Yesterday, I had a call from Global TV asking me to explain why the city is getting 32 properties from Millennium, and what it means for taxpayers. Global sent along some reports that the city had released which are set out below.
Let me say I appreciate the fact that the city is providing information to the public through the media and would be pleased if the losses are as low as being reported. However, I think we need further information in order to determine just how likely the $40 to $50 million loss will be, and how it is calculated. More specifically:
Here's the wire copy that was provided to me by Global TV
Vancouver officials estimated Friday the Olympic village will have a shortfall of between $40-50 million after all the units are sold and the construction loan paid off. That shortfall is the first concrete confirmation that the city will likely not recover all of the $578 million it is still owed by the former owner, Millennium Developments. But it is far better than initial estimates by Vancouver Mayor Gregor Robertson that the city could be "on the hook" for the entire cost of the $1 billion village. And it is better still than the potential $150 million shortfall estimated by some council members and development experts after the city forced Millennium into "voluntary" receivership.
Jeff appears to have copied this wire copy in his story. However, I would like to know where does the $578 million figure come from? Using other information in his story, I calculate the amount owed to taxpayers at $657.9 million ($479.5 for the loan and $178.4 for the outstanding payment on the land.)
1. Jeff's story states the city has sold 118 of the 737 units, implying there are 519 units remaining unsold. In fact, the receiver's report states the city has now sold a total of 403 units (including 118 units sold since the rebranding and launch) leaving 334 sales to partially offset the $657.9 outstanding. In order to know what the real losses might be, we need to ask the city and receiver a few more questions:
1. What is the total revenue estimated from these 334 units based on the total saleable square footage and the estimated average sales price per square foot for the different buildings?
2. What revenues are attributed to the 119 unit rental building and the retail space? (In the past, I have heard a number in the order of $60 to $70 million for both.)
3. What are the estimated holding costs during the sales period which has been estimated at 2 years or longer. I note the city's interest rate is a relatively low 2.5%. However, there are also strata fees, and other costs. As an aside, do the holding costs include any provision for property taxes which otherwise would be payable?
4. I note $5 million is being set aside as a deficiency reserve. How much other money is estimated to be spent to repair deficiencies?
5. How are the social housing units being accounted for? It does not appear that they are included in any of these numbers. However, the cost of these units rose from $65 million to $110 million. The rents are not sufficient to cover the costs. Furthermore, approximately 144 of the 252 units still remain empty. Will any of the social housing costs be included in the calculation of the potential city losses? They should be.
6. Finally, CBC reported that the receiver's fees (including related studies, etc.) will be in the order of $8 million. Is this included in the estimated total loss? It too should be.
While I note the city is now expecting anywhere between $45 million and $67 million from disposal of the other Millennium assets, and I agree that a $40 to $50 million loss would be much better than what I previously estimated, I still suspect that when one looks at the likely revenues from the 334 unsold units, holding costs, the losses on the social/rental housing, and other ancillary costs, the losses to the city will in fact be much more than $40 to $50 million...indeed, they will likely be much more than my earlier $150 million estimate. I hope I might be proven wrong, so it would be helpful if the city can share further information as set out above.