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.
Bloc
Diane Bourgeois Bloc Terrebonne—Blainville, QC
It will lease them for an agreed term of 20 years, I believe. Did you mention 20 years?
Managing Director, Real Estate Group, RBC Capital Markets
I think we commented that there is flexibility, as part of the process, to set the lease term. There has been some discussion about 25 years, but there is some flexibility on how long the lease could be.
Bloc
Diane Bourgeois Bloc Terrebonne—Blainville, QC
Normally, this type of lease is for a term of 15 to 25 years.
Managing Director, Real Estate Group, RBC Capital Markets
I don't think it would be fair to say that there is a normal. It depends on the objectives of the client and what they are trying to achieve.
I think I commented that we have done sale leasebacks that are both longer and shorter than 25 years.
Bloc
Diane Bourgeois Bloc Terrebonne—Blainville, QC
A sale and lease-back is a form of financing. It is a way for the government to raise capital, to get cash that it will then use for something else. Is this what a sale and lease-back is? Our government needs money. It is going to sell nine buildings because it needs cash. Am I right?
Managing Director, Real Estate Group, RBC Capital Markets
I don't think it would be fair to say that the government is selling buildings because it needs money. It has many ways of raising money.
Bloc
Diane Bourgeois Bloc Terrebonne—Blainville, QC
It is to get cash. Is that what a sale and lease-back is, Madam?
Managing Director, Real Estate Group, RBC Capital Markets
The objectives the government was trying to achieve, if I might just go back to their RFP, which was a public document, were meeting their accommodation requirements with respect to quality, location, and quantity of office space, generating through cost-efficient management—we've talked about cost-efficient management an awful lot—and ensuring that stewardship of the properties is appropriate to maintain the requirements of an aging portfolio.... None of this speaks to raising money.
Bloc
Diane Bourgeois Bloc Terrebonne—Blainville, QC
These are provisions that were included in the call for tenders or the original mandate, but normally a sale and lease-back is a way to free up captive capital that is contained in capital assets. Am I right?
Managing Director, Real Estate Group, RBC Capital Markets
I won't speak to equipment leasing, because that is not my area of expertise.
In terms of sale leasebacks of commercial buildings, there are a wide variety of reasons why companies or governments enter into sale and leasebacks, and we've covered some of them before. Raising money is often not the primary goal. It's sticking to your direct business—
Bloc
Diane Bourgeois Bloc Terrebonne—Blainville, QC
There are benefits. I visited the Web site of Industry Canada where it explains what a sale and lease-back is. It mentions pros and cons. There are obviously benefits, but among the drawbacks — and this is very important — the tenant acts more like an owner than a lessee. Indeed, the tenant has to pay for all the repair and maintenance work, as well as pay for insurance and property taxes during the term of the lease. Is this standard in the contracts the government will have to sign as a tenant?
Bloc
Diane Bourgeois Bloc Terrebonne—Blainville, QC
This means that if 4 million dollars must be invested to maintain these buildings, the government will sell them, lease them back and still be required to invest these 4 million dollars for repairs and on top of that will have to pay insurance premiums and property taxes.
Director, Real Estate, BMO Capital Markets
I think part of the process that we've explained is the capital repairs. In the case you mentioned—I think you said $4 million—part of the obligation is being passed over to the new purchaser to undertake. That's part of the reason for carrying out this exercise. At the same time, as time goes by, ongoing maintenance and repairs would be carried out by the landlord. Yes, you as a tenant would be paying certain funds towards them, but they would be done more efficiently, in our opinion, than the government has been doing the repairs to its buildings up to now.
Diane Bourgeois Bloc Terrebonne—Blainville, QC
You will admit that one might wonder how this could be beneficial to the taxpayer. Even if the government, as owner, does not have the money to maintain these buildings because it costs too much, if it sells them and leases them back, it will nevertheless have to pay for the repairs, pay for insurance, which is normal practice for a tenant, and pay property tax for the term of the lease.
Madam, Sir, it is very important to provide us with figures in order for us to be able to tell ordinary people who pay their taxes wether the government is making good use of their money or is wasting it. At present, we have nothing, absolutely nothing.
Bloc
Diane Bourgeois Bloc Terrebonne—Blainville, QC
That is fine, Madam Chair. I said what I wanted to say.
NDP
Peggy Nash NDP Parkdale—High Park, ON
Thank you, Madam Chair.
Because, of course, we can't see any of the criteria for the purchasers of the building, can you share with us any...? Will it be that we're strictly going to take the bidder with the highest price? What will be the rationale for ultimately deciding who we're going to sell these buildings to?
Managing Director, Real Estate Group, RBC Capital Markets
I think it would be fair to say the price is very important, but quality of owner and experience as a large owner is also important.
NDP
Peggy Nash NDP Parkdale—High Park, ON
Okay.
After the sale, will there be any explanation of why this purchaser as opposed to another purchaser? Will we be able to understand why certain purchasers were rejected from the sale?
Managing Director, Real Estate Group, RBC Capital Markets
I think we'd have to leave it up to our client what disclosure.... It would not be typical to do that, because again, it sort of prejudices processes in the future.
NDP
Peggy Nash NDP Parkdale—High Park, ON
Okay. Is it your sense that these will all be one package, the set of nine buildings?
