Taxpayers responsible for Olympic village tab, mayor warns
By Catherine Rolfsen and Jeff Lee, Vancouver Sun January 10, 2009 10:00 AM
Vancouver taxpayers are on the hook for the entire billion-dollar Olympic Athletes' Village project after the lender cut off funding to the troubled development, Mayor Gregor Robertson said Friday.
Now, the city is scrambling to renegotiate its deal with Fortress Investment Group before Feb. 15, when the money flow is to evaporate and construction will be halted unless a new deal is in place.
"The Olympic village is a billion-dollar project, and the city taxpayers are on the hook for all of it," Robertson said. "We are financially and legally committed to completing this project."
Robertson and senior city staff revealed details of the deal negotiated by the city, developer Millennium Development and lender Fortress to build the 17-acre village, touted as a model of sustainability.
Fortress stopped in September doling out the monthly money needed to keep construction going after its agreement with Millennium went sour. Since then, the city has been paying to keep construction going, to the tune of $79 million over three months.
Next Thursday, the city will give the development another $21 million, the last of a controversial $100 million loan approved by council last fall. After that, it's unknown where the rest of the money needed to complete the project will come from, an estimated $458 million.
That, combined with the $317 million already loaned by Fortress and the $100 million being fronted by the city, leaves taxpayers with a combined financial liability of $875 million.
The rest of the value of the $1,075 million project is in land already owned by the city, which is why Robertson said the city is on the hook for the whole billion.
The city is legally liable for the $875-million cost of the project because in mid-2007, the previous council gave Fortress a "completion guarantee," meaning the city is responsible for completing it.
"With that action, [council] effectively made the City of Vancouver the project developer from that point forward," Robertson said.
He said the decision was made in a closed meeting and wasn't made public until the year's financial statements were released in 2008.
The city has been negotiating with Fortress to restart the flow of money, so far without results.
A senior city official, who briefed reporters on condition of anonymity, said Fortress stopped paying out its $750 million loan after concluding Millennium was "out of balance" on its commitments.
The lender was fully within its legal rights to do so, the official said, since the project had begun to face cost over-runs -- which now total $125 million -- and other technical defaults.
The official said Fortress has paid out $317 million of the $750-million loan, but now wants to renegotiate the remaining amount.
Robertson said the city is in "delicate and quite urgent" negotiations with Fortress, but so far, has been unable to convince it to resume payouts to Millennium. Neither he nor staff would give further details, other than to say they were acting in the interests of taxpayers.
Robertson said his focus was on negotiating with Fortress rather than looking for other sources of financing. But he said the city is also talking to Vanoc and the federal and provincial governments.
The city faces a tight deadline to keep construction going to complete the village by November but Robertson insisted it will be completed.
"We will meet this challenge and we will excel as proud hosts to the world's greatest athletes," he said. "And we'll be doing it under the most difficult economic circumstances in more than a generation."
The tanking real estate market means the project may be much less lucrative than originally thought, with 70 per cent of its market units left unsold.
"The potential liability of the project hinges on the market in the future," Robertson said. "That, at this point, is unpredictable."
Robertson, who campaigned on a promise to make details of the project public, said he will hold a special council meeting Monday to share more information with taxpayers.
He put much of the blame on the previous NPA-led city council. "The decisions taken by the previous city government have put the city at enormous financial risk, even as we were told in 2006 by our elected leaders at the time that the Olympic Village would be developed at, and I quote, 'no risk to the taxpayers,' " he said.
Coun. Suzanne Anton, the lone NPA member now on council, defended the previous council's actions.
"When you talk about the cost of it, remember that there is a product at the end of the day," she said. "This is a beautiful project with 1,000 units of housing in it and a lot of inherent value."
Vanoc vice-president Dan Doyle, said he was confident the city will deliver on the village.
VIA: The Vancouver Sun