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.
Director, Real Estate, BMO Capital Markets
My understanding is that the buildings will be full when the leases are executed.
Liberal
Bloc
Diane Bourgeois Bloc Terrebonne—Blainville, QC
Thank you, Madam Chair.
Madam, Sir, welcome.
Do you not find it somewhat abnormal that we not be able to have some idea of the amount of the commission you will be paid? We know that on the regular market, real estate agents can be paid a certain percentage when they sell a house. Others, when they only help in closing the deal, are paid some other percentage. It is rather odd that you not be able to provide us with information on that, not even the percentage of the commission you will be paid.
Managing Director, Real Estate Group, RBC Capital Markets
The terms of our contract are subject to a confidentiality agreement between ourselves, BMO, and our client. It is not usual in any way in our business for the fees for large commercial real estate transactions to be a matter of public record. We consider it to be a matter of not wanting our competition to know how we charge for our business.
We have undertaken in the contract--and I believe it's been mentioned in prior testimony--that the fee being charged is the lowest available. Both BMO and ourselves have undertaken that we have not sold more real estate for a lower fee, so the government is certainly getting a very good fee from the banks.
Bloc
Diane Bourgeois Bloc Terrebonne—Blainville, QC
Very well.
Ms. Blair, if I understand correctly, you are providing advice with regard to sale/lease-back.
Bloc
Diane Bourgeois Bloc Terrebonne—Blainville, QC
Why did you advise the government, which had nine of the 35 or 40 buildings, to opt for sale and lease-back? What basis did you rely upon?
Managing Director, Real Estate Group, RBC Capital Markets
In the RFP and as part of our early advisory work the government made known to us what their objectives were in trying to assess the strategic alternatives for the 40 buildings they had identified for us. We worked to refine those throughout the analytical or advisory stage of our work, and we felt that the government's objectives were met by this type of transaction. But the government decided whether to pursue the transaction, not us.
Bloc
Diane Bourgeois Bloc Terrebonne—Blainville, QC
If I understand correctly, it is not you who suggested to the government that it opt for sale and lease-back, because the government already had its own opinion in that regard. That was the mandate that you were given.
Managing Director, Real Estate Group, RBC Capital Markets
That's not quite right. I said that the study we did in the advisory phase identified that a sale and leaseback type of transaction would be appropriate for nine out of the 40 buildings. We made that recommendation to the government. It was their decision whether to proceed or not with that recommendation. In our best professional view, we felt it was a suitable type of transaction to meet the objectives that were laid out in our report.
Bloc
Diane Bourgeois Bloc Terrebonne—Blainville, QC
How can we be sure that the best interest of taxpayers was taken into account when it was in fact to your own benefit to suggest sale and lease-back? You would thus be getting a commission; it was worthwhile for you. How can we ensure that taxpayer interests are protected? What guarantees do we have?
Managing Director, Real Estate Group, RBC Capital Markets
The client decides whether to proceed or not. Our job is to give our best professional advice on how to meet a client's objectives. I think we're successful in our business because we give good advice. We wouldn't be in business very long if all we gave was self-serving advice.
By the credentials laid out by Mr. Jameson and me earlier, you can see that we've been in this business for quite some time. We only do large-scale real estate, and in our best professional assessment that was an appropriate thing to pursue. Ultimately it will be the subject of a further fairness opinion by an independent party whether the bid that emerges from the process we are running now is satisfactory or not. Our job is to first give advice, and then to generate the best possible bid available from the government.
Bloc
Diane Bourgeois Bloc Terrebonne—Blainville, QC
The Thomas D'Arcy McGee building, that houses one of your branches, RBC Financial Group, is to be sold. I know that my question is hard, but it must be put. Can you assure me that in a sale and lease-back situation, given that one of your group's branches is situated in that building, there will not be a sweet deal for the branch renting space in this building? How can you expect us to place our trust in what is going on?
Managing Director, Real Estate Group, RBC Capital Markets
The Royal Bank lease at D'Arcy McGee is a third-party lease that Public Works entered into quite some time ago. They own the building now. There will be no change to the terms of that lease as part of this process. Any buyer of that building will take a look at the government's lease and the Royal Bank's lease as it is and make an assessment on that basis.
