Government Operations Committee on June 2nd, 2016

[The Vice-Chair, Liberal, Yasmin Ratansi]

Committee members, for meeting number 19, we have witnesses from Defence Construction Canada, led by Mr. James Paul, the president and chief executive officer. Accompanying him is Ms. Mélinda Nycholat, vice-president of procurement.

Have I got the pronunciation right?

[Mélinda Nycholat, Vice-President, Procurement, Defence Construction Canada]

“Nicolet” would be right. Thank you.

[The Vice-Chair, Liberal, Yasmin Ratansi]

We have from the Canada Lands Company, Mr. John McBain, accompanied by Mr. Robert Howald, Basil Cavis, and Julie....

Oh, Ms. Payette. Good afternoon. How are you?

[Julie Payette, Vice-President and Chief Operating Officer, Montreal Science Centre, Canada Lands Company Ltd.]

Good afternoon.

[The Vice-Chair, Liberal, Yasmin Ratansi]

You're an excitement here.

Mr. Paul, do you have any opening remarks?

[James Paul, President and Chief Executive Officer, Defence Construction Canada]

Yes, I have opening remarks, if you'd like. Thank you, Chair.

[The Vice-Chair, Liberal, Yasmin Ratansi]

And Mr. McBain, you have opening remarks as well.

Can we keep them within 8 to 10 minutes, please, so that the committee has enough time to ask you questions? Thank you.

The floor is yours, Mr. Paul.

[James Paul]

Thank you, Chair.

To keep the committee's time as effective as possible, in my opening remarks I intend to address the mandate of DCC—or would you like that to follow afterward?

[The Vice-Chair, Liberal, Yasmin Ratansi]

What you could do is to give us highlights, and then the committee will ask you questions. Thank you.

[James Paul]

Simply stated, Defence Construction Canada was formed as Defence Construction (1951) Limited, just as the name implied, in 1951 under the Defence Production Act. Our mandate is to deliver infrastructure and environmental requirements for the defence of Canada. That encompasses primarily our client partners, the Department of National Defence, with the Canadian Armed Forces, but it also does include other aspects of defence interests for Canada, everything from the Canadian Forces Housing Agency across to, today, the Communications Security Establishment and other similar types of government entities.

Following the Second World War, when Canada's defence capabilities had been reduced because the war was over, but then re-emerging during the Cold War period, the government had a few priorities that it wanted to address quickly and efficiently. One was the modernization and upgrading of Canadian military bases, and the other was to add capacity to prepare for some of the Cold War threats that were perceived. An example would be the decision in the early 1950s to construct the DEW Line in the north. Government looked to existing resources to come up with capabilities that already existed, to the extent possible, and that could be grown; and to consolidate a focused organization that could deliver these defence infrastructure requirements, by dealing with both the procurement, and then the management and delivery, of those requirements as efficiently and as effectively as possible.

DCC was created under the authority of the Defence Production Act, and today is responsible to Parliament through the Minister of Public Services and Procurement. That resulted in the independence of the delivery organization from National Defence itself, which had the need for the infrastructure. That has continued right through to today.

DCC is very much focused in 2016 and beyond on the same things that were stated at the time of its creation, and that was effective, efficient delivery of infrastructure on time, on budget, on specification. Today we use terms like “value for money”, and other modern terms to talk about this, but they essentially boil down to the same thing. That's been DCC'S focus.

I would add, Chair, that defence infrastructure, which is the largest segment of the federal government's real property portfolio, at more than $20 billion in realty replacement costs, has an ongoing requirement for maintenance, repair, and upgrade. Typically, they are very specialized assets. It can be everything from buildings, which would include hospitals, schools, accommodations, barracks, to runways and the underground infrastructure of the bases and wings themselves, which operate very much like small cities. It includes water treatment plants, sewage treatment facilities, communications lines, and many other aspects like that. These special purpose assets take a very particular knowledge and skill set to deliver efficiently and effectively, and often there are high security requirements, of course, around them. It includes work in the north—I mentioned the DEW Line— and so involves harsh environments in remote conditions. Even if Canada decided to deliver infrastructure in any of its international defence operations—Afghanistan was an example—DCC was there with staff for the whole eight years of the operation. Over 70 staff in total all volunteered to serve six-month terms there, delivering the infrastructure requirements that Canada needed to support defence operations.

