Winnipeg’s ground war
Twelve years ago, the city was also caught up in a land-deals maelstrom. Has anything changed since then?
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Hey there, time traveller!
This article was published 15/09/2012 (3737 days ago), so information in it may no longer be current.
If there’s one task that perennially seems to trouble the City of Winnipeg, it’s how to go about conducting real estate transactions.
The maelstrom swirling over Winnipeg’s proposed three-for-one land swap has brought the city back to the uncomfortable position it inhabited 12 years ago, when a scathing city audit revealed bureaucratic ineptitude and political interference in land deals cost the city millions of dollars.
During the spring of 2000, when Glen Murray was serving his first term as Winnipeg’s mayor, city hall was rocked by revelations of ethical lapses, favouritism and leaks of confidential information that undermined city property negotiations.
After an 18-month investigation, former city auditor Shannon Hunt found city real estate staff failed in their responsibilities to thoroughly analyze proposed land deals and provide clear recommendations to councillors. She also found some councillors met privately with developers, set prices for land and edited administrative reports to reflect political views.
Her overall conclusion: A breakdown in accountability and controls at both the political and bureaucratic levels ultimately cost Winnipeg money and hurt the city’s image as a reliable and trustworthy place to do business. As a result, she said, some of the biggest players in the real estate industry chose not to do business with the city.
Following the audit’s release, Murray promised swift action to bolster public confidence in the way the city does land deals. Winnipeggers may ask whether any gains have been made since then.
The crisis facing city hall today involves concerns about money, as well as process. Mayor Sam Katz has ordered chief financial officer Mike Ruta to review whether it makes financial sense to exchange two old fire halls and a parcel of Fort Rouge land for the Shindico Realty-owned site of a new fire-paramedic station. He’s also asked Ruta to find out how such a deal was negotiated without the knowledge of a majority of city council.
The saga began in 2009, when the city decided to seek private-sector help in building four new fire-paramedic stations. The city issued a request for qualifications from private companies interested in designing, building, financing and maintaining new stations in Sage Creek, River Heights, St. James and Charleswood.
There were nine respondents, seven of whom were deemed qualified. The top six were sent a request for proposals to design and build those fire halls. The city only received one response, from Shindico Realty, which wound up building all four stations.
In Charleswood, the old No. 18 Station was demolished and a new one built in its place for $3.2 million. In St. James, a new $5.8-million No. 11 Station is rising on the northwest cloverleaf at Portage Avenue and Route 90 and will eventually replace the existing No. 11 Station on Berry Street.
The city issued a separate tender to build the new $3-million Station No. 27 on Sage Creek Road, on land the city purchased from Qualico. And in River Heights, Shindico built a $3.3-million new Station No. 12 on its own Taylor Avenue land, to replace the old No. 12 Station on Grosvenor Avenue.
In a now-infamous set of negotiations, Winnipeg Fire Paramedic Chief Reid Douglas, with the assistance of property department staff, reached a deal to swap that Taylor Avenue property for the old No. 11 and 12 stations, as well as a portion of a Mulvey Avenue East property close to the Southwest Transitway’s new Osborne Station.
On paper, the assessed value of the Shindico land is $461,000, while the other properties have a combined value of approximately $1.5 million. But the assessed value of any land can differ widely from a formal valuation or appraisal. Shindico president Sandy Shindleman, who was unavailable to comment this week, has described the deal as a good one for the city.
The numbers, however, may not be the most contentious aspect of the proposed swap. For starters, no one on council says they had any inkling a fire-paramedic station was built on private land. Councillors are also upset there was no disclosure of the details of the fire-paramedic station replacement program in the form of a verbal or written report.
Such a move was not required, Ruta said, because each station contract fell below the $10-million threshold required for council approval.
Some members of Winnipeg’s commercial real estate community are also disappointed no other players had the chance to bid on the two old fire halls and the Mulvey property.
“All the spin doctors in the universe will not be able to properly explain the course of events to date,” commercial real estate broker and former city councillor Peter Kaufmann said in a letter earlier this month, calling on the city to place its properties on the open market. Several councillors, including property chairman Jeff Browaty (North Kildonan), expressed similar opinions.
