External auditors are questioning half the money the City of Winnipeg spent on property expropriations required to build the first phase of the Southwest Transitway.
In 2008, city council approved a plan to spend $12.7 million to acquire 11 pieces of land needed to build a 3.6-kilometre bus corridor running from Queen Elizabeth Way near The Forks to Jubilee Avenue at Pembina Highway.
While the $138-million project was completed on budget, the expropriations wound up costing the city a total of $18.2 million, or $5.5 million more than transit and property officials expected.
The increased cost was due to the $3.36-million acquisition of the Midtown Car Wash on Donald Street and the $5.75-million purchase of Pembina Highway used-car dealer Autotown, which was handed over to neighbouring Pembina Chrysler to compensate the latter business for the loss of about one-fifth of its parking lot.
"The increased cost is primarily attributed to the long-term business-disruption costs associated with a partial property-taking," transit officials noted in a 2010 financial-status report.
Now, both of those transactions -- and the $9.1-million combined expenditure -- have come under the scrutiny of Winnipeg's real estate management review, which will come before city council at a special meeting on Wednesday.
In a report made public last week, consulting firm EY noted the city relied on an appraisal commissioned by Autotown's owner to come up with the $5.75-million value of the Pembina Highway land and the business operating on it.
While property officials said a certified appraiser came up with this figure, the appraisal could not be found in city records. EY concluded they couldn't say whether the $5.75 million was money well-spent.
"As the file did not contain the appraisal, it is uncertain if value for money was achieved," the auditors wrote.
Pembina Chrysler owner Bernie Clement said Monday it may have been far less expensive for the city to buy out Autotown than it would have been to buy out his much larger business.
The auditors also questioned the rationale for the full expropriation of the Midtown Car Wash when Winnipeg Transit requested only 18 per cent of the Donald Street property.
City property officials agreed with the car wash owner's contention his business would be inoperable after the loss of a fifth of his land. A city engineer, however, tried to warn the city against taking the entire property after he saw it operating while the transitway was under construction.
"The city did not engage an external adviser to validate that the business would indeed be inoperable. The concerns by the city engineer were not included in the administrative report presented to council," the auditors wrote.
The city spent $3.4 million acquiring the car wash and sold it for $1.6 million, incurring a $1.8-million loss. Real estate broker Cushman & Wakefield Lepage earned a $37,500 commission on the sale portion of the transaction.
The auditors said it's not clear if the transactions were necessary, as the car wash continues to operate under new ownership.
In response to auditors' concerns, city officials said the car wash could not continue to operate as it used to because the expropriation required the removal of a gas bar from the site and prevented large vehicles such as limousines from leaving the building.
"The property owner had (a) valid claim for the inability of the business to function as it was. The city was purchasing one thing and selling another," officials told the auditors.
City officials also said they would have wound up in a lengthy hearing before the provincial Land Value Appraisal Commission, which settles expropriation disputes. Buying the entire property and selling it would save the city money, the officials maintained.
EY said the rationale for taking the entire property was not included in the report to council. The auditors also said the city should have hired an external adviser to validate the original car wash owner's assertion of the value of the property and business.