A report that the City of Vancouver stands to come up $40 million to $50 million short on its Olympic Village real estate investment is not surprising, nor is it the final word on the matter.
The Vision-led Council misled Vancouverites on Monday by not mentioning the nearly $180 million the developer hadn’t paid for the land. So the total loss on the project is at least $230 million so far.
We probably won’t have the final tally until the remaining 340 residential units are sold, the rental and social housing units are filled and the retail space is fully occupied.
Until then, the city will incur the cost of holding vacant units, strata fees, forgone property taxes, interest on the debt, an estimated $8 million in fees to the receiver, Ernst and Young, and a $5-million deficiency fund to repair leaks, mould, faulty wiring and other design and quality flaws that have tarnished the image of what was billed as the greenest housing complex in North America.
These deficiencies have spawned a lawsuit launched by owners of 62 units, some of whom paid more than $1 million for their suites. They claim the sales pitch misrepresented what they ultimately purchased. Some plaintiffs were under the impression they were buying from the former owner Millennium Developments when, in fact, the company was already in receivership and the city had assumed ownership. The city has said the suit is without merit and it will defend itself. Chalk up major legal costs, or perhaps a pricey settlement.
The Vision Vancouver-led council says the shortfall will not affect operations, or result in any tax increases, because the issues can be dealt with through the Property Endowment Fund. The fund, created in 1975, has grown in value from $100 million then to about $3 billion today. But dipping into the fund to cover bad investment decisions is akin to an individual raiding a registered retirement savings account.
Vision councillors have been playing the blame game, accusing the former Non-Partisan Association council of putting the city at risk by not doing adequate due diligence on Millennium. But the Olympic Village fiasco transcends political ideology. Councillors of every political stripe are responsible for bungling the file.
The city has acquired an assortment of Millennium assets put up as collateral in Vancouver, West Vancouver, North Vancouver, Burnaby and Toronto with a combined gross value of $82 million. But most are mortgaged, and some of those mortgages are under water -more is owed than the appraised value of the properties -bringing the net value to $45.5 million. This represents the amount that could be recovered on disposal, subject to competing claims by other lenders. In addition, a $5-million mortgage on a site at Bidwell Street and Davie Street and $6 million to $12 million of residual value related to restructuring of Southeast False Creek Properties Ltd. brings the total potential recovery to $56 million to $70 million.
These big numbers sound promising until they are put up against the size of the loan -$479.5 million -and the amount still outstanding on the payment for the land -nearly $180 million.
The sorry saga of the Olympic Village is a cautionary tale our politicians should take to heart.
As the largest landowner in Vancouver, the city can sell or lease its property as opportunities present themselves.
But a chastened city hall should leave real estate development to the developers.
Source: The Vancouver Sun