Government Operations Committee on May 29th, 2007

[The Chair, Liberal, Diane Marleau]

I call the meeting to order.

I thank you for coming. I want to reassure you we're not mean, not really--not even on this stuff. We are really interested in trying to make up our minds; at least some of us are.

Why is this such a good deal for the government, and should the government do this and why? We want more of the global answers, if you can give them.

The way it works, normally, is we ask you to make a statement, and then we open it to questions and answers, and that usually works quite well.

Go ahead, please. Who's first?

[Keith Jameson, Director, Real Estate, BMO Capital Markets]

I am.

Thank you, Madam Chair, for the opportunity to address you and the committee.

My name is Keith Jameson, and I am a director of the real estate group with BMO Capital Markets.

In relation to the matter that is currently before this committee, my role at BMO Capital Markets includes the coordination of the initial preparation of the due diligence and underwriting for the marketing of this portfolio, as well as working on the transaction team, as it relates to the execution of the deal.

There are 16 professionals in our Canadian real estate team and another 20 in the U.S., providing a full range of services, including investment brokerage, equity capital markets, debt financing, and real estate advisory. We have experience handling many billions of dollars of commercial brokerage transactions for the complete spectrum of asset classes, including many large and complex sale leasebacks.

BMO Capital Markets also has a long and good track record of advising governments on their investment banking requirements. Specifically, our capital markets team has been involved in some of the most significant privatizations in Canada, including CN, Air Canada, and NavCan.

Our real estate team demonstrated its capabilities in the RFP in July and August 2006, and our full credentials are detailed in those submissions to PWGSC. We believe that we were selected for this assignment because of our proven capabilities and track record and because of our understanding of PWGCS's issues and objectives.

With that, Madam Chair, subject to certain confidentiality provisions that may limit some of our responses, I will be happy to answer questions from you and your colleagues on the committee.

Thank you.

[The Chair, Liberal, Diane Marleau]

Thank you.

Ms. Blair.

[Carolyn Blair, Managing Director, Real Estate Group, RBC Capital Markets]

Thank you, Madam Chair, for the opportunity to address you and the committee today.

I'd like to give you a little bit of background on our firm, which may serve to provide you with some insight into why PWGSC selected us to assist them in this advisory assignment and transaction.

RBC Capital Markets Real Estate Group is part of RBC Capital Markets, which in turn is part of RBC Financial Group. RBC Capital Markets Real Estate Group is the largest dedicated real estate corporate finance group in Canada, and we are the only Canadian investment dealer that also has a real estate investment banking group in the U.S. We have 40 real estate professionals in Toronto, Montreal, Calgary, New York, and Atlanta. Our firm, including its predecessor, has been in the real estate financing business for 75 years.

For public, private, corporate, and government users and investors in real estate, we specialize in raising equity and raising debt from public and private sources, and selling properties, including office, retail, industrial, hotels, multi-residential, seniors housing, and land, typically in sizes ranging from $10 million to over $1 billion per transaction. Providing advisory services, including mergers and acquisitions, valuations, and fairness opinions, is part of our work.

We are the largest competitor in our market. Our credentials include over $17 billion of commercial brokerage transactions over the last five or so years. We've completed approximately $4 billion of credit-leased sale-leasebacks, which may be of interest to you, given today's topic. We are the market leader in large commercial real estate brokerage transactions in Canada. We're the market leader in REITS in Canada. We have the top-ranked REIT analyst, and we are the leading MNA advisors for real-estate-related transactions in Canada. We also happen to be the leader in real estate unsecured debt financing.

Along with our partners in RBC Capital Markets we are also active in securitization, infrastructure finance, and triple P, or public-private partnerships. We have a team of over 60 professionals worldwide who specialize in infrastructure, triple P, and PFI. Over the last 10 years we've been the lead underwriter on over $113 billion of infrastructure debt. We have been active in 53 of 192 issues that have come to market for infrastructure finance, and we have participated in 85% of the nearly $30 billion of infrastructure transactions done in Canada.

