Tuesday, June 29, 2010

Council approves $5.75 million public subsidy to Lake Placid Developments; city kept no copies of Deloitte reports on financial due diligence

The Lake Placid Nine: Mayor Don Atchison, Councillors Bev Dubois,
Myles Heidt, Darren Hill, Maurice Neault, Tiffany Paulsen,
Glen Penner, Bob Pringle, and Gordon Wyant

“The most common public subsidy comes from providing some or all of the land for the project at less than its market value. Public streets and lanes are often closed to make way for large projects. These can amount to a very sizable proportion of the total area, and they are usually sold at bargain basement prices to the developer.”
– James Lorimer, Regina-born author and publisher, commenting on government subsidies to the development industry in his book The Developers (1978)
City council on June 14, 2010, awarded Lake Placid Developments a public subsidy of $5.75 million when it voted 9-2 in favour of entering into a sale agreement with the developer to sell River Landing Parcel Y and the adjacent lane (which council on September 15, 2008, agreed to close and sell to Lake Placid at its request) for $5.24 million – less than half the appraised market value of $11 million.

The deal requires Lake Placid to pay a deposit of $250,000 within two days of final approval by council and gives the developer until November 1, 2010, to supply the city with a copy of a commitment letter from a financial institution or other lender, or such other documentation satisfactory to the city, which shows that it has obtained financing in an amount sufficient to complete construction of the proposed River Landing Village to grade level, including excavation and shoring footings and foundation and all levels of the underground parking structure. Once Lake Placid meets this condition it has 15 business days to pay the balance of the purchase price, being the sum of $4,990,494. Following this, the developer will then have 18 months to get the development to grade level, the cost of which is said to be between $50 million and $60 million. The total cost of the condo-office-hotel-retail project is estimated at $200 million-plus.

The new sale agreement has one significant difference from the original deal that council approved on January 14, 2008. This time, the city has the power to unilaterally waive, at its election, the deadline by which the developer must provide the city with documentation showing it has financing in place to bring the development to grade level. Presumably this was done to spare the city the embarrassment of having to deal with any more missed deadlines. In other words, the deal could remain in place indefinitely.

Voting in favour of the sweetheart deal was Mayor Don Atchison and councillors Bev Dubois, Myles Heidt, Darren Hill, Maurice Neault, Tiffany Paulsen, Glen Penner, Bob Pringle and Gordon Wyant.

According to the StarPhoenix, Atchison argued the deadline was necessary so the developer doesn’t have to come back to council asking for another extension.

“Quite frankly, we want to make sure that no one has to come back again,” Atchison said. “This is it. Either it’s done or it’s not done.” [City backs Lake Placid (StarPhoenix, Tuesday, June 15, 2010)]

Atchison made a similar comment last summer about an earlier deadline, one that eventually proved worthless.

The recent decision by council betrays a resolution it passed on August 19, 2009, stating that if Lake Placid failed to meet an October 30, 2009, deadline to pay the full balances owing on Parcel Y and the lane, then both sale agreements would be terminated “without further resolution of council.”

Atchison said at the meeting the deadline was an “absolute certainty now.” If the developer didn’t come up with money owing on the land the agreement would be “terminated.”

“There’s no more chances,” Atchison declared. [Lake Placid gets time (StarPhoenix, August 20, 2009)]

Voting in favour of that deadline was the mayor and councillors Bev Dubois, Myles Heidt, Maurice Neault, Glen Penner, Bob Pringle, and Gordon Wyant.

Lake Placid subsequently missed the deadline and, on October 30, the mayor issued a news release reaffirming council’s decision that not only were the sale agreements dead, but that Lake Placid had also forfeited its two deposits totaling $250,000 and the interest payment of $193,770.48 it made in August. Within weeks, however, Atchison and several councillors were openly saying they would support re-entering negotiations with the developer.

Council’s actions over the past two years on this file have confirmed at least three things. One, it can and will play favourites. Two, it can and will change the rules to suit its purposes. And three, it cannot be trusted to keep its word.

What has gone unreported is that, despite saying there would be one, city administration failed to table a report with council on the outcome of the financial due diligence for the Lake Placid development.

