LANSDOWNE: A Bad, Bad Deal For The City: BENN



Show me the money is Hollywood. The investment community knows that they have to follow the money.

So, where is the money coming from and where is it going to?

The public elements of Lansdowne 2.x will be funded by the city. Bits and pieces might get tossed in for other sources, but the lion’s share of the now projected $420ish million will come from city coffers. Today, tomorrow and well beyond the expected remaining years of most members of council. Not their term in office. No, their time on the planet.

The air rights, cited as $39 million, represent less than 10% of the total project cost. Of that, almost $4 million will be redirected to affordable housing, leaving about $35 million to put against the public elements that are presented as being the key attraction to living in Lansdowne.  Who is paying for these air rights? All indications are that it will be one or more of the developers that run OSEG. The rest of that $385 million will be paid by the city.

But here’s what isn’t being talked about down on Laurier Avenue. The city isn’t building this renovation to the renovation. No. OSEG is the sole sourced project manager.  And project managers get paid for their services.  The bigger the project, the more the project manager earns. How much will OSEG get for its project management services? That would be a question that a prudent councillor or thirteen might want to get on the public record. Even if the answer is “Sorry, but confidentiality clauses preclude us from giving you the information you require to perform your statutory duties.” Or words to that effect.

Council Doesn’t Represent OSEG, The Mayor, City Staff: THE VOTER

Next up. Two, or maybe three residential towers. Built by one or more of the developers that run OSEG. How much will those cost? Don’t know. And, quite frankly, it doesn’t really matter.  What the investment community knows is that once these towers are completed and occupied, they will be worth a lot more than it cost to construct them. How much more? Again, it doesn’t really matter. What does matter is two fold.

First. The towers will not be built unless the city spends $420 million on the public elements.

Second. The profits go to the OSEG partners.

Nothing in this has even the remotest resemblance to a good business deal for the city.  What does the city get In exchange for providing the key asset, notably land in a desirable neighbourhood for less than 10% of the project cost, and paying for all of the enhancements.  OSEG is offering the city the opportunity to participate in the distant future profits. Not the short term profits to be scored on completion of the towers. Those are the high probability profits, making them the most valuable.

Ernst and Young state in their report that the profits to be generated by the public elements are on the optimistic end of the spectrum. The investment community is less euphemistic in its language. It would refer to OSEG’s projected profits as low probability. Which equals high risk. And high risk deserves high returns.  But there aren’t enough long term profits to cover the risk adjusted returns that Lansdowne 2.x has built into it.

To sum it all up. OSEG gets the short term, high probability profits in the form of the project management fees and the uptick on the residential towers. Higher probability profit over a shorter time period. Gold star material from the perspective of the investment community.  The city gets to write cheques with the illusion of participating in the lower probability profits that might appear over the longer term, if everything goes just right. What would the investment community call this? Nothing that they would dare say in front of their grandmother.

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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1 Response

  1. John Langstone says:

    Great article Ron. To me this is just Lansdowne 1.0 all over again with over double the financial exposure for the City. Sadly, what do you think the chances are that City Councilors will understand this by the time they vote this week? A week where we are busy cutting public transit to save money.

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