Government Operations Committee on Dec. 10th, 2007

[Michael Fortier]

After treating me like a monster this summer—for which you still have not apologized—now you are accusing me of acting like Pontius Pilate. Ms. Bourgeois, listen carefully, it is not complicated: real property inventory is outside the government's mandate. I know the Constitution does not interest you, but you should know that in sections 91 and 92, you will not find the words, “management of a real property portfolio”, Ms. Bourgeois.

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

And yet, PWGSC was compared to [Note: inaudible] and we are better than that.

[Michael Fortier]

I will answer your question, Ms. Bourgeois—

Ms. Marleau, may I answer the question?

[The Chair, Liberal, Diane Marleau]

Can you let him answer?

[Michael Fortier]

Ms. Bourgeois is tossing out figures she does not understand or she does understands but wants us to misinterpret. The total amount in 2007 dollars that we are receiving from Larco Investments is $1.4 billion. Over 25 years, this amount—and it can easily be checked, Ms. Bourgeois—is equivalent to roughly $4 billion. The lease, which in inflation-adjusted dollars equals roughly $1.15 billion, is worth roughly $3 billion over 25 years.

I do not know how you came up with this $1.2 billion shortfall, Ms. Bourgeois. It is not a shortfall, it is a surplus. What is more, at the end of 25 years, taxpayers will not have to deal with what they have been dealing with for decades and that is worthless real property.

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

Mr. Minister, I have to—

[The Chair, Liberal, Diane Marleau]

Thank you Ms. Bourgeois. Your time is up.

We will now move on to Mr. Moore.

[James Moore, Conservative, Port Moody—Westwood—Port Coquitlam, BC]

Thank you very much, Madam Chair.

I want to thank the minister for coming before the committee. I believe it's his sixth time before our committee. When you actually compare that to other ministers of our government, he has been before this committee more than any other ministers have been before the committees for which they're responsible, so we appreciate the access he has shown to members of this committee. On this committee, we appreciate that access to ministers.

I also want to point out that Canadians across the country find it funny to see the Bloc Québécois getting upset at the idea of the federal government wanting to sell its buildings to the Province of Quebec.

I want to ask the minister, though, if he can tell us about Larco Investments Ltd., with whom we've gone into business. Who are they? Are these good people for us to be doing business with?

[Michael Fortier]

Yes, we actually did quite a lot of due diligence on them because they will become, as a result of this transaction, the single most important landlord we will be dealing with as a government. More than 12,000 people employed by the Government of Canada will be housed in those office buildings.

This is a company that obviously has a very sound balance sheet. They have a very good track record in real estate. They have holdings around the world and in the U.S. and Canada.

They are Canadian, which was one of the conditions we had put in the auction. We wanted the winning bidder to be controlled by a Canadian resident, and Larco and the family behind Larco are Canadian residents.

So the department and I feel we have embarked on a 25-year relationship that we look at very optimistically, given their track record and their financial acumen.

[James Moore, Conservative, Port Moody—Westwood—Port Coquitlam, BC]

Just going through one of the two motions—Madame Bourgeois had a motion and Mark Holland had a motion—to bring you before the committee, I just want to go through each of the bullets of the reasons and the questions behind why they wanted to have you appear before the committee on this issue of the real estate deal.

Paul Dewar is here. I almost said I'm a resident of his riding. I visit his riding from time to time in Ottawa Centre, and I received in the mail a flyer in which he raised the issue and a concern he has regarding the property taxes of the federal government. I'm sure he'll ask about it again, but take a first run, if you will, at the idea that the City of Ottawa is somehow going to lose money because of this transaction.

[Michael Fortier]

They won't. The PILT, which is the payment in lieu of taxes that we had been paying all the municipalities in which these buildings were situated, was basically the taxes that any other company would have paid had we not been the owner. By transferring ownership to Larco, Larco will have to pay municipal taxes in accordance with regulations applicable in different communities.

I understand there has been an issue here in the province of Ontario because of some provincial regulations that regulate how a municipality can deploy the funds it receives as part of municipal taxes, but nothing is gained and nothing is lost. The City of Ottawa will get the same amount of money, but it's how they can spend it that's in question here. But this is not a federal law matter; this is a provincial law issue.