Council at its meeting held April 12, 2010, directed administration to enter into discussions with Lake Placid and partners with the intent of entering into a new sale agreement for Parcel Y and the adjacent lane, based upon the terms and conditions of the original agreement with Lake Placid at a purchase price of no less than $4.8 million, including an appropriate due diligence review, with a report back to council on May 10, 2010, if possible, but no later than May 25, 2010.

In a report to council, the city manager indicated that outside auditors, Deloitte & Touche Inc., would be able and willing to assist with the due diligence process. In fact, administration and representatives from Deloitte had already met with Lake Placid CEO Michael Lobsinger and his partner, Dr. Karim Nasser, a director of Victory Majors Investments Corporation, on April 7, 2010, where the developers provided documentation for review by Deloitte.

However, by the week of May 17th, when the agenda for the May 25, 2010, city council meeting was posted on the city’s website, it became apparent that the deadline for the due diligence report would not be kept.

In a report to council that was short on specifics, city manager Murray Totland explained: “Deloitte &Touche Inc., an independent outside auditor, was hired by the City to work directly with Lake Placid and its partners on the financial due diligence review. The Executive Committee has been meeting on a regular basis to review progress reports on the financial due diligence and provide direction to the Administration on the development of the Memorandum of Sale Agreement.

“At the time of writing, the financial due diligence review and negotiations on an agreement are ongoing. We hope a report will be available in time for the June 14, 2010, City Council meeting.”

The report never arrived.

City council, sitting as an executive committee, met behind closed doors on the afternoon of Tuesday, May 25, 2010, to discuss the Parcel Y situation. When council convened that evening for its regular public meeting, the mayor provided a report. The meeting minutes give the following synopsis: “His Worship the Mayor verbally reported that since the report of the City Manager was submitted, the Executive Committee has met and will be forwarding a report to City Council on June 14, 2010, recommending that the City enter into a memorandum of sale for Parcel “Y” with Lake Placid Developments (Saskatchewan) Inc. for the purchase price of $5,240,494 and on the terms and conditions as set out in the proposed memorandum of sale. The Administration has been instructed to give Public Notice as required under The Cities Act and the City’s Public Notice Policy. Public notice ads will be placed in the local press under dates of June 5 and June 12, 2010.”

Atchison’s so-called report failed to address the fate of administration’s financial due diligence report.

The report submitted by the executive committee for city council’s June 14, 2010, meeting contains no details or results of the financial due diligence that was conducted by the external auditor. The report offers only this short paragraph: “The Executive Committee has received various updates from the Administration on negotiations for a Memorandum of Sale Agreement with Lake Placid Developments (Saskatchewan) Inc. The Committee has also met with representatives of Deloitte & Touche Inc. to hear the results of their financial due diligence.”

On June 18, 2010, an email was sent to the city clerk asking for clarification on administrations financial due diligence report. What happened to it? Did executive committee ask or instruct administration not to submit one? There has been no response. As such, the case of the missing report remains unanswered.

When it comes to hypocrisy and making outrageous comments, Mayor Don Atchison is not alone.

In May, Councillor Maurice Neault was quoted in VerbNews as saying council will make sure that due diligence requirements are met and that people have a chance to address council with their opinions.

“There’s a process that we have to follow, totally transparent,” Neault said. “The opportunity is there at the council meeting [for anyone] to come forth and publicly speak their mind.” [River Landing Sale Price Set (VerbNews, May 28-June 3, 2010)]

Simply allowing the public to address council is not being totally transparent. Not even close. Along with council’s decision to move the Mendel Art Gallery to River Landing, Parcel Y is one of the most secretive projects around.

As a councillor, Neault would know that the public does not have access to the agendas or minutes of closed door executive committee meetings. The public will likely never know what directions or instructions councillors gave administration. Residents will surely never know what individual councillors said. The city is declining to provide even the most basic information about the in-camera meetings. On May 20, 2010, an email was sent to the city clerk’s office asking the following questions:

▪ What were the dates of the meetings?
▪ How many progress reports have been tabled?
▪ Are the reports from administration or Deloitte & Touche?

The response from administration the next day was short and to the point.

“I am unable to provide you with the requested information. In Camera agenda matters and discussions are not disclosed or released,” said deputy city clerk Joanne Sproule.

