Evidence of meeting #53 for Government Operations and Estimates in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was lease.
A recording is available from Parliament.
Managing Director, Real Estate Group, RBC Capital Markets
As I said before, it's hard to say. All nine are available, but it's hard to tell whether they will go all to one owner or not.
NDP
Peggy Nash NDP Parkdale—High Park, ON
Something we have talked about at this committee is retrofitting buildings and energy efficiency in buildings. In terms of our discussion about the tenant's being responsible for the operating costs, would things like new windows and energy efficiency, upgrading toilets, low-flush toilets, that kind of thing, be the tenant's responsibility or the owner's?
Managing Director, Real Estate Group, RBC Capital Markets
The lease in any large commercial sale and leaseback is a very complex document. These are 100 pages plus, and they divide the risks and responsibilities between the tenant and the landlord.
Our objective in this transaction is to pass risk on to the landlord. Without getting into the specifics of who's paying for doorknobs and who's paying for the roof, there is an element of risk transfer expected in this transaction.
NDP
Peggy Nash NDP Parkdale—High Park, ON
Although it sounds very low risk for the purchaser, because the--
Managing Director, Real Estate Group, RBC Capital Markets
No, I wouldn't characterize it that way.
NDP
Peggy Nash NDP Parkdale—High Park, ON
--tenants are very secure and the Government of Canada is not going to default on the lease there. They're occupying the complete buildings and they're paying all the operating costs.
Managing Director, Real Estate Group, RBC Capital Markets
What I'm saying is who pays for what in terms of the types of repairs is the subject of the lease.
NDP
Peggy Nash NDP Parkdale—High Park, ON
What's the typical breakdown? Is it a typical breakdown that maybe the owner pays for the exterior of the building and the tenant pays all of the interior costs? Is that a typical breakdown?
Director, Real Estate, BMO Capital Markets
Again, if I can go back to the minister's statement of some time back, he has already revealed the fact that the purchaser will be responsible for--as he refers to it--the superstructure, what we would call the cladding of the building, the exteriors of the building. That is being transferred to the purchaser. So to the extent that that's a significant risk transfer from the government's point of view....
From an operating perspective, you are obviously going to pay for the day-to-day operations of the building. That will include the normal costs that you already incur, cleaning and so on.
NDP
Peggy Nash NDP Parkdale—High Park, ON
I'm talking about the maintenance, the retrofitting, and the physical investment that has been in fact raised as a rationale for selling these buildings.
Director, Real Estate, BMO Capital Markets
As we've already alluded to, there already is a 10-year capital plan that has been provided, that the new purchaser is required to invest into the building to create and improve. So for mechanical systems, elevators, or whatever has been determined to be not up to current standards, the purchaser is required to carry out those investments into the building as part of the acquisition.
NDP
Peggy Nash NDP Parkdale—High Park, ON
So the details of that will be pretty important. It makes sense if marble blocks are falling from the exterior of the building--God forbid such a thing should happen--the new owner would be responsible for that, but it will be important to see what that 10-year plan actually translates into, because if this is one of the reasons we're selling these.... I'm thinking that right now the government owns these buildings, and you've said yourself they're centrally located in major cities. I know the one in Toronto is in an area of huge growth. I wouldn't like to think about purchasing a piece of land there, 25 years from now. It will be fantastically expensive.
So we sell these very centrally located properties. We're going to fill them for 25 years and take on maybe not all the risk, but a substantial risk in terms of operating these buildings, and then after 25 years, if the need is there, and another lease arrangement needs to be negotiated, we no longer have the negotiating clout of having the ownership of the building in order to enter into a new lease agreement. So it really is challenging to figure out how Canadians come out ahead on this transaction. The details will have to be scrutinized very carefully.
Liberal
The Chair Liberal Diane Marleau
You're way over your time.
If you want to try to answer it, then very quickly, because they've gone over their time.
Managing Director, Real Estate Group, RBC Capital Markets
I will just refer back to the comments I was making earlier about the cost of capital. It's really important to look at the totality of the economics that affect.... We have done a thorough and professional job of that. We considered all the factors, not just operating costs, and we have come to the conclusion that over a long period of time you are better off, on these buildings, considering all the factors, doing a sell and leaseback.
Liberal
The Chair Liberal Diane Marleau
Thank you very much for coming before us. I know this was new to you. You've done very well and you've given us quite a bit of information. I think it will help us.
On Thursday we have Minister Fortier, so it should be interesting on Thursday.
Before we adjourn I just want to make one point. Minister Fortier will come before us and we will be in camera. The rules of committee say that only the committee members and their own staff and the minister can be present. We've had a request from the minister's office about whether some of his staff can be included in that meeting. We need the consent of the committee for that.
Conservative
James Moore Conservative Port Moody—Westwood—Port Coquitlam, BC
Minister Fortier will be bringing Tim McGrath and other folks who are relevant.
Liberal
The Chair Liberal Diane Marleau
I'm bringing this up to make sure that we have the okay of the committee so that they can do this and know in advance it's okay.
Is that fine with the committee then?
NDP
Peggy Nash NDP Parkdale—High Park, ON
Yes, I'm fine with that, but I just wanted to ask another question. I appreciate, based on previous discussions, that there certainly are elements of the discussion on Thursday that parties want to keep confidential. My question is, does that mean the entire meeting needs to be in camera, or are there just portions of the discussion that need to be in camera?
Liberal
The Chair Liberal Diane Marleau
I think the meeting needs to be in camera. That was the motion and that's what we all agreed to.
The meeting is adjourned.