Backgrounder on Lansdowne

Lansdowne Summary 

Lansdowne Park is a 40-acre parcel of city-owned land that has been part of Ottawa’s history for 150 years. Centrally located with unique heritage features, green space, local sports, and city facilities.  

The Lansdowne Partnership Plan (LPP) 

On October 12, 2012, the City of Ottawa and the Ottawa Sports and Entertainment Group (the “Partners”) entered a 30-year limited partnership agreement for the redevelopment of Lansdowne Park. 

The City of Ottawa 

  • Funded the renovation of the stadium and the development of the Urban Park 
  • Is responsible for the programming and management of the Urban Park which includes the Aberdeen Pavilion, Horticulture Building, Aberdeen Square, the Great Lawn, skating court, children’s play structure and community garden. 
  • Manages a long-term contract with the Ottawa Farmers Market  
  • Leases the Stadium/arena and retail land to OSEG for $1/year 
  • Retains ownership of all 40 acres of land  

 OSEG 

  • Manages the sports teams on the site (with the city as a 50% silent partner for the 67’s and RedBlacks)The Project Agreement requires that the CFL team be operated for at least 8 years “unless the CFL ceases to operate during such period”. The team has been operated through 6 years being 2014 through 2019. The CFL did not operate in 2020, so two years of operation remain in this obligation. 
  • Is responsible for the operation and programming of the stadium, arena and parking  
  • Built and manages a mixed-use development that includes an office building and a large retail complex with restaurants, stores and a cinema (took out a loan for this). 

The Subsidiary Businesses 

  • Ottawa 67s Limited Partnership (“Ottawa 67s”)  
  • Ottawa REDBLACKS Limited Partnership (“Ottawa REDBLACKS”)  
  • Lansdowne Stadium Limited Partnership (“Lansdowne Stadium”)  
  • Lansdowne Retail Limited Partnership (“Lansdowne Retail”) 

The funding that goes into the partnership does not include: 

  • The sale of condo’s and associated fees on the site (air rights sold to Minto by the city) 
  • The other sports franchises 
  • Annual fees received from loan guarantees to the partnership 

A complicated ‘Waterfall’ structure was set up to provide returns to the City and OSEG. 

  • The city is currently projected to receive $0 from this waterfall. The city funded $210 million of improvements to the stadium, arena, parking garage, horticulture building relocation and retrofit, urban park, and soft costs. The city took on debt and maintains a loan (Stadium and Parking Garage is $127.6M and $26.4M for the Urban Park), which it pays annual interest on. The only deemed equity considered in the waterfall for the city was $23.75 million for the ‘market value of the retail lands’. 
  • OSEG is now projected to receive $286 million from this waterfall and is deemed to have contributed $152 million. The city is estimating this contribution may increase by $40 million. It is important to note that most of OSEG’s contribution ($97 million) came from annual ‘operational losses’ incurred, which are rolled back into the waterfall for OSEG with an 8% annual return. In the last two fiscal years, operational losses only occurred because of the depreciation of assets in the accounting.  

Financial Deal 

  • The term of the Stadium / Arena Lease is approximately thirty years ending on December 31, 2044 (the waterfall expiry). The City may offer to extend the term on or before the twenty-fifth anniversary of the commencement of the Stadium Lease, taking up to a year to negotiate terms 
  • The lease provided by the city to OSEG for the stadium and arena is $1 per year.  
  • The city also leased 11 acres of prime downtown land to OSEG for the retail at $1 per year. 
  • At the end of the 30 year agreement, the city is supposed to receive base land rent for the retail, as well as 50% of the net retail cashflow (revenues less expenses to operate). 
  • OSEG is responsible for all operating deficits of the LPP, however, this is considered ‘equity’ and put back into the waterfall at a return of 8% per year. 
  • In the last two fiscal years there were positive financial returns but the losses were attributed almost entirely to the write down or depreciation of the assets.  
  • OSEG has a mortgage of $106 million at 3.9% for the Retail Space.  It was secured by a $40 million guarantee from companies affiliated with the OSEG Partners who were entitled to receive annual fees equal to about 2% of the guarantee ($600,000). The loan is up for renewal in October of 2022.    
  • In addition, a related company received “… $300,000 in financing fees in consideration of services rendered in relation to closing of the mortgage”. 
  • No annual audited financial information is available for each of the 4 limited partnerships – only a consolidated report. 
  • The city covers all costs of the Urban Park including the heritage buildings. 

City Managers Report 

Recently, the City Manager’s office released a report on Covid-19 effects at Lansdowne and made several significant recommendations. There was no prior consultation with taxpayers, communities, the local city councillor or the businesses and organizations that occupy Lansdowne.  

The report recommends the following: 

  • Extend the partnership by ten years from 2044 to 2054 
  • Remove the participation rent and maintain base rents at current levels in the event of a permitted transfer of the Retail Component during the term of the Retail Lease 
  • Remove the city’s provision to terminate the Retail Lease without cause 
  • Provide OSEG one-time access to the current capital reserve lifecycle funds (~$4.7M) 
  • Approve the establishment of a Lansdowne Park Partnership Working Group consisting of city staff and OSEG representatives to explore the options to improve the Lansdowne Park Partnership, and a Council Sponsor’s Group  

There are two major risks the city outlines: 

1) That OSEG could default and leave 

2) That the amount of money required to operate the stadium/arena/retail would be a burden on the city (estimated between $4.5 million and $12.5 million annually). 

Analysis 

There are significant problems with the city report that requires more reflection 

It is very unlikely that OSEG would choose to default, and they have not indicated this. Any decision by OSEG to walk away from its obligations at Lansdowne would represent a default under the Material Agreements that would result in OSEG losing the equity (>$150 mil.) that it has invested in the project. That is, and will continue to be, the major deterrent to OSEG withdrawing from Lansdowne. 

The city has not done the analysis of what it would look like to have a not-for-profit entity operate the site in partnership with the city, including sports teams under a similar arrangement prior to OSEG being granted partnership status under the LPP. It is very likely that a favourable arrangement could be struck that better benefits the city than the current deal. 

The deal struck with OSEG has $1 leases for all the spaces it operates, 8% return on equity, while the city is expected to receive nothing back for the investment it madeOSEG also writes down or depreciates the assets, which has led to operational losses which get folded back into the waterfall at an 8% return.  

Under the scenario crafted by the city manager: 

  • The city would be foregoing market base rents of the retail, as well as 50% profit sharing of the net retail cashflow, even under a situation where OSEG transfers control over the retail space to another entity. It makes very little sense for the city to give this up. 
  • The city has cited the $106 million retail loan as a risk, but this loan is secured by OSEG. 
  • The ten-year extension is cited as a positive for the city because it can avoid the operational costs of the stadium and arena, but no calculation is completed for the rent the stadium and arena could generate for the city instead of the $1 per year we currently lease it for. It also doesn’t account for the potential profits that could be derived under a new arrangement. It assumes a steady state based on OSEG operations. 
  • The city is openly talking about more housing, and more opportunities at Lansdowne. Why would these opportunities be relegated to the private sector partner as was done with the sale of air rights to Minto for the homes built on Lansdowne? This is public land and the residents of Ottawa should be the beneficiaries.  

This deal needs more time to analyze. No 10-year extension or retail changes should be granted until there is robust analysis and public discussion.  

 

 

 

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