Ottawa risks big bill over sale of buildings
OTTAWA — Senior federal officials warned that the planned sale of nine government buildings could cost Ottawa up to $600-million over 25 years, and recommended a full risk analysis be conducted first, sources said.
But the Department of Public Works forged ahead with the project, saying that soliciting bids for the real estate was the best way to see whether it was a profitable proposition.
About a dozen bids have been received for the buildings, one senior government official said. Public Works would analyze the offers and proceed only if it makes financial sense, he added.
"If this ends up costing money to the government, we will not do it," the source said .
Another source, however, said there have been strong reservations regarding the project in senior government circles. A number of officials, according to the source, have warned that "the financial risk to the government has not been measured."
Central agencies such as the Finance Department and the Privy Council Office - which acts as the bureaucratic arm of the Prime Minister's Office - have called for a thorough cost-benefit analysis to be conducted before opening up the sale to tenders.
The fear is that the "potential savings have been overstated and the potential risks ignored," the source said.
Without that risk analysis in place, senior government officials urged Public Works to sell a smaller number of buildings at first to see whether the project could work.
According to Finance and PCO officials, the sale of the nine buildings is a gamble, generating up to $250-million in savings if it works, or losses of up to $600-million if it fails.
Last year, Public Works hired two banks to look at a sample of 40 federal buildings to determine the best way to raise funds to renovate Ottawa's real-estate portfolio.
BMO Capital Markets and RBC Capital Markets Real Estate Group advised the government to get rid of nine buildings in Montreal, Ottawa, Toronto, Edmonton, Calgary and Vancouver.
In an optimistic report, the advisers recommended the use of a process known as a sale-leaseback, by which Ottawa is promising eventual buyers that it will rent the buildings for the next 25 years. In return, the new owner will be responsible for upgrading and managing the buildings.
The main union for federal civil servants is strongly condemning the planned sale. Public Service Alliance of Canada vice-president Patty Ducharme said the government will likely pay back twice the purchase price in rent over 25 years. "For the landlords, it's a gravy train," she said.
Public Works Minister Michael Fortier is a strong supporter of the project, and he called on RBC and BMO this year to find the best bids for the nine buildings.
Mr. Fortier has obtained the political backing to launch the project by promising to get any deal vetted by an independent third party before it is presented to cabinet for approval.
Mr. Fortier said Ottawa needs to pump in billions to renovate its entire real-estate portfolio, and has to find innovative sources of funding. The nine buildings are valued at more than $1-billion in total.
They include the six-storey Canada Place in Edmonton; the Harry Hays building in Calgary; the Skyline complex of seven buildings in Ottawa; the Joseph Shepard building on Yonge Street in Toronto; the Thomas D'Arcy McGee building on Sparks Street in Ottawa; the Howard Green building and the historic Sinclair Centre in Vancouver; a building on René Lévesque Boulevard in Montreal; and a building in Westmount, Que., that used to house the RCMP.
"The government has not always taken care of its buildings in the same way as a traditional real-estate owner," Mr. Fortier said this year.
The goal is "to stop the bleeding and to manage the portfolio so that in five, 10, 15 years, we are not faced with an even bigger figure [to renovate the buildings] as we are facing now."
On the Take: Crime, Corruption and Greed in the Harper Years
When you tour the Pentagon in Virginia, they brad about all the money the government has saved over the years by not having to rent a bunch of buildings. Now you could certainly argue that building a national defence headquarters visible from outer space (as well as jet flying altitude) was not the brightest idea militarily, but it would be hard to dispute the cost savings.
Scott Brison somehow managed to convince his colleagues (or his colleagues convinces him, who knows) that leasing buildings was the way to go. When hearing the words "leasing cost savings", some of you, I'm sure, thought of that other Nova Scotian, the one who moved back to Quebec.
Hat tip to Calgary Grit for linking to a Globe and Mail article outlying how the entire civil service thinks its a bad idea (slight exageration on my part). It's like the Conservative Party read Stevie Cameron's book: On the Take: Crime, Corruption and Greed in the Mulroney Years. But instead of avoiding the pitfalls, it is as if they are treating it as an instruction manual. All they need now is a Mila.
Ironically, the unelected Minister of Public Works, Michel Fortier, reasons that we need privitisation because the buildings were poorly maintained. As many of you know, maintenance was privatised by the slashing Liberals in the late 90s.
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