Rendez-Vous Lebreton Bid Fails

[NorthCoast]

The value of the deal is what? 4 billion? How much margin is there on the deal? Split the margin in half. Build a 600M rink, i bet 1/2 the margin amortized over 30 years of development doesn't cover the interest carrying charge on the arena debt.

If the margin is 15%, which based on my research it's not likely to be that high, then there is 600m in margin. Half of that is 300m. Over a 30 year development that is 10m a year. Over a 20 year development it is 15m a year. Neither funds that arena. And 900 albert certainly squeezes the margins.

You can argue that he should not have to finance the arena he should pay for it. If you could do that, if you had that kind of money, why would you? Unless you were a philanthropist you wouldn't.

Arenas like what we want aren't being built in small cities in north america 100% with private money. They just aren't because you can't come up with a business model where it makes sense.

I don't wish to get into the debate about public funding either. I'm not sure what i think about it either way. Regardless of what i think about it on principal, i don't think it gets built without some significant subsidy / event surcharge

A lot of assumptions that are not set in stone.

Rink Cost: 600 mil vs 500 mil (Edmonton's cost $483 once you took non-arena costs out of the project. ie: costs that will be covered by other parts of the 4 bil project)

Rate of Return: 15% vs 25%. Yes, the return on a new condo in Toronto might be 12%-20%, but that's only the residential rate of return on a brand new condo. Rates of return on commercial and retail space can be much higher. Further, 25% of the housing units in RVL were affordable housing where RLV would get major subsidies and access to significantly better lending. This was mention by both parties as a critical part of the funding model.

Sens Investment: 0 vs 125 mil (Value of Katz investment in Edmonton arena)


So if it's 500 mil, and say a 20% rate of return, then the sens get 400 mil out of the project, plus they invest the same as Edmonton and put another 125 m into the project (which following the edmonton model will be made back from increased team/arena revenues), giving them 525 mil for the arena plus borrowing costs.

That only leaves 25 mil for interest costs, but keep in mind that they don't need to borrow 500 mil all at once. The need a loan to cover any costs that occur before revenues come in to cover those costs. There will be revenues from pre-sales, sponsorship, commercial lease down-payments, etc. that come in while the arena is being built. So the actual total amount you might need to borrow over the course of the arena build may only be 100-200 mil.

Still might not be enough to cover the interest costs...but you are now getting to within tens of millions IMO, on a deal that if everything went to plan, Melnyk would have invested zero dollars in personally. Further, the above evaluation does not factor in revenue from the appreciation of land value or team value, which again IMO, would offset any capital he had to invest personally.


But this also assumes that he can get his hands on 125 mil plus carrying costs. And he already has 135 plus 20 plus 100 mil (potentially) leveraged against the team. So he probably cannot get it from the team.


It could be that we are both right. That he doesn't have enough to invest for my model, and that he believes that the rate of return will be closer to your model.

But I also believe that different ownership with better access to capital and deeper experience in large real-estate projects could potentially resolve these issues by reducing the borrowing costs and/or improving the revenue projections.

 

[RyCam]

Longer to sell means you're paying taxes, upkeep and insurance payments with no revenue.

It cuts into the margins for sure, and you might be inclined to accept an offer that's below what you otherwise would have.

900 Albert is slated to be entirely composed of rental units, is it not? Much easier to rent out units in Ottawa than to sell them considering the similarly priced options we have in the suburbs(which is why the Icon has not sold out yet, but it is still considered a success by Claridge).

The rental market downtown is as hot as anywhere else in the country, which is why I'm inclined to agree with Bert in this regard. It appears to me that Melnyk was looking for a way out(or for a free arena) and he commissioned PwC for a study that would enable him to do just that. Melnyk's conduct over the past couple of years is not doing him any favours and prevents me from giving him the benefit of a doubt.

 

[AchtzehnBaby]

900 Albert is slated to be entirely composed of rental units, is it not? .

Looks like it.

Trinity Centre at Bayview Station – Trinity Group

 

[Do Make Say Think]

Looks like it.

Trinity Centre at Bayview Station – Trinity Group

-_-

Really? They are all rentals?

