdowne partnership has put the city in a double-barrelled conflict of interest. First, developers behind OSEG routinely come to the City of Ottawa for project approvals unrelated to the Lansdowne deal. Second, the city, as a partner with OSEG, is in direct competition with the Ottawa Senators in the sports and entertainment business.

So Watson, as the sole negotiator for the City of Ottawa in the LeBreton arena deal, would see added competition for its partnership from the Senators at a downtown location. Accordingly the mayor, the sole negotiator for the city, is dealing with the top competitor of its Lansdowne partnership not just in the marketplace, but also in planning approvals and related issues.

Interestingly in an unrequested piece of information from the city sent to The Bulldog, the $1.47 million in revenue received annually by the municipality does not go directly to the City of Ottawa. In fact, that money goes to a fund used to maintain city properties on the site.

Outside of the Lansdowne agreement, the city has earned about $1.6 million over the past 3.5 years from its properties on the site including the Aberdeen Pavilion and the Horticultural Building, said city facilities general manager Dan Chenier in an unrequested email to The Bulldog. These revenues are outside of the closed Lansdowne deal, according to the city.

The McNair report points out that in the extremely complicated deal, “The city is entitled to share financial returns on the income generation of the retail component through a ‘closed financial system’ beginning in the 30th year and the city is entitled to 50 per cent of the net revenue produced by the retail element.”

With so little revenue being generated for the city in its Lansdowne partnership, it might explain why the municipality and Watson are so hostile to more competition from its chief rival in the sports and entertainment field the Ottawa Senators with a much-improved location at LeBreton Flats over its current Kanata site.

 

 

 

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9 thoughts on “City Might Recoup Its Lansdowne Money In 147 Years

  1. I’m very sad to know that the partners in this venture will all have to wait nearly two lifetimes to get their money back from the Lansdowne investment. :-(
    What’s that you say? The only partner that’s in this long-term recovery that is on the slow path is the city? How can that be if this was a balanced partnership with returns made on the basis of what you put in? Are the other partners only going to get their 50 per cent of the income from the retail section starting in 30 years?
    I’d be interested to know if that $1.4 million each year covers the city’s expenses from running the facilities it’s applied to. In other words, have we paid for facilities that are now costing us money to operate on an annual basis? Does the income OSEG gets from Lansdowne cover their ongoing operating expenses? After that’s done, how much does it contribute towards recovering any capital they put on the table?
    I guess we’re discovering that not all waterfalls look like Niagara.

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  2. “The $1.47 million in revenue received annually by the municipality does not go directly to the City of Ottawa. In fact, that money goes to a fund used to maintain city properties on the site.”

    What a sweet deal for the property owner. It’s like if the bank directed my mortgage payments to maintain my house.

    2+

  3. A few points (nothing that I haven’t actually read the report from the city so I don’t know what it covers in its entirety):

    1) Because this money is going into the life cycle fund, it is not going against the initial investment so there has been no recoup of money on the initial investment yet. This is the money that is supposed to be available to maintain the assets such as the stadium.
    2) The initial investment by the City is increasing by about 3-4% each year because the City is paying interest on its bond.
    3) No one has even mentioned the time value of money.
    4) The original projections didn’t see much money going to the City in the first few years so they may be on track with this minimal return.
    5) No mention of the tax revenue which the City tried to claim as all incremental and which was going to help cover the City’s debt.
    6) What is the likelihood that a City employee is going to write an objective report on the project when the report is being prepared in-house. I would suspect anything critical would be a career limiting move and not understood by most of the councillors anyway.
    6) At the time this deal was going ahead, many people opposed PPPs on a philosophical basis (partnerships with the private sector are inherently evil), but little was said about how this type of partnership would put the City into a conflict of interest when approving any comparable type of development. Perhaps, this should have been the basis of the court case.

    5+

    1. Lorne:

      This is an outstanding comment.

      I think this probably because I agree with everything you said.

      A couple of things listed here are avenues I’m pursuing for following articles.

      This is bigger than the both of this.

      There are so many ways to follow this, I’m starting to write them down so I don’t forget them.

      This is huge.

      cheers

      kgray

      1+

  4. The $211 million, if funded with debt, costs more in interest expense (each 1% of interest rate on the city bond equates to over $2 million per year) than the $1.4ish million per year that the city has accrued, as contrasted with received from OSEG. For those without a background in accounting, an accrual is how one accounts for funds due from a borrower, but not yet received.

    1+

    1. Ron:

      Thank you for this.

      I knew the interest was in the equation but my puny little mind just didn’t know how to work it in with the limited time I had to write this for fear the other media would get it. Word travels around city hall pretty fast when a journalist has got something. Got to publish fast. And I didn’t release the story until 2 a.m. so that other journalists couldn’t slip a short story into their own publications on this.

      It is fun however. The Citizen this morning is praising the principals behind OSEG while The Bulldog has this. The perfect storm if you are a journalist.

      As for my math, my Grade 13 teacher (you remember Grade 13 don’t you?) said on my report card: “Ken worked very hard for his A in math. He should not take mathematics in university.” He was right. That said, I can add up long columns of figures correctly two out of three time.

      Anyway, thank you for this.

      cheers

      kgray

      1+

  5. Thank you Mayor Jim Watson and council, or should I just be thanking municipal employees as they seem to be the ones calling all the shots at city hall.

    Time for big changes people. October is coming quickly.

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