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Key findings of audit of city hall property transactions

City fumbled police-HQ purchase, other major transactions

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Auditors found civic officials failed to undertake a ‘comprehensive procurement process’ when buying the Canada Post building on Graham Avenue in 2009.

WAYNE GLOWACKI / WINNIPEG FREE PRESS Enlarge Image

Auditors found civic officials failed to undertake a ‘comprehensive procurement process’ when buying the Canada Post building on Graham Avenue in 2009. Photo Store

The City of Winnipeg bought the former Canada Post building without obtaining an independent appraisal or seriously considering anywhere else to house the new police headquarters, the Free Press has learned.

The city's failure to undertake a "comprehensive procurement process" for a police-HQ project now slated to cost $210 million is one of the most damning facets of a long-awaited independent audit of major city real estate transactions.

The Free Press obtained a 38-page executive summary of the report, slated to be presented to city councillors at a closed-door seminar this morning.

While the 2009 Canada Post purchase is rapped repeatedly, the consulting firm EY (formerly Ernst & Young) uncovered a litany of concerns.

The firm found higher valuations of the city-owned Parcel Four surface lot and the Winnipeg Square Parkade were kept from elected officials. Some information about both properties, as well as the Canad Inns Stadium site, was provided only to some potential buyers.

The audit also determined the 2009 Parker land swap was conducted without proper appraisals as a "rush job" with an uncertain financial impact.

It determined an Osborne Village car wash was expropriated in its entirety for no documented reason during the construction of the Southwest Transitway.

The audit also raised concerns about lease renewals at two Main Street office buildings that served as the focus of a previous audit and determined some agreements were approved without consulting civic lawyers.

Council ordered the report in 2012 during the height of the fire-paramedic station construction scandal and concerns about a real estate management contract for the former Canada Post tower.

EY examined 33 city property acquisitions, expropriations, sales, land transfers and leases, and conducted more detailed reviews of the sale of the Winnipeg Square Parkade, the Canada Post purchase, the Parker land swap, the proposed sale of Parcel Four and the Canad Inns Stadium sale.

Here are some of the key findings:

 

Canada Post purchase

In 2009, the city purchased the former Canada Post building on Graham Avenue for $29.25 million as part of what was initially a $135-million plan to create a new downtown police headquarters. The combined cost of buying and renovating the 1955 structure is now estimated at $210 million.

EY concluded the city didn't conduct an independent appraisal of the property and left this information out of a report recommending the purchase. The auditors said it's unclear if the city received value for its money, especially because it doesn't appear the city seriously considered any other site for the police HQ.

"The city did not obtain their own independent appraisal to verify the acquisition price set by the vendor, did not advertise the need for property and did not solicit bids for potential locations for the new police headquarters," the auditors wrote. "A comprehensive procurement process was not undertaken and for a facility of this size and magnitude should have been considered."

The auditors also said the city should have negotiated a commission for the $29.25-million building purchase, rather than award the work to Shindico Realty -- identified simply as "the proponent" -- on the basis the firm was qualified to handle city transactions as high as $5 million. The auditors also said the firm was paid $804,000 in commissions rather than $479,000, a figure based on rates submitted to the city in 2008.

In an email to the auditors, Shindico stated its fee covered the cost of conducting due diligence on the purchase, paying other consultants, negotiating rental agreements and providing other services requested by the city.

The auditors suggested the city should have considered a "separate competitive process" for these services.

 

Parker land swap

In 2009, the city exchanged 24 hectares of unserviced land in Fort Garry's Parker neighbourhood for 3.6 hectares of serviced Fort Rouge land owned by developer Andrew Marquess. The deal was a last-minute addition to a property committee meeting and approved by council nine days later.

The auditors found city appraisers stated the Parker land "was not inspected" or properly appraised and described the values they provided to senior officials as estimates intended only for internal use. The appraisers described their valuations as a "rush job" because "time constraints were not reasonable to permit a proper investigation and analysis."

The auditors concluded there's no way to determine whether the land was properly valued, "as a competitive tendering process was not undertaken."

 

Winnipeg Square Parkade sale

In 2009, the city sold the Winnipeg Square Parkade for $24 million. Shindico Realty received a $400,000 commission for the sale to Crown Realty Partners.

The auditors determined city officials didn't tell council that Shindico represented both parties in the sale, acting first for the city and then for the buyer. It also said city councillors were informed of a $21-million valuation for the property, but not an earlier, $43.6-million valuation.

The auditors also said after the city received several bids for the property, it negotiated further with the highest bidder. Auditors found no evidence of further discussions with the second-highest bidder.

In response, city officials said the city benefited because the final price was $3 million higher than the initial offer.

 

Proposed sale of Parcel Four

In 2012, the city considered a plan to sell surface lot Parcel Four, near The Forks, to an Alberta hotel and water-park developer. The buyer walked away from the deal following public opposition.

The auditors found council was told the land was worth $5.9 million but was not told that value was based on the land being used only for a hotel, water park and parkade. An internal valuation of $10 million, for the best possible use, was not disclosed to council.

The auditors also found one of the respondents to a 2009 water-park-developer search noted in a cover letter the city said Parcel Four would be available for purchase. The city didn't disclose this fact to all bidders until an addendum was issued later.

 

Canad Inns Stadium sale

In 2012, the city sold the former home of the Winnipeg Blue Bombers to Cadillac Fairview and Shindico Realty for $30.25 million.

The audit found the city provided one potential buyer with the site plans four months before it entertained offers to develop the land. The audit also found one potential buyer was provided with a copy of the expression-of-interest document before it was issued.

 

Car wash expropriation

In 2010, the city expropriated the Midtown Car Wash on Donald Street to make way for the first phase of the Southwest Transitway. The entire property was expropriated even though only 20 per cent of it was required.

Auditors concluded this was unnecessary.

City officials "concurred with the property owner that a partial taking would render the business inoperable, even though a city engineer expressed concern over the full taking," the auditors noted. "He observed the business operating through construction, which was previously determined to not be feasible."

The city acquired the property for $3.4 million and sold it for $1.6 million, losing $1.8 million, the auditors found. They noted the car wash still operates today.

In response, city officials noted the car wash has a new owner and, thus, is not the same business.

 

bartley.kives@freepress.mb.ca

Republished from the Winnipeg Free Press print edition July 2, 2014 A3

History

Updated on Wednesday, July 2, 2014 at 6:37 AM CDT: Adds photo

12:02 PM: Adds audit document

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