Analysis of Lansdowne Park Development Plan

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Analysis of Lansdowne Park Development Plan

• Ian Lee, PhD, Sprott School of Business
• Michael Tiger, Economist

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Authors

• Ian Lee is MBA Director of Sprott School of
  Business, Carleton University
• former Mortgage Manager commercial banker in
  70s-80s in Ottawa incl Shenkman
• Michael Tiger is retired economist former FTA
  NAFTA negotiator with Industry Canada

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Overview of Press Conference

• I. Big picture
• II. Financials the Waterfall
• III. Governance Structure
• IV. Analysis
• V. Strategic Alternatives
• VI. Conclusion

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I. Big Picture
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Big Picture of Lansdowne Live

• - Massive Shopping centre in a public park
• - Office space of 158,000 sq feet
• - Hotel of 100,000 sq feet
• - Two 6 story (168) condos 40 townhouses
• - Will use 10 acres of 37 acres or 25 of park

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Big Picture of Lansdowne Live

• City injects 129 M (Kirk Rpt) 50 M land
• 2. OSEG pays NO rent for stadium (Article 6.8a)
• 3. retail, hotel office head leases for 70
  years not 30 years (Articles 5.5, 7.4, 7.7)
• rent free for first 30 years (7.4b)

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II. Waterfallor Financialsin plain English
not gobbledy-gook
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II. Waterfall or Trickle Creek?

• Waterfall is forecast or plan for the FUTURE
• There are known knowns.
• There are known unknowns.
• But there are also unknown unknowns
• things we do not know we do not know Donald
  Rumsfeld
• BP must make assumptions about all 3

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Waterfall or Trickle Creek?

• waterfall determines who gets paid what when
• ensures OSEG receives most of water first
• i.e. water diversion at each level of waterfall
• reduces flow of water at NEXT level
• waterflow reduced to trickle when citys turn

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Waterfall or Trickle Creek

• Moreover, OSEG is misleading citizens media
• by suggesting it is sharing all revenues
• per Biz Plan s. 2.3, OSEGS 80 Million debt for
  retail paid BEFORE water reaches waterfall
• i.e. OSEG 80 M debt absolute priority over
  waterfall
• but not disclosed in waterfall graph
• due to diversion of funds by OSEG at headwaters

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Waterfall Who gets paid first when?

• 1. reserve fund for stadium, arena, parking (1.5
  M - 2013)
• 2. OSEG dividend repymt of 8 on 20M equity
  (1.6M 2019)
• 3. OSEG repatriation of equity to OSEG over 30 yr
  ( ? 2026)
• 4. City dividend of 8 on deemed equity 20M
  (1.6 M 2029)
• inaccurate as city investment of 129 M 10
  acres _at_ estimated 5 M/acre 50 M 129 M
  179 M (yr 2029)
• 5. net cash shared 50-50 distributed to OSEG
  city in 2040

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Waterfall Restated in plain English

• 1. OSEG borrowings recovered above waterfall
• 2. Then stadium, arena, parking reserve paid
• 3. Then OSEG dividends repaid
• 4. Then OSEG equity recovered thro repayment
• 5. City provides most but comes DEAD LAST

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OSEG Waterfall trickle creek
As promised
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Criticism of Waterfall

• one sided deal that ensures OSEG makes most of
  the money
• 10 acres city land undervalued _at_ 20 M worth
  50 M
• Stadium rented for 30 yrs with no base rent
  (6.8a)
• Retail head lease for 50 yrs OSEG can renew 20
  yrs 70 yrs
• During first 30 years, no base rent for retail
  head lease (7.4b)
• office hotel 70 yr lease first 30 years rent
  free
• LL is all about bringing football back to
  Ottawa
• YET - CFL team or 67s need not exist for entire
  30 yrs

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III. Governance
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III. Governance

• Assumptions behind waterfall are key
• As large amounts K over long period of time
• Produces uncertainty thus risk
• MSC with own B of D reduces political risk
• MSC will be UNTOUCHABLE by council

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Governance

• City transfers ALL 37 acres of LP to MSC
• Not 10 acres at LP developed by OSEG
• MSC head lease with OSEG for ALL 37 acres
• To allow OSEG complete control over LP
• Sets stage for further development of LP

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Governance

• Kirkpatrick OSEG recognize political risk
• Need structure that supports this one sided deal
• W/O interference from council today or later
• allows rewrite of lease to further develop LP
• Or alter lease to make more money

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IV. Analysis
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IV. Analysis

• sole source violates federal provincial law
• sole source violates Ottawa policy on P3
  (http//ottawa.ca/calendar/ottawa/citycouncil/occ/
  2002/06-26/csedc/ACS2002-CMR-OCM-0003.htm)  
• 3. Subsidization picks winners losers but
  govt is referee must be neutral impartial

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Analysis

• 4. cause transportation gridlock in core
• 5. Provides excess retail in core instead of
  suburbs where needed per Nabatian study
• 6. cause business bankruptcies along Bank St
• cannibalize sales from businesses across core

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V. Strategic Alternatives
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V. Strategic Alternatives

• 1. city develops LP alone
• -demonstrated commitment of 117 M re OSEG
• 2. city develops LP thro privatization or
  tendered P3
• E.g. rezones sells 10 acres on Bank-Holmwood
• Apply approx 50 M sale to stadium construction
• Borrow any shortfall keep ALL stadium revenues
• 3. exit Lansdowne Park by selling Lansdowne to
  NCC
• use sale monies to build stadium elsewhere

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V. Alternatives

• City lacks resources vision to develop LP
• NCC has resources, expertise vision to develop
  LP
• BUT any of 3 alternatives
• Can will produce a stadium
• For football and/or soccer

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VI. Conclusions
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VI. Conclusions

• 129 million taxpayer funds 10 acres /50 M
  land
• To subsidize developers, retailers, office
  hotels
• W/O any performance guarantees
• PWC stated they did not prepare OSEGs financials
  or develop any its assumptions, BP. P. 68
• And PWC stated financials are unaudited, BP, p.
  68

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VI. Conclusion

• City betting entire 37 acres on CFL franchise
• City puts up all money upfront in city crown
  jewels
• City assumes planning financial risk of 120 M
• To save 3.8 M annual operating costs on
  Lansdowne
• BUT OSEG extracts value from LP thus profits
• For 50-70 years

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VI. Conclusion

• i.e. OSEG is only project mgr
• Given gift of equity with 8 return with little
  risk
• yet govt risk free rate of return is 3
• Risk-return ratio completely out of whack
• City assumes the risk OSEG makes the money
• LL is Corporate welfare for councillor cronies

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Appendices
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Waterfall or Trickle Creek

• Each layer specifies fixed amount to go to it
  every yr
• if enuf to fill that amount, money flows to next
  layer
• If not enuf to fill a level, amount owing to that
  layer is carried forward and accummulated. 
• E.g. In first 9 years if only enough for
  maintenance fund, by year 10, the next layer of
  OSEG's return on equity would be owed 16 M (10 x
  1.6). 
• No would flow to level 3 until annual
  maintenance fund paid off OSEG received overdue
  16 M

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