Your reference to the future profits from building the residential towers contains a questionable flaw in business logic. Once the towers are built, leased and sold to a REIT (Real Estate Investment Trust), the developers' profits will have been earned/realized. The money will be in the bank. Meanwhile Lansdowne continues to lose money year after year after year.
Businesses are in the business of earning profits every year. Successful businesses have little to no patience in rolling the previous year's profits into funding the next years' losses. Successful businesses do not entertain lightly the concept of funding this year's and next year's and the year after that losses with last year's profits.
Therein the problem lies. The city hall is not populated with people who have anything approximating business experience. The people who populate city hall aren't 'programmed' to think like a business person. That is why, time after time after time, the city loses when they enter into business arrangements with successful businesses. With Lansdowne the city will, once again, willfully hand over its (OUR) lunch money to the developers, while declaring it a success.
Ron, I agree with your assessment of how and when profits are realized within a corporation, but it is not quite that simple with the Lansdowne partnership. The OSEG partners are individuals, and they are the ones covering the partnership losses. Three of those individuals happen to be associated with development firms. So if one of those development firms built the Lansdowne towers, one OSEG partner might benefit through his ownership stake in the development firm. So I'm not suggesting there is ever a formal "make the partner whole" exercise. I see it as more of a roundabout process where the losses one partner has covered are recouped indirectly through profits accruing to a business partially owned by that individual. That's my take on what is going on. I welcome the city to provide an alternative explanation and correct this interpretation.
The impetus for 2.0 seems to be that it's these old facilities that are preventing Lansdowne from making money. Well, depreciation makes up a large part of the losses so far - $76.3 M to be exact. This is a non-cash accounting entry. When OSEG proposed the deal back in 2012, their projections were on a cash basis, and the city bought it. Well, in the last four years, the average cash loss has been about $1.75 M/year. That's pretty normal for a major multi-use facility like Lansdowne, really as good as it gets. So where's the emergency?
Let's also remember the developer makes money in various ways. Minto sold the two prime gateway commercial buildings fronting Bank Street in 2022 for $38 million. Did the city see any of that? Does the city get those buildings back at the expiry of the agreement, since they explicitly say they retain ownership of all land?
The franchises owned have also grown in value, which doesn't return any money to the city, nor show on the books of the partnership. Jeff Hunt bought the 67's for around $2.5 - $3 M in 1998. One estimate in 2016 pegged the value at $55 M. The Redblacks franchise was purchased for $7 M in 2008. A comparative transaction in 2022 valued the Hamilton Tiger Cats and the Forge FC soccer team at $50 million.
It's coming down to an all or nothing council vote sometime in October, 2025. Yet council has refused to cost out a contingency Plan B, examining what would be the real cost to carry the facility if the vote is no to Lansdowne 2.0 and OSEG walked away. This is an abrogation of their fiduciary responsibility. The whole thing stinks like last week's fish.
In light of C Legget's comments, we have to examine the existing agreement's conditions for OSEG's possible exit. Does the city have any legal obligation to cover their financial loss? If so, this would constitute a substantial risk to the taxpayers that has to be factored in.
In regards to OSEG covering the $10million or so loss each year, Carolyn MacKenzie, in her review noted the City loans the money to cover to OSEG loss at an extremely low interest rate which allows them to refinance at a better rate therefore making a return on the loss. Also their book loss is added to their monetary investment in the project which is to be recovered if they leave. All affording them in a no loss, no risk situation -in fact a substantial win win situation as they mis manage the site.
Thanks for the observation that the existing structure may not be strong enough to carry the proposed residential towers that would bail out the developer partners. I agree it’s likely.
If this is about making OSEG whole, then OSEG can take the risk of financing. Get the city's money out of it.
Your reference to the future profits from building the residential towers contains a questionable flaw in business logic. Once the towers are built, leased and sold to a REIT (Real Estate Investment Trust), the developers' profits will have been earned/realized. The money will be in the bank. Meanwhile Lansdowne continues to lose money year after year after year.
Businesses are in the business of earning profits every year. Successful businesses have little to no patience in rolling the previous year's profits into funding the next years' losses. Successful businesses do not entertain lightly the concept of funding this year's and next year's and the year after that losses with last year's profits.
Therein the problem lies. The city hall is not populated with people who have anything approximating business experience. The people who populate city hall aren't 'programmed' to think like a business person. That is why, time after time after time, the city loses when they enter into business arrangements with successful businesses. With Lansdowne the city will, once again, willfully hand over its (OUR) lunch money to the developers, while declaring it a success.
Ron, I agree with your assessment of how and when profits are realized within a corporation, but it is not quite that simple with the Lansdowne partnership. The OSEG partners are individuals, and they are the ones covering the partnership losses. Three of those individuals happen to be associated with development firms. So if one of those development firms built the Lansdowne towers, one OSEG partner might benefit through his ownership stake in the development firm. So I'm not suggesting there is ever a formal "make the partner whole" exercise. I see it as more of a roundabout process where the losses one partner has covered are recouped indirectly through profits accruing to a business partially owned by that individual. That's my take on what is going on. I welcome the city to provide an alternative explanation and correct this interpretation.
The impetus for 2.0 seems to be that it's these old facilities that are preventing Lansdowne from making money. Well, depreciation makes up a large part of the losses so far - $76.3 M to be exact. This is a non-cash accounting entry. When OSEG proposed the deal back in 2012, their projections were on a cash basis, and the city bought it. Well, in the last four years, the average cash loss has been about $1.75 M/year. That's pretty normal for a major multi-use facility like Lansdowne, really as good as it gets. So where's the emergency?
Let's also remember the developer makes money in various ways. Minto sold the two prime gateway commercial buildings fronting Bank Street in 2022 for $38 million. Did the city see any of that? Does the city get those buildings back at the expiry of the agreement, since they explicitly say they retain ownership of all land?
The franchises owned have also grown in value, which doesn't return any money to the city, nor show on the books of the partnership. Jeff Hunt bought the 67's for around $2.5 - $3 M in 1998. One estimate in 2016 pegged the value at $55 M. The Redblacks franchise was purchased for $7 M in 2008. A comparative transaction in 2022 valued the Hamilton Tiger Cats and the Forge FC soccer team at $50 million.
It's coming down to an all or nothing council vote sometime in October, 2025. Yet council has refused to cost out a contingency Plan B, examining what would be the real cost to carry the facility if the vote is no to Lansdowne 2.0 and OSEG walked away. This is an abrogation of their fiduciary responsibility. The whole thing stinks like last week's fish.
In light of C Legget's comments, we have to examine the existing agreement's conditions for OSEG's possible exit. Does the city have any legal obligation to cover their financial loss? If so, this would constitute a substantial risk to the taxpayers that has to be factored in.
Neil: it IS March ... ie. now ! when do we see the next ( ie. fuller ) edition of the podcast with Joanne and Jon ??
Wednesday! We just finished recording.
In regards to OSEG covering the $10million or so loss each year, Carolyn MacKenzie, in her review noted the City loans the money to cover to OSEG loss at an extremely low interest rate which allows them to refinance at a better rate therefore making a return on the loss. Also their book loss is added to their monetary investment in the project which is to be recovered if they leave. All affording them in a no loss, no risk situation -in fact a substantial win win situation as they mis manage the site.
Chris L.
Neil,
Thanks for the observation that the existing structure may not be strong enough to carry the proposed residential towers that would bail out the developer partners. I agree it’s likely.
Can we get an expert structural opinion on that?
Jake