Government Operations Committee on June 1st, 2006

[David Marshall]

No, the amount of space used for day-to-day purposes is a standard that is used by insurance companies, banks...and they all have decent buildings. The issue of swing space is much more the ability to have a place that you can move people into and then rehabilitate.

What happens with private developers is that when leases come due, they use the window before other people move in to renovate their buildings, whereas in our own buildings people don't move; they're there. We don't have tenants coming in and out, so we don't have those windows. What we need is some spare footage, so that we can tell people that in three years we're going to move two floors there, do this, and move you back, but that does result....

Maybe the point you're making is that if you calculated that swing space into the average, it would increase it, yes.

[Chris Warkentin, Conservative, Peace River, AB]

That's exactly what I'm asking.

[David Marshall]

Yes, I see what you're saying, but when you walk onto any particular floor, people would be at 18 square metres.

[Chris Warkentin, Conservative, Peace River, AB]

Great.

[David Marshall]

Yes, I see.

[Chris Warkentin, Conservative, Peace River, AB]

Yes, certainly, because—

[The Chair, Liberal, Diane Marleau]

I think you've gone way beyond.

Ms. Thibault, it's your turn. Did you have some questions?

[Louise Thibault, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

I have just one question, and it may not be relevant. I will take this opportunity to ask it, however, since we have the pleasure of having you with us today, Mr. Marshall.

Under the previous government, your department was considering a study about the cost effectiveness and feasibility of getting rid of a number of federal buildings and turning them over to the private sector.

I would like to know whether that is still on the books or whether the new minister and his government cancelled this feasibility study.

[David Marshall]

Madam Chair, Madam Thibault, the previous effort to go out to the private sector to seek opportunities did not continue, because when we put out the request for proposals we attempted a very complex transaction. We attempted to capture many factors concerning our whole portfolio, and in retrospect that was overly ambitious, so that study, or that effort, has been terminated.

However, we are very much at present looking at how to deal with this issue about finding capital for recapitalization. We have buildings where it's cheaper for us to tear them down than to rehabilitate them, and that's something we really have to address if we are being responsible. What we are doing now is discussing with our minister a study that will be less broad, less ambitious, and more focused, to see if it's possible to take some of the buildings in those conditions and ask the private sector for proposals. This is not to say we will implement them, but at least we can put them on the table. If they come to us and say, how we would approach this is that we would build another building on the Gatineau side, we would rehabilitate perhaps a particular campus and then move other people in and so forth...and the whole journey will be of this kind of economics.

I think we should invite that kind of analysis, and we are discussing that with our minister right now.

[Louise Thibault, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

I certainly like the example you mentioned about building on the Gatineau side of the river, because when you come back to a future meeting, I would be very interested in discussing with you the ratio of buildings, leases, and so on in the National Capital Region in the context of equity toward the two sides of the river, of course.

Thank you, sir.

[The Chair, Liberal, Diane Marleau]

Madam Nash.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you, Madam Chair.

I don't envy the people who have to plan for the investment in renovations. It seems like a Rubik's cube, trying to move everybody into a space while the renovations are being done.

I want to return to the JDS property and I have a couple more questions on that, because it's a big facility, 10,000 people, as I understand it, working for the RCMP. According to the media reports the cost of the lease is $670 million. Mr. James said that there was commercial confidentiality, but we know that there is a period before this is finally signed off.

I'm wondering, Mr. Marshall, if you can confirm with us that is the cost of the lease, $670 million.

[David Marshall]

Madam Nash, I really would love to go through it with you. We have gone through this at very great length. In fact, if I can give you some comfort, we have employed outside experts to give us an independent opinion of the value of such a transaction.

I don't know what else to say, other than that I promise you that once it's either approved or not approved we will take you through it in very great detail. The issue is that the ministers of the board might very well tell us to go back and negotiate something else. We really have to make sure we don't jeopardize the position of the taxpayer as we deal with this.

Clearly, as you had indicated, it's a unique property, it's a sole source, so it's not as easy for us to talk about it until there is some decision. Of course, we and ministers of the Crown will be accountable for that decision and we will answer to it in due course. But if the intent of your question is, as I take it, please make sure we don't throw money away, we're very conscious of that.

