Government Operations Committee on May 29th, 2007

[Keith Jameson]

First of all, just to clarify, there isn't necessarily a recommendation to dispose, and there wasn't, even at the beginning. The recommendations will be to look at optimizing the real estate--the other 31 and change--in terms of how they best meet the objectives of what the government requires, whether that's in terms of their physical ability to serve your needs, increasing the accommodation space, or maximizing density on sites where there's additional land to build on. This is not a sales process, this is an advisory process for the entire operation of your utility of space.

[Raymond Simard, Liberal, Saint Boniface, MB]

Thank you.

[The Chair, Liberal, Diane Marleau]

Thank you.

Mr. Albrecht.

[Harold Albrecht, Conservative, Kitchener—Conestoga, ON]

Thank you, Madam Chair.

I thank each of you for being here today.

I think a lot of the questions I had have already been addressed.

I want to follow up on a statement that Professor McKellar made when he was here with us. I'm sure I won't get it word for word, but it was something to the effect that no government body has ever done a good job of managing its buildings. Having served as a trustee on a school board for a number of years, I know how easy it was to put off until next year what should be done today or should have been done two years ago. I think there have been studies that have shown that this current government is in a position of millions of dollars' deficit in terms of some of the maintenance that should have been done previously.

Do you agree with the overall assessment that government bodies tend not to do a great job of managing their assets in terms of the overall maintenance?

[Keith Jameson]

First of all, in fairness to the government or other governments, I don't think it's only governments. I think owner-users tend to be poor managers of their real estate.

There are corporations that are excellent, but from my experience, I can tell you they also overspend. There is a need to spend money on real estate. There isn't necessarily a need to overspend on real estate.

They're not efficient. They don't really put the amount of time or effort into the real estate because it's such a small portion of their business operations.

It's not only government. Owners of real estate are not great.

[Harold Albrecht, Conservative, Kitchener—Conestoga, ON]

On that point, you indicated earlier that you haven't had previous experience in sale and leasebacks with other government bodies, municipal, provincial, or federal, but you have obviously had that with a number of other major corporations. Could you elaborate a little on that, without going into any privacy issues?

[Keith Jameson]

Well, both of us have had a significant amount of experience in traditional sale and leasebacks, where there are many reasons for structure in the sale and leaseback. I'm not sure specifically what information you want me to elaborate on.

[Harold Albrecht, Conservative, Kitchener—Conestoga, ON]

What kind of experience have they had? Is this five years ago or twenty years ago, and it's a continuing process, and they're happy with the process? Are some them backing out of it now and going back into ownership, or is it a long-term trend?

[Keith Jameson]

This is a trend that's been continuing, and I don't see any change in the trend. Owners look at sale and leasebacks for a host of different reasons. They all have different purposes for structuring them. Our role is to understand those purposes.

The lease, which is a key to a sale and leaseback, is the most critical part of it in terms of protecting the owner, who becomes a tenant and a user of the building, to make sure he gets what he needs. At the same time, we obviously achieve the objective of optimizing the value.

Each one is different, and each one's needs are different. It depends on the business operations.

[Carolyn Blair]

I think I could concur with that. The reason for doing it could be to free up capital to put into the core business. A focus on the core business is a very large one, because with real estate being such a small part of most businesses, they don't properly focus on it. Some of them do it for flexibility, and they might lease some or own some. It would certainly be the case here.

As I mentioned, in the last five years or so we have done about $4 billion of sale and leasebacks, and that wouldn't include.... All the major banks have now sold their headquarters. To my knowledge, there's no thought of a reversal on it. They're quite happy to invest the capital elsewhere. It is no longer something that is done out of distress in order to raise money for a company that has to sell its headquarters in order to raise money. They do it by choice.

We just finished one for a well-known Canadian corporation that's between $1 billion and $2 billion. They have decided to do that with their headquarters. There are many names.

[Harold Albrecht, Conservative, Kitchener—Conestoga, ON]

The long and short of it is it's good business practice and will benefit the Canadian taxpayer in the long term.

[Carolyn Blair]

I believe so. It was certainly the conclusion in our report.

[Harold Albrecht, Conservative, Kitchener—Conestoga, ON]

Could you give me an idea as to what the actual goals in terms of timelines are? Maybe you've already stated them and I didn't hear it. What are the deadlines? What are your projections in terms of having this transaction completed?

[Carolyn Blair]

I don't think we have mentioned the exact process. We are in the market now. Information is being made available. In a matter of weeks, the bidders will be required to show an indication of interest, and we then assess it from there.

I think talking about the specific time period would prejudice our position vis-à-vis the bidders.

[Harold Albrecht, Conservative, Kitchener—Conestoga, ON]

But there's a deadline for submissions.

[Carolyn Blair]

Correct.

[Harold Albrecht, Conservative, Kitchener—Conestoga, ON]

Okay. Is it within the next few weeks?

[Carolyn Blair]

I'll broadly say weeks.

[Harold Albrecht, Conservative, Kitchener—Conestoga, ON]

Thank you.

[The Chair, Liberal, Diane Marleau]

We'll go to Mr. Turner.

[Garth Turner, Conservative, Halton, ON]

Thank you.

The work of the committee right now is to try to establish whether what we're examining is a good deal for the taxpayers or whether it's the result of some ideological hormonal balance on the part of those guys.

You did a report on the sale and leaseback agreement for the government that recommended that the action being taken now should be taken. What can you reveal to us of that report? In other words, how can you give us some assurance that this is in the best interests of the taxpayers of the country?

[Carolyn Blair]

There were a broad number of objectives that the government laid out, and we explored other objectives we thought were appropriate to discuss with them.

As I said before, the report took a look at many different alternatives and came to the conclusion that at least for these nine buildings, the sale and leaseback was the best alternative to meet the government's objectives.

[Garth Turner, Conservative, Halton, ON]

Of what--of what options?

[Carolyn Blair]

The options that we considered in the body of the report. I think the specifics of that report are confidential at this point.

[Garth Turner, Conservative, Halton, ON]

Can you talk about the options?