Sam Sullivan and the NPA haunt the Olympic Village
What happens when you build an economic strategy on a real estate bubble and financial derivatives?
In the US you get the worst depression (why not use the real word?) since 1929/30. In BC you get a budget deficit 500% larger than promised and the HST. And in Vancouver you get the Olympic Village fiasco, brought to you by former Mayor Sam Sullivan and his NPA team.
It’s the NPA gift that keeps on giving.
Let’s recap: In January 2006, a month after taking control of city hall, Mayor Sam Sullivan and his NPA team began redesigning the Olympic Village plan reducing the non-profit housing from 20% of the project to about 10%. Most amenities and the green design concept were left in place.
At the same time the new council began the final process to decide which developer would build the billion-dollar project. Three firms were shortlisted in January 2006. On April 3 Mayor Sam Sullivan announced Millennium Development was the chosen one.
What Sullivan didn’t announce was that Millennium finished third on points, behind Concert Properties and Wall Development. But they won the deal on the high price of their bid, offering $193 million for the city land. Plus Millennium promised that the city would get its money whether the project made or lost money. Here’s what the report to council said:
“The unanimity in the Evaluation Committee’s recommendation comes from three compelling factors:
- the Millennium proposal meets or exceeds all ODP requirements;
- Millennium has the experience, capacity and expertise to complete major projects
- Millennium’s Purchase Price is the highest and is unconditional in that it is guaranteed to the City with no risk sharing.
“Highlights of the Millennium proposal include:
- guaranteed, unconditional price of approximately $193,000,000 that does not ask the City to assume any of the marketing or financing risk in the development;”
We now know that wasn’t true. By 2007 the NPA had changed its tune and concluded a secret deal to backstop the entire project, taking on a billion dollars in risk according to notes in the City’s 2007 financial report:
“The City has: provided a Completion Guarantee which obligates it to complete the Market Project in time for the 2010 Winter Games should Millennium be unable to complete.... In the case of a default, it is expected that the City will assume completion of the Market Project and become responsible for repaying [the cost of development].”
And that’s exactly what happened. By the fall of 2008 Millennium was in default to its hedge fund financier, Fortress Investment, and the geniuses in the NPA were forced to offer up the first loan to Millennium. The NPA tried to do that in secret as well but it leaked out and blew the November civic election wide open.
In its first four weeks in office the new Vision Council patched together another more secure financing deal that got rid of the troubled New York hedge fund. The City, as the NPA had negotiated in 2007, was now directly on the hook.
And what a big hook it was: a billion dollar project targeted towards a high end market in the middle of a real estate depression. There was no fix for that. Millennium was not the financially secure developer the NPA thought it chose and there were few buyers for a project aimed at high end offshore buyers. Frances Bula nailed the basic problem three years ago quoting a real estate expert:
‘Experts say it will be a miracle if any of the market housing can be sold for less than $1,000 a square foot — the current price of luxury condos in Coal Harbour. “I think we all know there are huge economic challenges to this project. I don’t think there will be a square foot that will be on sale for less than a thousand dollars.’
An NPA deal built on a bubble, a deal that came crashing down when the bubble burst. That’s the story of the Olympic Village. The NPA’s spinning like crazy to hide that story from next year’s civic voters. But there’s no hiding from the fact that the two deals they did in 2006 and 2007 give lie to that.
More than that, it makes me wonder what other deals made by the NPA will come back to haunt us. For example, exactly what did the NPA promise Rich Coleman on the Little Mountain deal? Can we afford to know?
And the Olympic Village? All that’s left to do is to figure out a marketing strategy that’s more in keeping with today’s market and recoup what’s possible.
Oh, and make sure voters remember who’s responsible.