Lansdowne – whoa, hold on there!
By Alan Freeman
What’s the rush?
On December 9, city council will be asked to approve new terms for its partnership with Ottawa Sports and Entertainment Group (OSEG) that runs Lansdowne. This revised deal will give OSEG immediate access to cash from a lifecycle fund and delay for another decade the possibility that taxpayers will ever see a return on their $210-million investment.
The signs of Lansdowne’s problems have been evident almost since the day it opened in 2014. After the euphoria over the return of a CFL team, the Redblacks remain unprofitable, contributing to an $11-million loss at Lansdowne last year.
The mall is active on game days but visit the vast expanses of concrete on a Tuesday and you’ll find yourself alone listening to the tinny canned music wafting through the air.
But OSEG has continued to say things are looking up, if only they could get a few hundred thousand more people to the site by livening up the atmosphere. Then on November 4, the city manager dropped a bombshell. OSEG, owned by four prominent local businessmen, was on the brink of collapse. If the city didn’t agree to major changes to its Lansdowne agreement, default was looming.
The pandemic, which has hit every mall and sports teams, was something that Lansdowne couldn’t withstand without an immediate bailout from its friendly backer, the City of Ottawa. OSEG wanted immediate access to $4.7 million in a rainy-day fund to run day-to-day operations that it will pay off in the future. Great idea, but what if it rains more in the meantime?
The pandemic is short-term but OSEG is asking for long-term changes, a 10-year extension of an already favourable deal until 2054. If council approves, OSEG will continue to pay the city $1 a year to rent the mall lands for another decade, and the city would give up future rental income and retail profits until 2066, according to Councillor Shawn Menard.
The whole enterprise continues to be shrouded in secrecy. Financial statements for the partnership are full of blacked-out figures, like a CSIS document. Even city councillors don’t get a full look at the numbers. Contrast that with the detailed 255-page prospectus that Minto, one of the OSEG partners, made public in 2018 when it raised $200 million from the public for a real estate investment trust it was launching for its apartment buildings.
Mayor Watson dismisses critics as stuck in the past but we’re talking about financial commitments that will take us to 2066. Council is making decisions that will affect property taxes paid by our children and grandchildren.
What does the city get in return? OSEG insists it’s committed to professional sports but the requirement to operate the Redblacks expires in 2022. Why not insist on a 10-year extension in return for the deal?
And the immediate risk of default? OSEG’s mortgage on Lansdowne doesn’t mature until October 2022. Surely there’s plenty of time for the city and OSEG to explore all alternatives.
Why hurry to change a long-term deal when the project’s future is in the air? That’s what the proposed working group of OSEG representatives, councillors and staff is supposed to study in early 2021.
It already it looks as if the mayor wants to radically redesign Lansdowne, reflecting bleak prospects for a struggling shopping mall when retail spending is migrating to the web because of the pandemic. There’s already a glut of retail space in Ottawa. Just look at the vacancies on Bank Street.
Mayor Watson is musing about building “high-rises” at Lansdowne to increase density, presumably by tearing down part of the mall or encroaching on the stadium. Minto’s Roger Greenberg is talking about bringing in a new “silent” institutional partner. The city report even talks of adding affordable housing. Built by whom? A non-profit?
The whole nature of the development may be transformed, with new partners and a reconfigured site. Wouldn’t it make sense to determine what Lansdowne is going to look like and how financially viable it will be before extending favourable terms to OSEG?
The original Lansdowne was criticized for poor governance and a sole-source contract that left too much risk with taxpayers. Why repeat the mistakes of the past? If the pandemic has taught us anything, it’s that smart planning and prudence pay, so take time before sealing Lansdowne’s future.
Alan Freeman is a freelance journalist and columnist for iPolitics, and lives in the Glebe.
What the audit said
By June Creelman
The day before city council was to vote on extending the Lansdowne Partnership Plan by 10 years until 2054, the city’s auditor general released an audit of its accounting arrangements. His report should give pause to the mayor and city councillors before they extend the existing agreement with the Ottawa Sports and Entertainment Group (OSEG).
The auditor general concludes that the city has not been effective in monitoring the financial results and risks of the Lansdowne deal. The audit outlines numerous limitations, gaps, lack of controls, poor record keeping and inadequate oversight.
City staff was unable to provide the auditor with a copy of the original financial model used to support the original proposal to council or the related financial assumptions.
The partnership is not meeting financial expectations. Between 2012 and 2015, the city had expected returns of $93 million yet received nothing, while OSEG took in $359.8 million, more than twice as much as forecast.
Discrepancies in accounting: In the auditor’s view, OSEG overstated its equity by $6.5 million. Since it earns annual interest of eight per cent, this could amount to about $520,000 a year or $14 million during the life of the partnership.
Little to no independent analysis of the reported financial results:
Financial reporting has been at a consolidated level only, and there are no audited annual reports for the four components in the deal – the stadium, retail, the Redblacks and the 67s.
The value of the land at Lansdowne has not been updated since redevelopment. This may undervalue the city’s deemed equity.
A 2017 audit on Lansdowne identified similar problems, finding that the city’s management of the partnership agreements needed strengthening to ensure accountability, compliance and fulfillment of all contractual obligations.
This audit reveals that the Lansdowne financial arrangements are not being managed in the public interest. It appears that OSEG can spend money, add it to their equity share (without any required agreement from the city) and get an eight per-cent return while the city gets nothing for the investments it made in 2012-13 or for the value of the land.
The partnership agreements are exceedingly complex. Perhaps the city should make sure proper oversight is in place before it extends the agreements for another 10 years.
June Creelman is a vice-president of the Glebe Community Association with a longstanding interest in Lansdowne.