That is so dumb. **** condo renting.

 

[Relapsing]

-_-

Really? They are all rentals?

That is so dumb. **** condo renting.

Disagree. There is a serious lack of modern rental units in this City, especially in this area. Having a modern tower, with that many rental units, right next to major transit infrastructure, is incredible.

So many potentially amazing rental units have been monopolized by people renting them as air bnb units. Hintonburg/Westboro especially.

 

[Do Make Say Think]

Disagree. There is a serious lack of modern rental units in this City, especially in this area. Having a modern tower, with that many rental units, right next to major transit infrastructure, is incredible.

So many potentially amazing rental units have been monopolized by people renting them as air bnb units. Hintonburg/Westboro especially.

I'm not sure having more amazing rental units getting monopolized by rent seekers is desirable.

 

[coladin]

Saw this today and thought it was interesting:

Markets to watch in 2019

Says rents will stay at an all time high regardless of potential doubling of inventory in some areas (lebreton).

I would surmise that more inventory will have a direct impact on what the rents are. The other factor that is not known is who much these condos will cost. I don't know if the rents would cover the majority of the costs. Pretty sure they wouldn't especially with the trend of condo fees becoming ridiculous.

 

[coladin]

Looks like it.

Trinity Centre at Bayview Station – Trinity Group

I don't see that anywhere. does it say specifically? All i saw was units. I foresee a lot of people buying condos and renting them out.

 

[Do Make Say Think]

I would surmise that more inventory will have a direct impact on what the rents are. The other factor that is not known is who much these condos will cost. I don't know if the rents would cover the majority of the costs. Pretty sure they wouldn't especially with the trend of condo fees becoming ridiculous.

They will cost too much and the fees will be outrageous.

The real estate/condo market in Ottawa is out of control. A nice crash should help things a bit.

 

[Relapsing]

I'm not sure having more amazing rental units getting monopolized by rent seekers is desirable.

That's assuming that would be permitted within the building by management. It's just as likely they crack down on airbnb rent-a-holics by explicitly prohibiting the practice.

Regardless, the important takeaway is these are rental units, not condos, the former of which is very much needed in the City.

Vacancy rates in the rental market in Ottawa was about 1.6% in October of '18, and rates have skyrocketed lately. More units are needed - the City only has ~62000 units. Last year, a little over 500 units were added - this development alone would triple that number.

 

[Do Make Say Think]

That's assuming that would be permitted within the building by management. It's just as likely they crack down on airbnb rent-a-holics by explicitly prohibiting the practice.

Regardless, the important takeaway is these are rental units, not condos, the former of which is very much needed in the City.

Vacancy rates in the rental market in Ottawa was about 1.6% in October of '18, and rates have skyrocketed lately. More units are needed - the City only has ~62000 units. Last year, a little over 500 units were added - this development alone would triple that number.

At this juncture, nothing left to say but "we shall see". I am not confident at all in the market's ability to auto-regulate, this isn't the XIXth century anymore.

I hope I'm wrong, I'm looking to get my first home soon and would prefer living in Ontario than Québec!

 

[bert]

Disagree. There is a serious lack of modern rental units in this City, especially in this area. Having a modern tower, with that many rental units, right next to major transit infrastructure, is incredible.

So many potentially amazing rental units have been monopolized by people renting them as air bnb units. Hintonburg/Westboro especially.

Its true vacancy is less than 2% right now. There are thousands of condos to buy in the city right now anyway and will be tons more if it ever gets developed. Right now its way more profitable to build a rental building then a condo building.

I have been selling condos in this city for over 10 years, they are finally starting to come back but rental rates right now make way more sense then condo sales.

 

[coladin]

That's assuming that would be permitted within the building by management. It's just as likely they crack down on airbnb rent-a-holics by explicitly prohibiting the practice.

Regardless, the important takeaway is these are rental units, not condos, the former of which is very much needed in the City.

Vacancy rates in the rental market in Ottawa was about 1.6% in October of '18, and rates have skyrocketed lately. More units are needed - the City only has ~62000 units. Last year, a little over 500 units were added - this development alone would triple that number.