It's been an interesting, but very much a consistent, approach for the entire 65 years of our existence. I think that states very well what we do.

[The Vice-Chair, Liberal, Yasmin Ratansi]

Thank you. This is perfect, at four minutes and 35 seconds.

Mr. McBain.

[John McBain, President and Chief Executive Officer, Canada Lands Company Ltd.]

Thank you for inviting Canada Lands Company Limited to appear today. In addition to the opportunity to provide opening remarks, we welcome any questions you or members of the committee may have.

I would also like to invite all the committee members to visit our websites. My team and I will be available after the meeting if you need additional information.

To give you more details and perspective, I have with me today Robert Howald, Executive Vice-President, Real Estate, Canada Lands Company. Mr. Howald is also in charge of the Downsview Park, in Toronto. Also joining me is Julie Payette, Vice-President of the Canada Lands Company and CEO of the Montreal Science Centre, as well as Basil Cavis, Vice-President, Real Estate, Quebec and Old Port of Montreal.

Canada Lands Company or CLCL was incorporated in 1956 as Public Works Lands Company Limited. After initial activity, it became dormant until reactivated by the government in 1995. Today we operate with the mandate defined at the time.

Unlike private sector businesses, Canada Lands Company has a mandate to take into account the government's strategic considerations. Those include the points of view of the affected communities and of other levels of government, as well as other heritage, environmental and social issues.

Structurally, Canada Lands Company Limited comprises the parent organization, referred to as CLCL, and three subsidiary corporations: Canada Lands Company, the real estate arm; Parc Downsview Park; and the Old Port of Montreal, which includes the Montreal Science Centre.

Each is headed by the same chairperson, directors, and president, and chief executive officer, all appointed by the Governor in Council.

We have provided the members of the committee with our corporate structure diagram and a concise chronology of the company's history as an accompaniment to our presentation.

As the real estate arm, Canada Lands Company manages the company's real estate interests as well as Canada's National Tower in Toronto. I will refer to this subsidiary simply as Canada Lands or CLC.

Canada Lands Company helps the government manage its surplus real property. Once properties are no longer useful to the government, the company buys them at market value.

Canada Lands' role in the disposal of surplus properties is defined by the Treasury Board's directive on the sale or transfer of surplus real property. What makes us unique is that in addition to profitability, our projects provide auxiliary benefits to Canadians and the communities in which we work.

We act as the master developer of properties. We engage, consult, and obtain development plan approvals. We sell to the private sector, which builds and sells the final product.

The next subsidiary of CLC is Parc Downsview Park Incorporated, which owns and manages the operations of Downsview Park and holds the Downsview lands in Toronto.

The last subsidiary is the Old Port of Montreal Corporation. It owns that property and manages the operation and investments of the Old Port of Montreal and the Montreal Science Centre.

From coast to coast Canada Lands Company creates benefits for its shareholder above and beyond financial contributions.

Allow me to describe some of the aspects of what we consider to be the value proposition for Canadians.

We handle complex properties. Acting as the government's expert in real estate disposal, we enable surplus, underutilized properties to be reintegrated into communities in productive ways. We bring innovative solutions and enable projects to move forward taking into account community, environmental, first nations, and private sector interests as well as the market. We engage and consult extensively.

The company's fulsome engagement process is our hallmark. Canada Lands is fully dedicated to understanding and collaborating with the community to enhance and integrate our properties. We see the benefit of our consultations, not only in the quality of our master plans, but also in the approvals we obtain. Recently, both Ottawa and Calgary approved our development plans without objections.

We fully comply with all municipal and provincial planning requirements. We operate within the context required of any developer. In that regard, we accommodate the planning preferences of municipalities.

