Not any more

Olympic village project to cost Vancouver taxpayers millions of dollars monthly

In Canada on November 20, 2010 at 08:38

VANCOUVER – Vancouver taxpayers are on the hook for millions of dollars a month in interest payments for the troubled Olympic village project, and there are no plans to start selling the empty condos again until early next year.

Expenses for building maintenance and security and other costs are adding as much as $1.5 million a month to the multimillion-dollar interest payments.

Moreover, the court-appointed receiver Ernst & Young has the power to borrow as much as $7.5 million to carry out its job.

The figures emerged this week as part of the backdrop for the city’s extraordinary demand to put Millennium Southeast False Creek Properties into a “negotiated receivership” over the $740 million it owed for two taxpayer-funded loans.

Under the deal, Ernst & Young has taken over the village, now called Millennium Water, on behalf of the city, which also will get access to a modest array of other commercial and personal assets pledged as security by Millennium’s owners, Peter and Shahram Malek.

The carrying costs to the city are far less than the amounts the now-ousted owners of the former Olympic athletes’ village had to pay, the city said Thursday.

That’s because the bank interest rate the city pays is less than half the rate it was charging Millennium Developments.

When the city stepped in Wednesday and took over the controversial real-estate development, Millennium was accruing interest on two taxpayer-funded loans at the rate of about $4.4 million a month. The city had agreed to loan the company money at a rate of seven per cent, far less than what Millennium had been paying under a previous arrangement with Fortress Management, an American hedge fund, but higher than what the city will have to pay.

At the time of receivership, Millennium’s daily interest costs on a $560-million construction loan were $107,000. It also chalked up another $39,000 a day in interest on the balance of the $171 million it owed on the land it bought from the city.

In arranging the loans for Millennium, the city borrowed money at between 2.5 and three per cent, then tacked on four per cent to cover the city’s carrying costs and profit.

Under the receivership deal, the city will only have to pay the base interest rate on the money it borrowed. It couldn’t say Thursday exactly how much that would be, but said the savings would be significant.

“This in effect is going to save us millions of dollars,” said Coun. Geoff Meggs. “We’re not sure exactly how much yet, but we don’t have to pay the interest rate we were charging Millennium.”

The fact, however, was that Millennium was increasingly unable to pay back either the loan or the growing interest charges.

In August it missed a deadline to pay all of a $200-million instalment, putting it into a technical default and triggering a demand note from the city. It eventually paid all the money, but by then the city was considering worst-case scenarios. Millennium was due to pay another $75 million on Jan, 3, but the city was increasingly worried the company couldn’t meet the deadline because sales of the remaining 480 condos have all but dried up.

Millennium had also been taking regular monthly draws from the city of about $1.5 million to pay for strata fees and maintenance costs, city manager Penny Ballem revealed.

Those amounts are still likely due, but will be reviewed by Ernst & Young.

Ballem said the true value of the receivership arrangement is that it allows the city “to put a rope around” the large block of non-village assets the Maleks had pledged. The city is still trying to identify those assets, but they include revenue-generating commercial properties, real estate and some personal guarantees offered by the Maleks.

Ballem said it will take the city several weeks to examine each of those assets to determine how encumbered they are with other loans. In some cases, the city will sell the assets, she said. In others, if there is a regular revenue stream, the city might divert that into repaying the loan.

“It takes quite a while to get it, but the most important thing is we have to get those assets into the city’s name,” she said.

Vancouver Sun

jefflee@vancouversun.com

Twitter.com/sunciviclee

© Copyright (c) The Vancouver Sun

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