Auditor Should Probe Lansdowne Analysis: BENN

05/22/2023

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A sensitivity analysis involves “playing” with the variables or assumptions in a business forecast to see how sensitive the financial elements of a business case are to small changes in key variables.

The objective of performing sensitivity analyses is to determine whether a project should proceed, or not, and what the minimum expected return on investment should be. Very simply put, if the viability of the project is sensitive to minor changes in key variables, then it should be viewed as high risk, and the expected return on investment should be adjusted upwards. On the other hand, if the decision to proceed with Lansdowne 2.0 has already been made irrespective of the outcomes of the sensitivity analyses, then aside from generating material for the political spinmeisters, it is just a waste of everyone’s time.

As it relates to the financial projections for Lansdowne, the key variables vary by space designation. There are a wide variety of types of spaces in Lansdowne and different risks to holders and owners.

There are the city-owned amenities, notably the stadium, arena and event rental spaces. The city should have sufficient data from the last decade or so of Lansdowne to project the number and types of events, and the rents they charged. They may need to adjust downward for some types of events, such as national curling bonspiels if the Ottawa Senators build an arena at or near LeBreton. This area of business is unlikely to be affected materially by minor changes to key variables.

Show Me The Money At Lansdowne

The cost of demolition and construction for the new arena and replacement north stands is likely quite sensitive to cost variables. The history of cost overruns “hosted” by the city is too long to list, but the major overrun on the as yet-not-built central library should be top-dead-centre on every list that a responsible city staff would provide to council.

It appears that one or more of the Ottawa Sports and Entertainment Group partners will own the residential towers. However, one of the talking points by the city regarding Lansdowne 2.0 is “affordable housing” … a term that is bandied about by so many self-interest groups so much that it no longer has any meaning. Affordable to whom? Will the units be of sufficient size to accommodate a household of four, or will they be the standard one-bedroom-plus-a-den in a nook-in-the-wall bird-cages that are being built throughout the city? Affordable due to what level of subsidy? Is the subsidy based on an escalating rent charged by the building owner? Who pays that subsidy and who gets the cash?

The number of units will be set aside for affordable housing and the subsidy per unit are the key variables for the city’s sensitivity analysis, because rest assured the city is paying the subsidy and who is getting the subsidy is one or more of the OSEG partners.

The retail and commercial space at Lansdowne 1.0 is owned by one or more of the OSEG partners. It is understood that the occupancy rate for retail space has been underwhelming, but probably in line with the rest of Ottawa. The commercial space for Lansdoome 1.0 has been a disaster. Very low occupancy has, apparently, resulted in recurring cash calls to the OSEG partners.

Hold A Provincial Inquiry Into Lansdowne: WHOPPER WATCH

Given that the retail and commercial space is owned by OSEG, the only reason this should matter to the city is that retail and commercial space is an integral part of the structure of the replacement north stands. That impacts the construction costs that the city will bear either in whole or in part. If there is no viable business case for incremental retail or commercial space, can the construction costs of the north stands by pared back?

In any event, for the commercial and retail space, the respective vacancy rates and effective rents per square foot. Note that the two variables are linked. The higher the vacancy rate, the lower the effective rent (i.e. discounted rent to induce occupancy).

Prudent councillors might want to insist that the city auditor general review the sensitivity analyses prepared by staff who are already publicly supportive of proceeding with Lansdowne 2.0.

Ron Benn, a finance executive, has been a member of the Centrepointe Community Association for the better part of three decades.

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Been There says:
05/22/2023 at 12:00 PM
If Benn’s excellent analysis doesn’t open council’s eyes nothing will. It should be required reading for them before any discussion is held on what staff are presenting. The city is crumbling before our eyes because of the neglect that occurred during the Watson era . Now is the time to invest in infrastructure , not to continue lining the pockets of developers.