[James Moore, Conservative, Port Moody—Westwood—Port Coquitlam, BC]

I only have a minute or so left, but compare, if you could, the approach we've taken. We've talked about this issue quite a bit, kicking it around in committee.

I remember when I was in opposition in 2002, and then again when Scott Brison was the Minister of Public Works. He actually put pen to paper on the issue of the federal government dealing with this.

This is one of the bullets of the motion that brought you here. It's to discuss the plans that pre-existed your tenure as Minister of Public Works, on the issue of sale/leasebacks and what the previous Liberal government was prepared to do, and to juxtapose that with what we're actually doing.

[Michael Fortier]

As you said earlier, I've been here several times and we've talked about this.

The previous government had a plan. This was the RFP. RFP was a fraction of this, and it basically put everything into play. I don't think it would be an exaggeration to say that the RFP suggested that they wanted to turn everything into a global REIT. Reading this objectively from the outside, this was my perception. Actually, it was the perception of many of the professionals who were quite honestly salivating at the idea of being involved in the mother of all REITs.

But as I said earlier, I think you need to divide these different real estate assets into the right categories. The transaction that we proposed and that we closed was I think the right one in terms of the number of buildings. We have far more than nine or seven office buildings.

Isn't it close to 50, Tim?

[Tim McGrath]

It's 50 large ones.

[Michael Fortier]

It's 50 large office buildings. It wasn't 50 that we tried to sell, and it wasn't 45. We picked a small number because this was our first attempt as a government--ever, I think, in Canada--to do this type of transaction, and we wanted it to be properly executed. There was also a question of whether the market could actually do the transaction. You can't consider a 370-building REIT and believe that the market can do such a transaction.

This is what was waiting for me on my desk when I joined the government, and obviously we did something very different.

[James Moore, Conservative, Port Moody—Westwood—Port Coquitlam, BC]

I have one final question, just to close--

[The Chair, Liberal, Diane Marleau]

You have time.

[James Moore, Conservative, Port Moody—Westwood—Port Coquitlam, BC]

I would like to close the circle, then, of the question that Mark Holland raised regarding the two buildings in Vancouver, my hometown, with regard to the Musqueam. It was originally going to be the sale/leaseback of nine; now it is seven. What is the government's next step with regard to the two buildings? Are they now permanently off the list for future...?

[Michael Fortier]

That's regrettably so. I'm being as objective as I can. I think as independent observers of the real estate scene have commented, we actually ran a very robust auction and received tremendous consideration for the assets. This auction was timed perfectly.

However, obviously there was an injunction that was obtained by the Musqueam, so these buildings are not on the block. We're going to fight the injunction, as I said earlier, so I really can't comment more than that for the time being.

[James Moore, Conservative, Port Moody—Westwood—Port Coquitlam, BC]

Thank you.

[The Chair, Liberal, Diane Marleau]

Thank you.

Mr. Angus is next.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Thank you for that, Madam Chair.

Thank you, Mr. Minister, for coming before us today.

We've been looking at this deal now of seven pieces of prime urban real estate across the country, as opposed to nine. We look at the numbers it was costing Canadians before and the numbers, based on your request for proposals that went out, that will be accrued afterwards.

For example, the Harry Hays Building started off with the taxpayer paying $5 million a year; that will jump to $20 million a year, but that $20 million does not include the $6.3 million that's allocated in this year's 2007-08 supplementary estimates.

Is that for building costs? Why is the Canadian public paying, on top of what they're already going to be paying in rent, for a building that no longer belongs to them?

[Michael Fortier]

On this, we negotiated with Larco a bill of approximately $60 million--

[Tim McGrath]

It's $57 million.

[Michael Fortier]

--$57 million of capital repairs that will apply for the next 10 years. They will pay that for the seven buildings.

Mr. Angus, this is work and maintenance that we identified specifically with respect to each building. It is being performed by them and funded by them, the new owners.

I can't comment on the $5 million. I apologize, Mr. Angus. I'll ask Tim to....