Government Operations Committee on May 29th, 2007

[Carolyn Blair]

I would say there is a direct relationship between value and length of the lease. If one of your objectives—not the sole objective—is to maximize value, generally speaking the longer the lease term the better the value.

We're talking about nine buildings out of 360, or whatever the number is. You can take a broad portfolio approach and say, “I have these nine buildings with 25-year leases. I have a 60-40 split between owned and leased in the portfolio generally. If I look at my maturities between now and 40 years from now, I'll probably find some evenness.” So working with nine buildings won't materially skew the lease maturity schedule, and there is flexibility in the process to alter the lease term. We won't know the outcome of that until we've finished this process.

[Raymond Simard, Liberal, Saint Boniface, MB]

So there are normally periodic increases after five years, that kind of thing.

[Carolyn Blair]

That is the usual lease term in commercial buildings.

[Raymond Simard, Liberal, Saint Boniface, MB]

Thank you.

[Keith Jameson]

If I may add about the lease, the fact that they are conventional office buildings is also a relevant point, because they can be utilized by all of your other resources, other user groups, when and as needed. They're not so unique that in 15 or 20 years you won't have other user groups looking to move in.

[Raymond Simard, Liberal, Saint Boniface, MB]

That brings me to something else. Does the government ensure to new clients that the building will be 100% full? I know you alluded to that, but some of their buildings may not be full right now. Is the government responsible for ensuring that they are fully leased?

[Carolyn Blair]

They're responsible for paying rent, not ensuring occupancy.

[Raymond Simard, Liberal, Saint Boniface, MB]

It's the same thing, right? Basically you are ensuring that they will get the full leased value of the building.

[Carolyn Blair]

Correct. There's flexibility built in for the government. They can change the department that occupies a certain building if that is their wish.

[Raymond Simard, Liberal, Saint Boniface, MB]

But they're paying for every square foot in that building.

[Carolyn Blair]

Yes, they are, with the exception of the small number of third-party leases we talked about before.

[Raymond Simard, Liberal, Saint Boniface, MB]

Thank you.

[The Chair, Liberal, Diane Marleau]

Mr. Warkentin.

[Chris Warkentin, Conservative, Peace River, AB]

Thank you very much.

I think we're probably getting down to the end of our questions--at least I am.

The chair asked about transferring the risk from the government to the new owner. I wonder if you can go a little further in that whole discussion about the federal government's mitigation of risk by transferring the ownership to the new owner. I think the chair was still looking for some clarification on that point.

[Carolyn Blair]

Sure. Without getting into the specifics of the lease, you can imagine that there will be significant provision for the new owner to pay for capital repairs. I think the government's exposure over a great number of years to those known repairs now is negligible.

[Chris Warkentin, Conservative, Peace River, AB]

That may clear it up. You're not saying anything more because of confidentiality, but there would be a mitigation of risk on the federal government's part.

[Carolyn Blair]

Correct, and there would certainly be full mitigation of the residual risk we talked about before. It's a significant part of the equation when you're talking about the economics of owning buildings. If the government chooses to leave after 25 years, the new owner will be sitting there with an empty building and there will be no cost to the government for doing that.

[Chris Warkentin, Conservative, Peace River, AB]

I appreciate that. Thank you for the clarification on that point.

Mr. Nadeau asked a question about ownership. I know that because of confidentiality, certain portions of that can't be spoken about. But I was left with the impression that there would be some type of incentive or provision to ensure there was Canadian content in the ownership. Mr. Nadeau didn't quite get to that. I think his final comment was that there is no guarantee of Canadian ownership.

Certainly you can say if you're not able to speak about that.

[Carolyn Blair]

It is specifically addressed as part of the process. It's fair to say that is an expected outcome.

[Chris Warkentin, Conservative, Peace River, AB]

So there looks to be a guarantee that there'll be Canadian ownership.

[Keith Jameson]

In order to qualify, there is a requirement to have a certain Canadian content in the purchase.

[Chris Warkentin, Conservative, Peace River, AB]

I really appreciate getting a clarification on these points. Thank you very much for coming in today.

[The Chair, Liberal, Diane Marleau]

Thank you.

Madam Bourgeois, it is your turn.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

I will touch on several points. I want to follow up because although you have given us lots of information, I need much more. The government owns nine buildings that it wants to sell in order to lease them back later. Is that correct? Could you answer by yes or no?

[Keith Jameson]

Yes.