I haven't seen anywhere that they are rental units. Last I heard was it was undecided, and leaning towards condos.

 

[Take a Bath Son]

"
InterRent Real Estate Investment Trust (TSX:IIP.UN) said Friday it has paid $14.2 million for a one-third share in the project at 900 Albert St., a joint venture that also includes local builder Trinity Developments and PBC Real Estate Advisors.
“I think the LRT is going to (have) a major impact in Ottawa,” InterRent CEO Mike McGahan told OBJ in an interview....
Mr. McGahan confirmed Friday that the residential component will consist of rental units. While Trinity initially said the plan would include up to 1,632 units, Mr. McGahan said Friday that number has been scaled back to 1,000. But he added that total could change again before the project is finalized."

Ottawa’s InterRent REIT buys $14.2M stake in Bayview Station high-rise development | Ottawa Business Journal

 

[mysens]

"
InterRent Real Estate Investment Trust (TSX:IIP.UN) said Friday it has paid $14.2 million for a one-third share in the project at 900 Albert St., a joint venture that also includes local builder Trinity Developments and PBC Real Estate Advisors.
“I think the LRT is going to (have) a major impact in Ottawa,” InterRent CEO Mike McGahan told OBJ in an interview....
Mr. McGahan confirmed Friday that the residential component will consist of rental units. While Trinity initially said the plan would include up to 1,632 units, Mr. McGahan said Friday that number has been scaled back to 1,000. But he added that total could change again before the project is finalized."

Ottawa’s InterRent REIT buys $14.2M stake in Bayview Station high-rise development | Ottawa Business Journal

This is old news. And if I am not mistaken, that plan has changed and Inter rent is out of this project.

 

[Relapsing]

I haven't seen anywhere that they are rental units. Last I heard was it was undecided, and leaning towards condos.

I haven't seen anything to indicate condos, and rental apartments have been put forth consistently since early development.

I do have a small personal connection that I spoke with last year, and they indicated it would be all rentals.

Admittedly, it's a little hard to confirm either way, as most articles tend to focus around the lawsuit. In a very brief search, most recent published info I could find from the OBJ was that they would be apartments: City council approves 65-storey Bayview tower, Claridge’s East Flats | Ottawa Business Journal.

As with a Goal/No Goal call, I'm going with the original call of rental apartments until I see something that otherwise definitively states they are condos.

 

[Relapsing]

This is old news. And if I am not mistaken, that plan has changed and Inter rent is out of this project.

Believe you're correct on out of date partnership info, however the rental portion is still likely accurate:

900 Albert Street: gateway for a $700 million lawsuit

For anyone looking to learn more about the development and where it's at, I recommend reviewing this thread: Trinity Centre @ Bayview Stn | 233.9m, 207.4m, 129.1m | 65 fl, 56 fl, 27fl | Approved - SkyscraperPage Forum

 

[AchtzehnBaby]

I don't see that anywhere. does it say specifically? All i saw was units. I foresee a lot of people buying condos and renting them out.

There is only a link for leasing. No info in purchase. Technically, an assumption... but would have had purchase info, if not IMO

 

[supsens]

A lot of assumptions that are not set in stone.

Rink Cost: 600 mil vs 500 mil (Edmonton's cost $483 once you took non-arena costs out of the project. ie: costs that will be covered by other parts of the 4 bil project)

Rate of Return: 15% vs 25%. Yes, the return on a new condo in Toronto might be 12%-20%, but that's only the residential rate of return on a brand new condo. Rates of return on commercial and retail space can be much higher. Further, 25% of the housing units in RVL were affordable housing where RLV would get major subsidies and access to significantly better lending. This was mention by both parties as a critical part of the funding model.

Sens Investment: 0 vs 125 mil (Value of Katz investment in Edmonton arena)


So if it's 500 mil, and say a 20% rate of return, then the sens get 400 mil out of the project, plus they invest the same as Edmonton and put another 125 m into the project (which following the edmonton model will be made back from increased team/arena revenues), giving them 525 mil for the arena plus borrowing costs.

