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.
4:35 p.m.
Bloc
Richard Nadeau Bloc Gatineau, QC
Okay, but there is no guarantee.
Have you already received any offers for the nine buildings or are you still at the early stages of the process, after almost a year?
4:35 p.m.
Managing Director, Real Estate Group, RBC Capital Markets
We are in the middle of the public part of the process where we are seeking bids. It has been a long road, a carefully considered road, to get this far, but we do not have bids in hand, nor would we expect to at this point in time.
May 29th, 2007 / 4:35 p.m.
Conservative
James Moore Conservative Port Moody—Westwood—Port Coquitlam, BC
Thank you for being here to give us some further insight into this issue. I appreciate it very much.
You've looked at a number of the options that were before the federal government dealing with the infrastructure debt with regard to federal government buildings. About two years ago, when Scott Brison was the Minister of Public Works, he put together an RFP, and actually put it out there, to sell 360 federal buildings. The way the RFP was written—it was a few hundred pages long—it was easily conceivable that every single one of those federal buildings could have been purchased in a trust, a large trust. So he put every single federal building up. We've obviously scaled it down with the rather modest proposal of nine very specifically chosen buildings, because we thought the approach of the Liberals was reckless.
What would the liability be to taxpayers of the Liberal plan of 360 federal buildings being all put into an RFP? That was one of the options that the government could have pursued. The Liberals pursued it; we chose not to. Tell us about that approach, and why that would be dodgy for taxpayers.
4:40 p.m.
Managing Director, Real Estate Group, RBC Capital Markets
I'm not sure that I can speculate on that. All I can tell you is that we reviewed that RFP and chose not to respond to it.
4:40 p.m.
Conservative
James Moore Conservative Port Moody—Westwood—Port Coquitlam, BC
Dismissed out of hand. Thank you.
As to the buildings that weren't chosen, the remaining 31 buildings, obviously without going into details of the buildings, tell us about some of the common denominators of those buildings and why they would not have been ripe for the picking like the nine that were chosen.
4:40 p.m.
Director, Real Estate, BMO Capital Markets
I somewhat referred to that earlier. Some of those buildings are what we would refer to as “value-adds”, where there is still work to be done to create value. They may be development lands, and the highest invest use may not be the existing office building that's sitting on them.
They may be surplus buildings to the government's needs and further review and work is required to determine whether they can be reutilized as office buildings, renovated for some other use, or demolished and developed as something else.
So to the point that there is still considerable study to determine what other opportunities exist, those assets typically would have greater values down the road in some other way and therefore would not be conducive to a sale and leaseback, which would effectively leave money on the table if sold in this fashion.
4:40 p.m.
Conservative
James Moore Conservative Port Moody—Westwood—Port Coquitlam, BC
Back to my first question, with regard to RFPs for nine individual buildings, nine specific RFPs dealing with these nine buildings, and the different geographic realities of them, we're going ahead and signing each of them on an individual basis with the sale and leaseback option. Is that a better approach than grouping them all together, as the Liberals may have done?
4:40 p.m.
Director, Real Estate, BMO Capital Markets
The nine in particular that are being sold, as Carolyn has said, are being marketed as a package of nine, or as an individual alternative, or potentially could be broken up regionally. The value will absolutely be optimized through this process. The value of buildings that have not reached maturity would not be optimized under this process. So the other 31 buildings, in this case, or in the other 341 buildings in the other case, would absolutely not be ready to be sold in the process we're going through for the sale and leaseback.
4:40 p.m.
Liberal
The Chair Liberal Diane Marleau
I will take the prerogative of the chair, and I'm going to ask you a question before I turn to my colleagues. We all know that the Government of Canada has some leased buildings that are not particularly well run, with leaking roofs and so on. You are advising the government on the lease they're going to sign. Someone mentioned—and I don't know if it was one of you—that the government would continue to pay taxes. Would they continue to pay the repairs themselves?
I'm often curious as to how we go into a lease and end up with our employees in a building that's not well maintained because suddenly the owners have fallen down on the job. How do you address that? That's always a challenge, I know.
4:40 p.m.
Director, Real Estate, BMO Capital Markets
It was mentioned a little while before that the old-style government lease, which in fairness was designed, I presume, as a cost-saving measure because it eliminated the right or the need for the government as a tenant to pay for certain expenses, i.e. for capital items and so on, basically created a disincentive for the building owner to spend on capital items. As a result of that, you end up in the situation you're in as a tenant. While it might have seemed logical to ask why you should spend money on something if you don't own the building and therefore it's the owner's building, obviously the answer is clear: nobody wins, essentially.
It's no different from maintaining anything, whether it's your car or your house, or anything. When something starts to break, you have to start repairing it, and if you leave it for too long, the repair cost is a replacement cost, and it's huge. Our lease....
I'm sorry. If you want to....
4:45 p.m.
Liberal
The Chair Liberal Diane Marleau
Are we back to where we were, though--where we can't afford to repair our buildings?
4:45 p.m.
Director, Real Estate, BMO Capital Markets
The lease that we have structured protects you, because it does allow for recovery of the types of capital repair that are required, that would be required, and that would be there for the mutual benefit of both parties. There's obviously an incentive on the landlord's part to maintain the building to a quality. Yes, it's costing a little bit more, but it's a lot less than the impact of having not done the work, and having staff in a building that frankly is not functional.
4:45 p.m.
Liberal
The Chair Liberal Diane Marleau
I'm not sure it's all clear to me, but I will go on to the next questioner.
Monsieur Simard.
4:45 p.m.
Liberal
Raymond Simard Liberal Saint Boniface, MB
Thanks, Madam Chair.
I have two very brief questions. The agreement that you have with your client right now--is it limited to the nine buildings? You're not doing any work on the other 30 or...?
4:45 p.m.
Managing Director, Real Estate Group, RBC Capital Markets
The advisory assignment covered 40. The transaction is only for nine, so the second contract is only for nine.
4:45 p.m.
Liberal
Raymond Simard Liberal Saint Boniface, MB
But are you finished with the advisory part of the contract?
4:45 p.m.
Liberal
Raymond Simard Liberal Saint Boniface, MB
Are you still advising the government on the other 35 buildings?
4:45 p.m.
Managing Director, Real Estate Group, RBC Capital Markets
Yes. As a practical matter, our time is totally focused now on the nine, so while the other engagement letter is still active practically, we're spending our time on the nine now.
4:45 p.m.
Liberal
Raymond Simard Liberal Saint Boniface, MB
And you will be focusing on the other 35 buildings later on?
4:45 p.m.
Liberal
Raymond Simard Liberal Saint Boniface, MB
The federal government seems to be actually going in reverse on this. They seem to be reducing their lease periods. That's what I've seen in Manitoba anyway, where they used to sign 15-year leases, and they are now signing five-year maximums, and even five-and-five type of thing. Is it unusual right now to sign a 25-year lease? Maybe you can just also advise me as to what they do, what the market is going to bear in 10, 15, or 20 years. It is very difficult to be able to see that far down the road.