My own background includes 24 years of real estate finance experience with this same firm and its predecessors. I was the first investment banker in Canada to raise public equity for REITs when they began in 1994. I'm a director of REALpac, formerly known as the Canadian Institute of Public and Private Real Estate Companies. By way of training for this, I'm a civil engineer and a Harvard MBA.

Our credentials, in much more detail, were made available to Public Works in our response to their RFP in the summer of 2006. We responded to the RFP in full and in writing in early July 2006, and as requested by them we made a presentation to an independent selection committee on August 11, 2006.

After what appeared to us to be a rigorous and very thorough review of our submission, including questions and answers during our presentation, we were advised that we were selected to negotiate a contract with Public Works. RBC Capital Markets was very pleased to have been selected as co-advisor with BMO by Public Works.

As has been previously indicated in our correspondence to the clerk of the standing committee, we are pleased to try to assist the committee today, but we are bound by specific confidentiality provisions in our contract with Public Works that we are not in a position to waive. In general, we are bound by our professional obligations to maintain confidentiality for the work we have done for all of our clients.

I will now be pleased to answer your questions, along with my colleague.

[The Chair, Liberal, Diane Marleau]

Thank you.

Mr. Turner.

[Garth Turner, Conservative, Halton, ON]

Thank you, Madam Chair.

Thank you to the witnesses for being here. I have a few questions, and if you can be fairly brief in your responses so we can get through a couple of them that would be great.

My first question was about when you were contacted, and you've answered that. Basically it was in the summer of 2006. So the initial contact came in July. Is that correct?

[Carolyn Blair]

I think the RFP was actually issued in June, perhaps even late in May. There was a period of time for preparing our responses, and they were due in early July.

[Garth Turner, Conservative, Halton, ON]

Was this proposed to you as being a pilot project on the part of the government, or as a fait accompli for these nine buildings we're talking about here? Because we have heard some talk from the minister that this is, as I said, a pilot project going forward. What's your understanding?

[Carolyn Blair]

The RFP talked about 35 buildings. During the process of the study, that was increased to 40 buildings. As part of our work, we identified nine buildings, based on a number of objectives, that would be suitable for certain types of transactions. I don't recall anybody ever using the word “pilot”, no.

[Garth Turner, Conservative, Halton, ON]

Right, but the government was going to put 40 buildings on the table. You recommended nine--of the 40?

[Carolyn Blair]

We recommended nine of the 40 for this type of transaction. The remainder of them might be suitable for other transactions. They are still under consideration.

[Garth Turner, Conservative, Halton, ON]

Were all 40 contained in the RFP, or was that subject to an invitation?

[Carolyn Blair]

There were 35 in the RFP, and the government decided to add another five to the study. I'm not aware why.

[Garth Turner, Conservative, Halton, ON]

Do we know all of those buildings?

[A voice]

Oui.

[Garth Turner, Conservative, Halton, ON]

All 40?

[A voice]

Nous les avons.

[Garth Turner, Conservative, Halton, ON]

Can I confirm the fee that you were paid, please?

[Carolyn Blair]

The advisory fee has been disclosed as $150,000 each, so $300,000 in total.

[Garth Turner, Conservative, Halton, ON]

Are there any other fees on an ongoing basis?

[Carolyn Blair]

For the advisory assignment, our travel expenses were covered as well. The execution of the transaction is the subject of a separate contract.

[Garth Turner, Conservative, Halton, ON]

Right, but in terms of the first contract—maybe Mr. Jameson can chime in here—what was the totality of what the taxpayer spent on this, please?

[Keith Jameson]

As Carolyn has advised you, $300,000—$150,000 each—was our fixed fee, plus expenses, which I cannot recall, at cost. That is the fee for the contract that we had signed, which does not include the contract we are under for the nine properties.

[Garth Turner, Conservative, Halton, ON]

So let's talk about the second contract. Are the banks being compensated on a commission basis, from proceeds of the sale?

[Keith Jameson]

That's correct.