That only leaves 25 mil for interest costs, but keep in mind that they don't need to borrow 500 mil all at once. The need a loan to cover any costs that occur before revenues come in to cover those costs. There will be revenues from pre-sales, sponsorship, commercial lease down-payments, etc. that come in while the arena is being built. So the actual total amount you might need to borrow over the course of the arena build may only be 100-200 mil.

Still might not be enough to cover the interest costs...but you are now getting to within tens of millions IMO, on a deal that if everything went to plan, Melnyk would have invested zero dollars in personally. Further, the above evaluation does not factor in revenue from the appreciation of land value or team value, which again IMO, would offset any capital he had to invest personally.


But this also assumes that he can get his hands on 125 mil plus carrying costs. And he already has 135 plus 20 plus 100 mil (potentially) leveraged against the team. So he probably cannot get it from the team.


It could be that we are both right. That he doesn't have enough to invest for my model, and that he believes that the rate of return will be closer to your model.

But I also believe that different ownership with better access to capital and deeper experience in large real-estate projects could potentially resolve these issues by reducing the borrowing costs and/or improving the revenue projections.

In developments this large it takes many investors, even at a 25% return the people investing are going to want a return. And then taking out the cost of an arena you have a 3.5 billion dollar development not 4, even split on the rest is leaving you 1.75 billion worth of development. In a perfect world no one taking any cuts and you at 25% it’s still not enough.

 

[Nac Mac Feegle]

Agreed...600 or so jobs means more taxpayors ,this isnt uncommon ....

For now. Amazon is one of the leaders in robotic tech in their distribution centers. They're quickly replacing a lot of jobs in their testing facilities. In 10 years, you could see them in most of their big warehouses.

At this juncture, nothing left to say but "we shall see". I am not confident at all in the market's ability to auto-regulate, this isn't the XIXth century anymore.

I hope I'm wrong, I'm looking to get my first home soon and would prefer living in Ontario than Québec!

If you're willing to drive, head outside the city. New developments a half hour or so outside the city will get you a bigger home and more land for your dollar.

 

[JD1]

Noticed that wasn't a denial.

You come in here with rumor and speculation and treat it as "this is how it happened" and then whine for others to prove you wrong with concrete facts and numbers.

It's a message board. You offer nothing, you get nothing. If someone is willing to offer something good on them.

I didn't come in here with rumour and speculation and this is how it happened. I've read pretty much everything there is to read on the subject and I'm pretty careful to distinguish between opinion and fact

People want to say the whole thing fell apart because Melnyk has no money. That's fine, believe what you want. Everyone is entitled to their beliefs.

I have beliefs myself. I don't think that deal made sense from Melnyk's POV. Not on day one and not on the day it fell apart. And Melnyk was deathly ill when the deal was put together. I've run numbers and posted them. If you don't agree and want to criticize that's your right man. But step up to the plate and explain why it makes sense. The numbers are all out there. Use the numbers, lay out how it makes sense.

A couple of posts ago you said my belief on something was "laughable". It was actually me that was offering something. It's my opinion and it's based on a lot of reading and a pretty significant background with federal procurement. If you see it differently I'm all ears and always interesting in learning. If you have experience with putting together deals of this magnitude or being involved in procurement of this magnitude and it's different than mine resulting in you having different opinions....i'm all ears and interested in learning.

 

[JD1]

We won't get one. Because he backed himself into a corner with that assertion on top of his previous number crunching: it never made sense and he backed out because of shifting context. He really doesn't want the Lebreton deal falling through to mostly be on Melnyk's shoulders for some strange reason:

- If it never made sense, why did he spend time and money on trying to make it happen

- If the context changed, in that a nearby project was upscaled unbeknownst to him, why does that make something that didn't make sense from the start now impossible unless he got a free arena

Of course he feels unfairly targeted by this, but this logical conundrum is entirely his own doing. Hence no reply. Just like with Mickelbot: "here's a whole bunch of sourced material that contradicts your assertion" JD1: "uhhh, I will return!".

That's the issue with narratives constructed to reach a pre-determined goal, they cannot withstand probing. Now he thinks I'm an anti-Melnyk guy for poking holes when all I' doing is poking holes in his story.

