Hey there, time traveller!
This article was published 13/2/2012 (1931 days ago), so information in it may no longer be current.
Despite previous assurances from senior Winnipeg officials, there's a chance a city loan guarantee touted as "zero risk" could wind up costing taxpayers $7 million.
Last October, city council voted to back a loan to developer Andrew Marquess's company, Gem Equities, to turn the Fort Rouge Yards into a 900-unit townhouse, condominium and commercial development alongside the Southwest Rapid Transit Corridor. The Federation of Canadian Municipalities agreed to give Gem Equities $14.7 million worth of loans, and Winnipeg city council voted to guarantee $10 million of it.
On separate occasions in December, Mayor Sam Katz and chief operating officer Deepak Joshi both said the deal poses "zero risk" to the city.
However, new documents obtained by the Free Press show Winnipeg could take a financial hit on its plan to backstop a loan to Marquess if his company defaults during the condo-construction phase of the infill project.
Internal city correspondence shows Winnipeg's chief financial officer, Mike Ruta, said default during the condo construction is a "messy circumstance." In an email to Katz's chief of staff sent Dec. 8, Ruta said Winnipeg would be forced to decide whether to take a loss on the loan or buy out the first lender in the hopes the city could recover its losses by selling the property.
Ruta explained to the Free Press Monday the city is first in line to recover its investment over all other financial claims to the property if Marquess has installed infrastructure -- such as water and sewer lines -- on the property and banks have not advanced money to Marquess. However, Ruta said, Winnipeg would be in second position -- behind another lender -- to recoup its investment if the city takes over the Federation of Canadian Municipalities' loan and other banks have advanced money for the condo project.
Joshi said in an email there are developers who will step in if Marquess defaults at that stage. "I know there will be developers ready to pick up the pieces if there was a default," Joshi said in an email. "In fact, (city property director) Barry (Thorgrimson) has approached a large developer, who said they would definitely do that if the circumstances lend themselves to that option."
In an interview with the Free Press Monday, Ruta disclosed if Marquess defaults during condo construction, the city will be on the hook for $7 million in loans and would have to try to find another developer to step in and finance and complete the project. He said Gem Equities has agreed to build a $3-million bus depot for the city near the bus rapid-transit line to offset the total risk of $10 million.
Ruta said an administrative report on the loan guarantee presented to council in October clearly outlined the risks of the deal, though not all mitigating factors were included because these are issues that "take time to develop." He said he is still doing due diligence on the deal and the FCM and Gem Equities have not submitted a commitment letter to the city.
"I'm not at a point to say to everybody at this point that the due-diligence process is complete and I'm fully satisfied," Ruta said. "The deal's not done from the city's standpoint."
The internal correspondence shows Katz's chief of staff, Bonnie Staples-Lyon, was unclear about the potential implications of the loan guarantee nearly two months after it was approved by council and the mayor had publicly downplayed the risks.
Marquess's financial troubles are well-documented in court records, and his company, B&M Land, has been sued for non-payment at least 13 times since 2009. Six companies eventually dropped their lawsuits, but B&M Land was ordered pay at least $1.59 million.
At the time city council signed off on a plan to guarantee Marquess $10 million in loans, bylaw officers tried to get Marquess's company to bring three derelict apartment buildings up to par. City officials sent preliminary derelict-building orders to B&M Land for apartment blocks on Stradbrook, Killarney and Portage avenues in January, April and July 2011 -- months before council approved backing the loan to Marquess.
Documents show Coun. Scott Fielding (St. James) and Coun. Russ Wyatt (Transcona) spoke with city administration about their concern Winnipeg issued a loan guarantee to a developer who is non-compliant under city bylaws.
--with files from Bartley Kives
THE Free Press obtained internal city emails showing there is a risk the city could lose money if developer Andrew Marquess defaults during condo construction on the Fort Rouge Yards infill project. Here's a snippet of some of the internal city communication on the issue:
Date sent: Dec. 8, 2011
Who sent it: COO Deepak Joshi
To whom: Property director Barry Thorgrimson
What it said: "Just got off the phone with (St. James Coun.) Scott Fielding, who is very upset with the property in his ward owned by Andrew Marquess. He wants to have some action on this and we need to make Andrew understand this. I need to understand the outstanding issues and what are his and our plans for resolution. I also need to understand what we have been doing on this file from our end. Scott is very, very, very upset."
Date sent: Dec. 8, 2011
Who sent it: Mayor Sam Katz's chief of staff, Bonnie Staples-Lyon
To whom: CFO Mike Ruta
What it said: "I read the report and to my reading nowhere does it say that our credit rating is in jeopardy. So why does (Free Press reporter Bartley Kives) keep saying it says that in the report! I would like to call him and have him point to me where it says that as long as I am correct. Two other questions that were posed: What does his company bring to this deal? He is the owner of the land, correct? Is there anything else?
Date sent: Dec. 9, 2011
Who sent it: COO Deepak Joshi
To whom: CFO Mike Ruta, Katz chief of staff Bonnie Staples-Lyon
What it said: "In regards to the Free Press, my comments were taken out of context. We were discussing the value of the land and the fact that Gem is required to put in the services before any of the loans are given. In that circumstance, the risk is minimal, as Mike has stated: "(The property department) has indicated that the improved property has significant value and they would expect to fully recover our investment on resale." In regards to the second risk, I will defer to Mike on it but I know there will be developers ready to pick up the pieces if there was a default. In fact, Barry has approached a large developer who said they would definitely do that if the circumstances lend themselves to that option. There is a significant density on these lands and with services in and with the brownfield remediated, the risk is again minimal."
Date sent: Dec. 9, 2011
Who sent it: CFO Mike Ruta
To whom: Bonnie Staples-Lyon
What it said: "There are risks associated with this transaction and they are set out in our report. The first risk relates to full advancement by FCM for infrastructure improvements and the banks decide not to loan for any number of reasons including market conditions. Based on current conditions (the department) has indicated that the improved property has significant value and they would expect to fully recover our investment on resale. The second risk relates to partial or full construction of the condos and a default occurs. This is a messy circumstance resulting in the city being forced to decide whether to realize on its security by purchasing out the first loan position and then resell hoping to recover its investment or alternatively take a loss on its loan guarantee. This risk may be offset by completed construction of the bus depot, which would have otherwise cost the city $3 million and future property tax revenues."