Thursday, December 10, 2009

'Innovative' deal with developer needs better process (Note: The column is better than that terrible headline)

The new release from Housing Minister Rich Coleman was headlined "Innovative $32M affordable housing announced for Victoria."
Innovative it is. Affordable is relative; the project will offer condos and apartments at a 10-per-cent discount on market rates. That's not enough to make the housing affordable for many people, when one-bedroom condos will still sell for $350,000.
And the structure of the deal raises several questions.
Here are the basics.
Developer Rick Ilich, through Townline Victoria, bought the block in downtown Victoria that includes the historic Hudsons's Bay store, which has a great exterior fa├žade.
The plan is for a renovation of the beautiful old building that preserves the exterior while creating striking condos. Ilich also planned two other buildings on the block, replacing a parkade.
All in, it was to be worth some $300 million.
Then came the recession and progress slowed. A neighboring project ran into trouble and Townline bought that property as well.
And now the provincial government has effectively taken over as developer of one of the three buildings on the Bay block.
It's kind of a private-public partnership in reverse. The risk transfer is to taxpayers, not the private partner.
According to the government's news release, Townline will sell the portion of the property to the government, and eventually a non-profit operator of the building, for 80 per cent of the market price - $4 million. (Ilich said the sale price was 80 per cent of the company's costs in the land, incurred before the economic collapse.)
The provincial government will become the developer of the 13-storey tower.
It will borrow $32 million and hire a company to do the construction.
The news release said "TL Housing Solutions Ltd., an experienced developer of non-market housing, will develop the site."
TL Housing does have several projects on the go. It's the developer for a 51-unit rental project on Wilson Street in Vic West being funded by B.C. Housing and the city of Victoria. The company was formed to focus on those kinds of opportunities. The company offers to "be the interface at the municipal, provincial and federal political levels. We can uncover access to density bonuses, civic contributions, BC Housing funding programs and subsidies, as well as CMHC sponsored project funding and favorable loan rates."
It's a clever business model.
But in the interests of openness, the news release might have noted that TL Housing is also a Ilich company, with Rick IIich's wife Lauren as the president.
Not that there is anything wrong with that.
In this kind of unorthodox deal, though, transparency is essential. The benefits, costs and risks being assumed by all parties need to be clear.
And the fact that the developer selling the land is also benefiting from a $32-million untendered construction contract should have been acknowledged.
The provincial government plans to get the $32 million back. It hopes to sell 40 units as condos and take in $15 million, or an average $375,000 per unit.
And once it selects a non-profit owner/operator for the rental portion of the building, the remaining $17 million in debt will be transferred to the agency. The operator will use the income from the 80 rental units to make the mortgage payments and manage the building.
On top of the provincial funding, the City of Victoria is making an $800,000 contribution to the rental portion of the project, or $10,000 per unit. The rents are also to be 10 per cent below market level, a small but useful discount.
It looks to be a good deal. A developer gets help on a big project when times are challenging. The city reduces the risk that a key chunk of downtown will sit vacant longer than necessary. The shortage of rental housing is eased.
And creative approaches from government and business are welcome.
But a better public process is needed in these kinds of deals. Ordinarily, a public project would go to tender so taxpayers would know they were getting the best deal.
And by taking on the risk of selling condos to recover its money, the government is moving into an area where it has little expertise or experience. If they don't sell, or sell at a discount, taxpayers are on the hook.

6 comments:

Anonymous said...

Rich Coleman's tenure as Minister of Forests stands as an enduring testimonial to that individual's ethics, to his business acumen, as well as to his regard for the interests of average British Columbians. What could you possibly be worried about? While to many of us he might appear to be a species of dullard, I'm confident that those who are close enough to know him well would absolutely endorse his involvement in this and any other P3's he deems to be meritorious.

Raymond

Dawn Steele said...

So taxpayers are investing $17 million ($212,000 each) to give 80 tenants a 10% discount on their rents?

Are you serious!!!!!! Do you have any idea what we'd have to invest to resolve housing affordability and housing in BC at that rate? Does Rich Coleman think we're all morons?

How much does a 10% discount on rent amount to per year for each unit?

If we'd simply invested $17 million over time in a rental subsidy program and assumed absolutely no risk, how many years of the rental subsidy would that have covered (also taking into account the reduced carrying costs) and how does that compare to the expected life of the building?

Or better still, how about simply upping taxes on all the speculators who own 3rd, 4th and 5th homes? Put those revenues towards housing the homeless and the tax itself would help take some heat out of our over-heated markets, which resolves affordability.

Governments have no business playing in private enterprise - if Rich Coleman wants to play developer, he needs to quit government and go play with his own money, not ours.

And I'd really love to know who else has financial interests in the company that seems to be holding all the cards here, TL Housing Solutions.

Anonymous said...

Thanks for the details behind this announcement, I was surprised by the lack of detail.

You have raised some serious questions as to the real issues behind the developers actions.

Anonymous said...

Townline and their affiliates have donated $34,500.00 to the Liberal Party in the last four years. Just amazing!

Anonymous said...

what a cesspool.

Anonymous said...

Thanks Paul, great reporting! I knew there had to be a real story behind the "good news" press release.