Evidence of meeting #7 for Government Operations and Estimates in the 39th Parliament, 2nd session. (The original version is on Parliament’s site, as are the minutes.) The winning word was transaction.
A recording is available from Parliament.
Minister of Public Works and Government Services
It has already been established.
Bloc
Diane Bourgeois Bloc Terrebonne—Blainville, QC
According to our figures, the total rent will cost close to $2.6 billion. Is that correct?
Minister of Public Works and Government Services
It is $2.6 billion over 25 years.
Is it about $2.6 billion?
Assistant Deputy Minister, Real Property Branch, Department of Public Works and Government Services
It's a total payment of $2.1 billion over 25 years.
Assistant Deputy Minister, Real Property Branch, Department of Public Works and Government Services
It has a present value of $1.1 billion.
Bloc
Diane Bourgeois Bloc Terrebonne—Blainville, QC
That is good.
Based on the figures you gave us, the operating costs, or the annual maintenance costs are currently $54 million. Is that correct?
Minister of Public Works and Government Services
I am sorry, I do not understand.
Bloc
Diane Bourgeois Bloc Terrebonne—Blainville, QC
What are the annual maintenance costs for these buildings?
Minister of Public Works and Government Services
You are talking about the—
Bloc
Minister of Public Works and Government Services
We will get back to that in 30 seconds. Earlier, I mentioned that I wanted to transfer the ownership risks to the private sector. Mr. Guimont also receives approximately $200 million every year to reinvest in the entire portfolio.
Is that it, François?
The book value does not necessarily correspond to market value. You know that the book value of these seven buildings was $356 million, and we received $1.4 billion, which is an extra $1 billion.
Minister of Public Works and Government Services
That is the first time in two years that I have heard you say something is excellent.
Minister of Public Works and Government Services
In all seriousness, the book value of the entire real property portfolio is approximately $7 billion, but the market value is much higher. Mr. McGrath and Mr. Guimont are not able to invest the $200 million in all the buildings or to invest as much as one would expect from a real property owner in the private sector—
Minister of Public Works and Government Services
They are taken care of, but there is always a delay. You understand; you have been here longer than I have. There are many steps to follow, such as the Treasury Board or the bidding process. You know that since you supervise my work. There is not always a bidding process in the private sector. Someone looking for a welder or a plumber is not required to solicit bids, but we must. The private sector saves a lot of time, which is something we cannot do; it is not our expertise. The amounts invested in these seven buildings every year is much less than what should be invested. If you would like the exact figure, I will let Mr. McGrath share that.
Do you know how much we spent on these seven, on a yearly basis, in the past?
Assistant Deputy Minister, Real Property Branch, Department of Public Works and Government Services
The number changes because we go to priorities in terms of what assets we need to invest in, but generally it's around 2% of the value of the buildings, so it would be anywhere from $10 million to $12 million on an annual basis for these particular assets.
Bloc
Diane Bourgeois Bloc Terrebonne—Blainville, QC
That is odd. I say it like that, but that is not what the analysis by CB Richard Ellis said.
Mr. Minister, I would like you to explain one sentence that I did not understand at all from the real property study by BMO and RBC.
Mr. McGrath, on page 13 of the investment objectives, it talks about maximizing the value of currently under-used properties with innovative, strategic real property alternatives. In order to minimize political risk, the mobilization will require the involvement of PWGSC in the assessment growth of redevelopment properties for all transactions.
How is it that two banks are advising us on reducing political risk?
Also, what does “assessment growth of redevelopment properties” mean?
Furthermore, based on the documents we received, the lease rate seemed to be marked up by approximately $2 per square foot a few months before the sale to Larco, in order to maximize the selling price.
I would like answers to all of my questions. Perhaps Mr. McGrath could explain all of this.
Minister of Public Works and Government Services
With respect to the analysis, what you are referring to has nothing to do with the office buildings. As I said earlier, they analyzed different types of buildings that we own. Among these is a type of building that could be redeveloped with or without the private sector, and where a new building could be built. In the report, they stated that there was a big gap between the book value of the land and the true market value of the property. They can make political observations; from time to time, bankers can make political observations. They said that if we want to make a transaction with this type of building, we should make sure that the book value is as realistic as possible, because the market value right now is much higher than what is on the books.
Bloc
Diane Bourgeois Bloc Terrebonne—Blainville, QC
That is in the general analysis of the building, of the real property portfolio.