[Peggy Nash, NDP, Parkdale—High Park, ON]

In terms of something that happened in the past, can you give us some comfort or explain to us what went into the decision not to purchase the property back in 2003? As I understand it, it was available for purchase at a cost of $30 million. What were some of the factors that went into deciding not to purchase the property at that time?

[David Marshall]

Yes, I can talk about that a little more, some of its history. The property, of course, was available because of the shrinkage in the high tech industry and JDS Uniphase wanting to reduce their cost and move out of the facility. They had spent, I think, something close to $260 million to refit the building and on the value of the land and so forth, and it's in first-class condition. We were aware that there were various large tenants, such as National Defence and others, for which such a facility would be quite suitable.

Now, how we operate is that we cannot speculate in real estate. We can't buy a property on the assumption that we're sure it's going to be needed. Even though we are pretty sure it's going to be a useful property, we just can't go out and have it in the inventory, so to speak.

Most real estate operators would. They would land bank or they would buy properties based on their reading of the market. Well, we can't do that. So we have to act only when there's somebody who has a need for it and then we go out and get it.

When you have that kind of a regime, which is necessary for public policy, because you don't want the government buying and selling real estate as a business, then we have to find a tenant. So we had negotiated with one of our big clients, Defence, and said, “Listen, would you be interested? This is coming available.” At the time they felt they were interested and we had a long discussion. We went and inspected the property and so forth. We discussed a particular price, which wasn't what it ended up selling for, because then the seller got even more desperate when we didn't buy. But we had a figure in mind that was a pretty good figure. We discussed it with our client.

At that point the client felt, “We have so many pressing needs for military equipment, for more troops. We don't think it's a wise decision to be paying a lot of money to move ourselves from one end of the city to another, so please cease and desist.” And so we ceased and desisted. That was life, even though we could see that this was really a good thing and we should take advantage of it. That's how public policy plays out in reality. We ended up saying no thanks.

Then you move forward and you have another client who says, “ I really need to move.” Again, it is a case where their campus is so deteriorated that it is more expensive to rehabilitate it than to move, and then we look at various options. What would it take for us to buy a greenfield site, when you look at the RCMP with all its security requirements, and build something for them? What would that cost? What would it cost to move them out piecemeal, floor by floor, and rehabilitate the site, and then move them all back again. Or what would it cost if we took this unsolicited option? And that's what we've all considered and that's what we're putting forward to ministers of the board. So that's how it all worked out.

It wasn't that we suddenly...there was a real rationale for why we didn't buy it, when we didn't buy it, and that's what it was.

[The Chair, Liberal, Diane Marleau]

Thank you very much.

Mr. Goldring.

[Peter Goldring, Conservative, Edmonton East, AB]

Thank you, Madam Chair.

Thank you, Madam Fraser, gentlemen, for appearing here today.

I think that perhaps many of us have had business experience, although on a smaller scale, on property owning, rental, and management. We certainly can understand that circumstances change. It's far better to save your business and not make that move to the new plant that you're projecting to do, and to eat the losses of your commitments on your lease, even before you move in and indeed have two rental properties at the same time under way, than to have the alternative, which might be to lose your business.

So there certainly are circumstances, but those types of circumstances would be substantial circumstances that would be readily identifiable. They wouldn't simply be--and I don't want to call it a clerical error--a management error on making a decision. They would be a change, a dramatic shift in circumstances.

My questions that I want to talk about are more about buying versus leasing and circumstances in Edmonton, where recently they built two armouries on a long-lease basis for the military. I understand that military properties are under Public Works too.

My concern there is this. When we travel around the country we see armouries that are 100 years old, 150 years old, in other words, armouries aren't for short-term usage. They're long term, and very seldom do you see an armoury that is torn down, other than in order maybe to build a new one.

I would like to know how a decision is made to do that, or is that more just to simply offload those building costs and download it to another generation under lower-cost lease payments, rather than the higher cost, at the front end, of building an armoury? Is that what really would happen on that, or would there be a decision made to lease an armoury or lease a building that you know you're going to be in all likelihood using for a hundred years?