Bloc
Diane Bourgeois Bloc Terrebonne—Blainville, QC
This nevertheless is one of the buildings involved in the lease-back. In the case of a lease-back transaction, if I understood correctly, the government sells a building and the purchaser then rents space to the government. As for you, you will remain in the building because you have a branch there. There is something here that I find incomprehensible.
Managing Director, Real Estate Group, RBC Capital Markets
If you realized the government owns that building now, it would perhaps help you to understand. The Royal Bank is simply a tenant under an existing lease in that building. That lease has been in place for a number of years. It is in place now. As per the terms of that lease, it will remain in place for a number of years. There will be no change as a result of this transaction, so there's no opportunity for what you call a “sweet deal”. The deal was negotiated quite some time ago, without us being involved.
Liberal
The Chair Liberal Diane Marleau
Thank you, Madam Bourgeois.
Before I go to Mr. Kramp, I want you to know that the beeping you hear is your BlackBerries receiving or sending messages. I just want you to know that. If you want to turn off your BlackBerries, it's up to you; otherwise, we'll keep having this distortion.
Mr. Kramp.
Conservative
Daryl Kramp Conservative Prince Edward—Hastings, ON
Thank you, Madam Chair.
Welcome to our guests. I'd like to start by expressing that I recognize the parameters and restraints you face, and will face, regarding questions about confidentiality today. Notwithstanding that, I certainly hope you will explain as best as possible so we can alleviate any concerns we have.
One thought I have is regarding timing. There are people who say timing is everything. Timing is crucial. Timing is really the essence of a lot of business decisions. It has been stated by many, many people that today's market conditions are favourable, particularly for a government leaseback transaction.
What I'd like you to do, if possible, is to elaborate on the market conditions as you see them. Are we in a buyer's market? Are we in a seller's market? Is it a time of good value on the dollar? Please give me your thoughts on that.
Director, Real Estate, BMO Capital Markets
I think we are in an extremely strong market. I would call it a balanced market right now. We've had significant strength in our market for a number of years. It's no longer considered an anomaly, where two or three years ago we were surprised at the strength of our market. Our vendors and purchasers have now come to the understanding that this is a reality. There are significant amounts of capital in the market--pension funds, private equity funds, and private people for that matter, who have a significant amount of money. Real estate has become the favourite investment again.
I think the answer is that we are in a strong but balanced market.
Conservative
Daryl Kramp Conservative Prince Edward—Hastings, ON
Thank you very much.
Understanding that you're in an ongoing process for the leaseback of the nine buildings, without jeopardizing the process and the obvious confidentiality, I'd like some idea of what kind of expression of interest and activity you have on this file right now. Do you have people jumping up and down saying “Me too, me too”, or is it a hard sell? What are your thoughts on that?
Director, Real Estate, BMO Capital Markets
I think we have the level of interest we expected. We have a combination of public interest and private interest. Frankly, the intent of the client was to make sure this was something the entire market could participate in.
As you say, this is a difficult time for us to talk specifically about our process. We have strong interest, and I don't think I can elaborate more than that. Obviously we can't negotiate a transaction by releasing information of levels of interest on who's looking or not looking. I frankly don't think that's appropriate.
Conservative
Daryl Kramp Conservative Prince Edward—Hastings, ON
Fine. Could I ask you to narrow the scope a bit? Do you have expression both nationally and internationally?
Conservative
Daryl Kramp Conservative Prince Edward—Hastings, ON
Fine. Thank you very kindly.
We've had a number of discussions at committee regarding landlord responsibilities with regard to buildings currently being leased by the goverment, and/or in some cases the lack of it, with responsibilities not being upheld, repairs and maintenance not being up to a particular standard.
With regard to this new lease that's being proposed now, could you elaborate on how it will ensure that the landlords will provide a high, high standard of property management? Is there going to be a basic standard? Which lease arrangement are we going to be following? Is it going to be consistent from year to year, or is this a bellwether lease?