To be honest with you i had a long private discussion with Micklebot about our discussion. Based on that discussion, i've chosen to not engage with you any further on this issue. Why don't we leave it at that.

Still waiting for you to post some numbers @bert

As for getting back to Micklebot..,,ya that's going to take some time...but if you were paying attention to his post there was something in it that is quite material to why i believe what i do. But i'll probably reach out to him privately anyway in an effort to have a more....reasonable discussion.

 

[JD1]

A lot of assumptions that are not set in stone.

Rink Cost: 600 mil vs 500 mil (Edmonton's cost $483 once you took non-arena costs out of the project. ie: costs that will be covered by other parts of the 4 bil project)

Rate of Return: 15% vs 25%. Yes, the return on a new condo in Toronto might be 12%-20%, but that's only the residential rate of return on a brand new condo. Rates of return on commercial and retail space can be much higher. Further, 25% of the housing units in RVL were affordable housing where RLV would get major subsidies and access to significantly better lending. This was mention by both parties as a critical part of the funding model.

Sens Investment: 0 vs 125 mil (Value of Katz investment in Edmonton arena)


So if it's 500 mil, and say a 20% rate of return, then the sens get 400 mil out of the project, plus they invest the same as Edmonton and put another 125 m into the project (which following the edmonton model will be made back from increased team/arena revenues), giving them 525 mil for the arena plus borrowing costs.

That only leaves 25 mil for interest costs, but keep in mind that they don't need to borrow 500 mil all at once. The need a loan to cover any costs that occur before revenues come in to cover those costs. There will be revenues from pre-sales, sponsorship, commercial lease down-payments, etc. that come in while the arena is being built. So the actual total amount you might need to borrow over the course of the arena build may only be 100-200 mil.

Still might not be enough to cover the interest costs...but you are now getting to within tens of millions IMO, on a deal that if everything went to plan, Melnyk would have invested zero dollars in personally. Further, the above evaluation does not factor in revenue from the appreciation of land value or team value, which again IMO, would offset any capital he had to invest personally.


But this also assumes that he can get his hands on 125 mil plus carrying costs. And he already has 135 plus 20 plus 100 mil (potentially) leveraged against the team. So he probably cannot get it from the team.


It could be that we are both right. That he doesn't have enough to invest for my model, and that he believes that the rate of return will be closer to your model.

But I also believe that different ownership with better access to capital and deeper experience in large real-estate projects could potentially resolve these issues by reducing the borrowing costs and/or improving the revenue projections.

Kudos. Nice post. You put some effort into it for sure

I don't think the rate of return is that high myself but you know we're not privy to the numbers

The cash outlay is a given and can't be moved. The revenue and pace of it is variable and subject to all kinds of factors. This article is interesting for a couple of reasons

Reevely: Melnyk's right to be worried about financing LeBreton project with condos

The quote about being really wrong speaks to the risk associated with the revenue stream. And the bit at the end about the failure of the Terrace vision resulting in Melnyk getting the team in the first place is interesting. Note the OSEG Lansdowne deal is in trouble. Geat plans both. But the assumptions/revenues didn't materialize.

That article was written in April 2018 and references Melnyk voicing concerns in 2017. How long did he have concerns before voicing them publicly?

It's a complicated deal and the litigation should it go forward will be interesting.

 

[bert]

To be honest with you i had a long private discussion with Micklebot about our discussion. Based on that discussion, i've chosen to not engage with you any further on this issue. Why don't we leave it at that.

Still waiting for you to post some numbers @bert

As for getting back to Micklebot..,,ya that's going to take some time...but if you were paying attention to his post there was something in it that is quite material to why i believe what i do. But i'll probably reach out to him privately anyway in an effort to have a more....reasonable discussion.

Lol classic, pick and choose which discussions you want to engage in.

 

[JD1]

Lol classic, pick and choose which discussions you want to engage in.

Come on Bert....work your magic and put forward some numbers. I've asked you several times in response to your criticisms. If you can't do that, maybe it's a subject you should sit out.

I'm not picking and choosing which discussions to engage in Bert, i'm picking and choosing which posters to engage with. Like yourself here, you don't seem to really have much to contribute so i think i'm kind of done with you on the subject