Government Operations Committee on Dec. 5th, 2007

[Guy Beaumier, Committee Researcher]

That's the confidential information.

[Chris Warkentin, Conservative, Peace River, AB]

Could we just get--

[The Chair, Liberal, Diane Marleau]

You will, yes.

[Chris Warkentin, Conservative, Peace River, AB]

This one is the confidential--perfect. Thank you. I appreciate that.

[The Chair, Liberal, Diane Marleau]

Your turn, Ms. Bourgeois.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

Thank you, Madam Chair.

Good afternoon, Ms. Ducharme and Mr. McCracken.

I have a number of quick questions. I will try to stay on track, because this is quite a complex matter. I would like to talk about the First Nations who have been seeking injunctions; I am referring to the Musqueam.

My question is for Mr. McCracken.

Do you find it normal that three banks did not raise the matter of property rights before they issued their report. Is that usual?

[Michael McCracken]

I would just say if they were buying it for their own account, they would have checked, as part of due diligence, to make sure that there was a legitimate claim, but none of them was buying it for their own account. They were buying--in fact they were precluded, in the case of the Royal Bank and the Bank of Montreal, from participating in the deal.

I think the issue of property rights is generally a question that the people who own it would have secured an opinion from the Department of Justice, for example, that this was theirs to sell, and no doubt that's exactly why they're raising this issue with the Federal Court, saying, “We've been there. We've done that. We've looked at it. Please.” However, as you know, this will be resolved in the courts and it's not something that you necessarily would expect a banker to try to sort out. We can't sort it out with the best minds in the country within the government.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

All this has cost us a little over a million dollars and the bank come to us with the problem. They did not see it coming.

[Michael McCracken]

Larco, the people buying it, I would have thought would have been very sensitive to this issue and it would have been part of their due diligence--

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

Also...

[Michael McCracken]

--in signing a commitment to put out some money, particularly if they're living in Vancouver.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

Ms. Ducharme, I am sorry to rush you a little, but we do not have much time.

Ms. Ducharme, you say that you have met with the people in the Aboriginal community. If the documents submitted by the minister and his press conferences are to be believed, it appears that it was after his meeting with the community that the minister himself, or the department, advised the communities about this difficulty with their ancestral lands.

Is that in fact what the communities told you?

[Patricia Ducharme]

Yes, what the community told me was what they said at court, that the federal government failed to consult with the Musqueam Nation prior to going forward with the sale of the buildings, and it was just last week that I was advised that the federal government was appealing the injunction that had been granted at Federal Court.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

Good.

Mr. McCracken, I have in my hand a document from the Public Service Alliance of Canada. You probably helped to draft it. It says that the lessee is responsible for all maintenance and operating costs, property taxes, and capital improvements not specified in the list.

Can you give me some examples of unspecified capital improvements?

[Michael McCracken]

The unspecified capital costs are the things that cause all of us as homeowners nightmares. You know, all of a sudden a roof leaks that we previously thought was sound, and if that wasn't listed on the capital improvements, you as the lessee are responsible for that. Cracks appear in some pillar. That wasn't identified in the earlier part. You're liable for that as the tenant, the lessee, the government.

So it could be anything, you see, and you don't own the building. You're just occupying it, but nevertheless you are still responsible for all the capital costs except for those that were named in this list. Those things tended to be things like fixing the parking garage, and if you know something about parking garages, every 10 years or 20 years you have to go in and dig it up, take care of the corrosion, put it back down again. So they're predictable and anticipated. But there was nothing in there, no catch-all phrase that said “and anything else”. Quite the contrary. Anything else was kept in the liability of the government in its lease document, as near as we can tell.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

I hope you will have time to answer my last question, which deals with a preliminary report. It contains a short sentence that I cannot make sense of. Perhaps you can; listen carefully. It says that, in order to keep the political risk as low as possible, there must be a commitment that would require PWGSC's participation in increasing the value of redevelopment properties in all the transactions undertaken.

What do you think that sentence means?

[Michael McCracken]

We lost a little bit in the translation of that. Perhaps the translator could try again on that, or do you want to just restate it?

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

I will read it again. It says that in order to keep the political risk as low as possible, there must be a commitment that would require PWGSC's participation in increasing the value of redevelopment properties in all the transactions undertaken.

I am asking you because I have searched in vain for someone to explain it to me, and since you are an expert, I thought you might be able to tell me what it means.

[Michael McCracken]

Is this a government document you are quoting from?

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

It is a document that came from the government, yes.

[Michael McCracken]

To me, and this is just my own personal interpretation of it, there was a lot of criticism early on about the value of the property, and if you recall, there were estimates that were put out in The Globe and Mail about what they thought the properties were worth.

If you look at the documents that were around, like the BMO and Royal Bank study, you can find numbers that are fairly close to those in The Globe and Mail, and they were probably the source of them. But the government was, of course, aware that they wanted to be seen to be making a good deal, and making more money than what had been anticipated in this earlier item.

So what they did was to make a very simple adjustment, which is perhaps the best way of putting it. I wouldn't call it a trick. The lease price was revised upward by about $2 a square foot on all of the properties between the time the offer was put out for bid and the earlier studies that were the basis for the Royal Bank and BMO studies and the leaks to The Globe and Mail, etc.

So already they had set themselves up to do better, because they were saying “We'll give you more money, and you should pay more money. We're going to give you another $2 a square foot for 25 years. That's worth something to you, isn't it?” Of course it is, and that's why the bid prices that came in were at or even slightly above some of the prices that had appeared in those earlier articles. But in the interim, the value of the lease had gone up by $2 a square foot on average.

I don't have them with me, but we have those two columns of leases, the amounts in the two different documents. If you don't have them in the documents already provided to you, we'd be happy to make them available. I believe we can do that.

[The Chair, Liberal, Diane Marleau]

Thank you.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

Madam Chair,...

[The Chair, Liberal, Diane Marleau]

That is all, Ms. Bourgeois.

[Michael McCracken]

Did you close it off? Okay.