A really great landlord

I have already noted that the City of Ottawa is a wonderful landlord in its arrangement with OSEG. No rent is expected from the tenant until all of the tenant's other obligations have been addressed -- that is the nature of the City's "deemed equity" in the Lansdowne Partnership Plan: wait and get nothing until your partner is taken care of.
But it gets even better! City Council has just agreed to give the Ottawa 67's hockey club a cool $500 thousand per year for two years in which the 67's are to play at Scotiabank Place rather than at Lansdowne. The hockey team is being asked to move out so that the construction work at Lansdowne (including the long overdue repair of the leaking roof over the arena) can go ahead.
Nowhere in the staff report presented to Council is it suggested that the City is obliged to make any payment to the 67's. There is no mention of a lease that is being broken. Apparently the practice is simply that the City grants half a million dollars whenever it feels like it.
But the staff report is quite enlightening in what it does say about the relationship with its hockey team tenant. Because the 67's will be elsewhere, the City will not be receiving $150,000 in rent per year from the 67's organization. This is the first time I have seen a figure quoted; I have often wondered why Councillors have not asked how much the 67's are paying to use the Civic Centre.
The $150,000 figure is interesting because when the 67's are to return to Lansdowne, their annual rent will drop to $100,000 per year. (Want to check these figures? For the 150k, look in the staff report dated Feb. 8, 2012 called LPP implementation status update. For the 100k, go back to the Price Waterhouse "Business Plan for Transformation" dated Sept. 1, 2009.)
So when the City of Ottawa is your landlord, after spending millions fixing up the arena, the tenant is given a 33% discount on the rent. Isn't that wonderful?
And it gets even better. Where does the rent go? Here it is very difficult to know since so many details are hidden away, but in all likelihood the rent goes into the infamous waterfall -- an arrangement under which nothing trickles back to the City until all the financial dreams of OSEG are fulfilled. In other words, until the City starts getting any money, the rent from the hockey club is going to OSEG, which owns the hockey club.
Do I know that the rent goes into the waterfall? No, this is a guess. But the guess is probably right because of the way the rest of the deal is structured. The Feb. 8 staff report makes it clear that all the revenue from the naming rights for the stadium and arena is to go into the waterfall.  This is unusual. Normally the naming rights money would go to the owner of the building -- not in this case. Thanks to the clever negotiating skills of the City, the owner of the building who pays 100% of the renovation costs, the revenue from the naming rights will go to OSEG for years and years before a penny comes to the City.
Yes, if you're the right tenant, the City of Ottawa is truly a splendid landlord.

Lansdowne Park - monument to neglect

On Friday night, hockey had to be cancelled - the roof was leaking. The 67's had to wait until Saturday afternoon because water was dripping into the Civic Centre - not just into the seats, this time the water was leaking onto the ice surface.
But water infiltration was nothing new, the City of Ottawa has known for years about the problem. Why has nothing been done?
For some reason, there are people running the show at City Hall who think that you have to build a supermarket before you can fix up City assets at Lansdowne Park.
Some of those people claim that the legal case brought by the Friends of Lansdowne has delayed needed maintenance at Lansdowne. This is nonsense. The City is at perfect liberty to go ahead and fix up the roof of the arena.
No, it is the obsession that we must first build a subsidized shopping centre, that has led the City to continue its neglect of its assets at Lansdowne Park.

The City as financial victim

In my previous lengthy and complex posting, I outlined my understanding of the financial arrangements in the Lansdowne proposal. I have many questions and objections about such a deal.

First off, there is no value attributed to the land or the existing physical plant, both of which are being turned over to OSEG under a long-term lease. The land is definitely worth something and it is being made available for the construction of commercial buildings. There is no indication that the owner of the land receives any rent. In addition the existing stadium and civic centre may need to be rehabilitated, but they do have value. Again no rent is being paid.

I cannot understand why the City’s equity in the partnership is deemed to represent only 20 million dollars. This is an remarkable understatement of what the City brings to the partnership proposal. Not only is the City providing the use of the land and the current physical plant, it is also investing 129.3 million dollars in the rehabilitation of the stadium & civic centre plus construction of parking facilities.

By ridiculously understating the value of what the City brings to the table, the partnership arrangement represents a significant transfer of wealth to the private sector partner at the expense of Ottawa taxpayers.

I fail to see any reason that net revenues should be distributed to OSEG (both return on and return of equity), prior to payment to the City. Why should the lesser investor be given preference over the greater investor?

In any event, OSEG is covering the cost of financing the retail element of the project prior to turning over any money to the "closed system". By contrast the City is on the hook for financing costs for 116.9 million dollars (and I will argue even more), prior to receiving anything.

Of course the first action of the new Municipal Services Corporation is to award the contract for the rehabilitation of the stadium and civic centre to OSEG. There is no question of competitive bidding so there is no reason to believe that the MSC will get good value for the 129.3 million dollars it proposes to spend.

Promoters of the Lansdowne partnership campaign (such as OSEG and various members of Council) have made much of the fact that OSEG is willing to take on the project (without competition) on a fixed-price basis. Somehow that does not seem very impressive. Does the City not normally seek definitive price quotes when it buys goods and services?

The proposal to establish a Municipal Services Corporation needs to be carefully examined. What exactly will be the role and responsibility of the corporation? How will the directors of the corporation be appointed?

The CFL football team is to pay annual rent of $300,000 for use of the stadium and the OHL hockey team is to pay $100,000 for civic centre. This money goes into the "closed system" so potentially much of this comes back to OSEG. Is this a stream of rental income that can justify $110 million investment by the City in rehabilitation?

All of these comments come directly from the documents presented to Council, but I have many more concerns. Those concerns spring from mistaken assumptions or from issues deftly sidestepped in the documents released to date.