[David Marshall]

Madam Chair, the reality is that Public Works manages just 23% of the government's real property holdings. In this case, the armouries are managed by the Department of National Defence. They don't come to us, we don't work on them, and we don't know what they're doing with them. The Minister of Defence and his officials would have made those kinds of decisions.

[Peter Goldring, Conservative, Edmonton East, AB]

So you're looking at it purely as a capital acquisition rather than at the usage of it. You're not exploring what might be the usage. In this case, the usage of an armoury would be extremely long term as opposed to the usage of an office building, which might be relatively short term.

[David Marshall]

I'm sure there was some logic for it, but really what I'm saying is that I don't know the case. The officials at National Defence made those decisions. They wouldn't come to Public Works at all.

[Peter Goldring, Conservative, Edmonton East, AB]

This is just the type of thing that some of us with experience would know full well, that if you're looking at an extremely long use on a piece of property, you buy the property, you don't lease it, unless you think it's going to go through serious modifications down the road. Many of the other levels of government are talking this type of thing for hospitals and schools and things. You wonder about the same aspect, because those are generally longer term.

The second aspect I'd like to discuss is the disposal of properties, particularly in the case of Griesbach, the military base in Edmonton. It's currently handled by Canada Lands. Is there not interaction with other ministerial levels here? It's been clearly identified--and again, this comes from building owning and management experience--that a military base within the confines of the city of Edmonton, with modest houses, schools in place, and community halls in place would lend itself absolutely ideally to infilling, with affordable housing, walk-up apartments, and other modest housing units in virtually a square mile or two of property area.

I think that was an opportunity that was just totally lost. It was turned over to Canada Lands, and I would imagine their mandate is to sell to the highest bidder. They do have high-end housing on this property that they're doing the infilling on.

Is there not some interaction between the departments, or can there not be? It's unconscionable that in this country we would have such a problem in terms of the lack of affordable housing, not utilizing some of the most wonderful, basic means we have to be able to accommodate it.

What would you comment on that?

[Blair James]

Madam Chair, the honourable member makes a valid point in terms of the coordination required in the disposal of properties such as old military bases. There is a requirement for the minister, in this case the Minister of National Defence, to confirm with other departments whether or not other federal requirements could go on there. Specifically the homelessness initiative has been identified by cabinet as being a priority. The homelessness secretariat would have had an opportunity to play on that file.

With similar properties in the past--you may be familiar with the base in Calgary that has been rehabilitated, and we're currently looking at Rockcliffe--when the Minister of National Defence comes to the Treasury Board for approval, we generally impose certain conditions that require Canada Lands Company, when it gets its hands on the property, to take into account such things as municipal considerations, homelessness, and aboriginal groups.

Again, I'm not familiar with exactly what happened at Griesbach, but I'm trusting that DND did have discussions with the homelessness secretariat, which is part of the federal government. We know that in Calgary they have taken that into consideration, and we know that in Rockcliffe they will take it into consideration when that property is developed.

So you make a very valid point. There are, of course, other public policy initiatives that we are conscious of, and one of the Treasury Board's roles is to make sure that those public policy objectives are adhered to.

[Peter Goldring, Conservative, Edmonton East, AB]

Perhaps I could point to what this would have meant to one city, the city of Edmonton, had it happened there. Edmonton has just identified a need and a plan to try to produce 2,500 units of affordable housing within five years. I seriously doubt they can do it with the resources that are available, just because of the cost of land now and the limitation on how much is available. This would have meant that those 2,500 units of housing could have been dropped into that one place, very comfortably, for a wonderful community of very affordable housing.

Really, who exactly dropped the ball here? And how would you find that out?

[Blair James]

We can certainly endeavour to look into that.

Canada Lands operates with an implementation mandate when these properties have passed over. If a requirement was identified, it should have been brought to the attention of the Minister of Defence and, as part of his proposal to the Treasury Board, he would have indicated that affordable housing needs to be part of the solution that Canada Lands puts in place.

The mandate of Canada Lands is dictated by the terms and conditions approved by the Treasury Board. As I indicated, we have recent examples where we have clearly articulated five or six needs out there that Canada Lands has to take into consideration when it develops its property.

[Peter Goldring, Conservative, Edmonton East, AB]

Madam Chair, could we have that delivered to the committee here in response--