And that’s not all. The city is also refusing to release the terms of its agreement with Deloitte & Touche.

On April 20, 2010, an access to information request was submitted to the city clerk’s office for a copy of the terms of reference, agreement or contract between the city and the outside auditor.

In a letter dated April 28, 2010, the city clerk advised, “There is one document that is responsive to [the request], being a letter that confirms the terms of engagement of Deloitte & Touche LLP by the City of Saskatoon to provide financial consulting services. I am not releasing this letter for the following reasons:

▪ It was provided in explicit confidence to the City by Deloitte and it contains proprietary information, the disclosure of which could reasonably by expected to prejudice the competitive position of Deloitte. [Section 18(1)(c)(ii) of The Local Authority Freedom of Information and Protection of Privacy Act]

▪ It contains information which, if disclosed, could reasonably be expected to interfere with negotiations of the City with Lake Placid Developments. [Section 17(1)(d) of the Act]”

It should be noted that while section 18 of the Act is mandatory, section 17 is not, it is discretionary, meaning the city could release the information if it wanted.

On May 28, 2010, an access to information request was submitted to the city for copies of any progress reports since April 1, 2010, regarding or relating to the financial due diligence process. The request was neither granted nor denied.

In a letter dated June 18, 2010, the city clerk said: “The City has no records that are responsive to this request. Deloitte & Touche LLP, who undertook the financial due diligence, provided mostly verbal reports, and written materials were not left with the City of Saskatoon.”

In response to a follow-up query, the city clerk on June 29, 2010, confirmed that this applies to any final reports that Deloitte may have prepared as well. So, in other words, the city hired Deloitte to do a job, but didn’t bother to keep any copies of the reports that the firm produced.

These stunning facts were never included in any city administrative report or reported in the media. What it means is that with no paper trail there is no accountability – not to administration or city council. It also subverts the freedom of information process. Deloitte & Touche are not subject to the province’s freedom of information legislation. When their representatives walked out of city hall with the “written materials” the public’s right to apply for access to those records went with them. It’s inexcusable. What’s scary is that city council and administration appear to be okay with it.

Two councillors voted against the latest sale agreement with Lake Placid: Charlie Clark and Pat Lorje. Lorje appears to be one of the only council members willing to say anything of substance about the results of the due diligence process. In an email on June 18th, presumably to constituents and other interested parties, Lorje outlined what she called her “Top Ten List of City Council decisions, comments and queries” from the June 14 meeting. Lorje had this to say about the Lake Placid decision:

“I am not going to go into the arguments of whether or not the land should have been sold for less than market value, or whether it would be better to have broken the land up into smaller pieces. I am simply going to say that I carefully read the financial due diligence report prepared for Council by the nationally respected accounting firm Deloitte. I am not comfortable with the level of risk that they reported to us. Because of a confidentiality agreement, and because I’m already facing a law suit over the Barry Hotel, I can not and will not say anything more about the details of that due diligence. I will only repeat that I was not satisfied with the risk posed by going forward. Perhaps, and hopefully for all the eternal optimists out there, I will eventually be proven wrong. But I know what I heard from Deloitte, and I could not, in good conscience, despite the involvement of locally respected Karim Nassar, vote for this project.”

After reading this, it certainly becomes a lot clearer why council would want to make sure that there is no trail of bread crumbs leading back to its doorstep should the decision it made on June 14 blow up in its face.

There has been speculation that the developers involved do not have the financing in place to complete the project.

Sean Shaw, a geology researcher at the University of Saskatchewan who ran against Councillor Myles Heidt in Ward 4 last year, said in a blog posting on May 26, 2010, that according to a number of confidential sources familiar with the behind the scene details, the best the Lake Placid/Victory Majors partnership can come up with is the $50 million or so needed to build the underground parking structure.

“They have apparently pushed the City to allow the project to start with the expectation that with construction underway jittery investors would be finally willing to sign off on the remaining $150-250 million financing required to build the actual hotel/retail/condo development,” Shaw said.

The city and developers have not confirmed or denied this. And even though they apparently know about it, the StarPhoenix hasn’t reported it.




Public notice for closed-door executive committee meeting

2 Comments:

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At 9:51 PM, Blogger 青卉青卉 said...

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