Their concerns echo some expressed by auditor Hunt 12 years ago.
The 2000 real estate audit caused a firestorm at city hall, where several councillors stood accused of pushing for a financially dubious long-term office lease in a Main Street heritage building. Hunt also found the city didn’t have a clear policy on whether surplus land must be put on the open market or simply sold to someone who wants to buy it.
“The city is not allowing all members of the public an equal opportunity to purchase its surplus property. This can ultimately result in the perception of favouritism by the public and (that) the land not being used for its best purpose from a city perspective,” she wrote in her report. “The failure to solicit offers (in some cases) from the public has led to the perception that certain property owners and managers were given preference over others and that this may have affected the outcomes.”
A similar concern has emerged in recent years. In 2009, several commercial realtors cried foul when Shindico Realty erroneously listed the Winnipeg Square Parkade for sale before the city declared the property surplus.
The parkade was eventually declared surplus and sold for $24 million to Toronto’s Crown Realty Partners, a logical buyer because it already owned the Winnipeg Square mall and Commodity Exchange Tower, both of which sit above the parkade. Shindico received a commission of $400,000 for the transaction.
Shindico received first crack at the sale because it was the firm most qualified to handle large property transactions on behalf of the city, explained Barry Thorgrimson, Winnipeg’s director of planning, property and development. In 2008, the city issued a request for qualifications for real estate firms interested in selling city property as part of an effort to ensure the process was open and transparent, Thorgrimson said.
The city evaluated real estate firms on the basis of the rates they proposed to charge, their experience, diversity and their capacity to handle a number of properties at any given time, he said.
“Based on that, we weighted them, with the cost of commissions being heavy on our weighted scale. And then we rated them,” Thorgrimson said. “Based on that, when properties become available, we turn to the No.1 (firm). If that one’s busy, we turn to No. 2.”
This system does not ensure only Shindico sells city properties. The city lists some properties on its own, when real estate staff have time, said real estate division manager John Zabudney.
Meanwhile, other firms have sold city properties since 2008. For example, Cushman & Wakefield Lepage sold Gertrude Street’s Midtown Car Wash for $1.5 million and a property at 370 Daly St. for $650,000, earning commissions of $37,500 and $26,000, respectively.
The next property transaction to raise red flags was an aborted plan this spring to sell the downtown surface parking lot known as Parcel Four for $6 million to Alberta hotelier Canalta, which hoped to build a water park on the property and offer public access in exchange for a $7-million city grant.
Using what amounted to a delay tactic, city council effectively defeated the plan in the face of intense public opposition to both the grant and the proposed use of highly visible land near both The Forks and the Canadian Museum for Human Rights.
But there was also concern no buyer other than Canalta was granted the chance to bid on Parcel Four, the value of which had been pegged at $7.7 million in 2009, when the city mulled a previous proposal for a hotel and water park. Real estate industry sources claimed the land could be worth more on the open market.
Thorgrimson said Parcel Four became available to any prospective water-park developer when the city amended the expression-of-interest document to build a water park, after earlier attempts to locate a private water-park partner failed.
Only three members of city council that received Hunt’s audit in 2000 — Dan Vandal (St. Boniface), Harvey Smith (Daniel McIntyre) and Jenny Gerbasi (Fort Rouge) — remain on council today. All three are calling for an investigation that goes beyond CFO Ruta’s review of the fire-hall land swap.
Vandal, who sits on the executive policy committee, has called for an independent, external look to restore public confidence into city processes. Only an external review will put an end to negative headlines, added Smith.
Gerbasi, meanwhile, has called repeatedly for a broader, formal real estate audit, not unlike the one concluded by Hunt 12 years ago.
“There have been a series of real estate transactions, from the water park to the fire-hall land swap, that have left the public with a strong perception that something is rotten at our city hall,” she said in a statement.
Katz and other councillors have said they prefer to wait and see what Ruta has to say. Meanwhile, members of Winnipeg’s real estate community are also watching to see what the city does.
“We want to see the transparency and accountability throughout all their processes,” said Peter Squire, spokesman for WinnipegRealtors. “This isn’t about one company. This is about how the City of Winnipeg conducts its business and the public has a right to know.”