We enable the creation of affordable housing. Canada Lands routinely explores the integration of affordable housing as part of our development plans. We participate in federal programs such as the surplus federal real property housing initiative, and we work with municipalities to ensure their objectives for affordable housing are met. To date, the CLC has enabled the implementation of 2,180 affordable housing units.

We incorporate parks, commemoration, and recreation components as key elements of our projects. On average, Canada Lands contributes 28% of its landholdings to green space uses for both active and passive recreation. We commemorate heritage land uses, investing over $11 million on 33 legacy initiatives, such as monuments to the armed forces, interpretative trails, and first nations commemoration.

We build business partnerships with first nations. We have established agreements or joint ventures with first nations at six sites in British Columbia and Ontario and are in discussion to create development agreements at three more.

We hold and manage specific properties to the benefit of Canadians. We manage the operations and invest in the CN Tower to ensure it meets Canadians' expectations worthy of its iconic stature. We have direct responsibility for the Old Port of Montreal, the Montréal Science Centre, and Downsview Park, and we bring due diligence, efficiency gains, and timely investments to these attractions of regional and national significance. We welcome more than eight million visitors a year to these sites.

We reduce the federal government's costs and provide a financial benefit to Canadians. We assist federal custodians to reduce their operational carrying costs and liabilities by removing surplus properties from their inventory. Our projects then become regional economic engines for trades, businesses, and professionals, building new communities and infrastructure.

CLCL and its subsidiaries are self-financing. We receive no appropriations. We pay applicable taxes at all levels of government and ultimately return all net revenue to the fiscal framework. Our 2015 to 2020 corporate plan identified financial returns to Canada that will exceed $470 million over five years, including cash dividends of $110 million.

Looking back, the company's financial contributions are significant. Since 1995, Canada Lands has contributed a total of $750 million to the government in the form of dividends, notes repayment, and income taxes paid.

We are keen to lend our knowledge and evolve in ways that increasingly benefit Canada, and I hope that you and others share with us the excitement about what the future holds.

Thank you for the opportunity to provide these remarks. We would be pleased to respond to your questions.

[The Vice-Chair, Liberal, Yasmin Ratansi]

We'll go to the first round of questions, with Mr. Grewal for seven minutes.

[Raj Grewal, Liberal, Brampton East, ON]

Thanks to all of you for taking the time to testify in front of the committee today. My first question is for the Canada Lands Company.

Your mandate includes maximizing your returns to communities and generating revenues. Now, sometimes that would be very difficult to balance. How do you balance those two priorities?

[John McBain]

It is very much a balancing act. Part of the way we resolve that is in the consultation process I spoke about. Because we work within municipal and provincial planning approval requirements, we must accommodate those preferences, but we also want to make sure that our projects are going forward with the support of communities.

[Raj Grewal, Liberal, Brampton East, ON]

In my previous career as a corporate mergers and acquisitions lawyer, efficiency was a big part of delivering services to my clients. Even in the business career I had before that as a financial analyst, it was always about maximizing assets.

In terms of affordable housing, the department was doing a review of all of the government building inventory. Can you give us an update on where that is and how many buildings are being converted to affordable housing? When is that project going to start? This year or next year? What are the exact plans for that?

[John McBain]

Before I turn to Bob for the details on that, I would say once again that in respect to how we participate in affordable housing, our plans are approved by the municipalities. We can propose in and work with the municipal planning process in terms of determining what percentage of our projects do include affordable housing, and it does vary across the country, quite frankly. We did participate in the survey that was conducted by the Department of Public Services and Procurement.

Bob, I don't know if you have the specifics at hand.

[Robert Howald, Executive Vice-President, Real Estate, Canada Lands Company Ltd.]

There are a number of different ways in which we are involved with affordable housing. As for the element of the affordability of price points in our developments, we ensure that there's a mix of housing types and sizes within our developments, which drives the equation of affordability.

We are also subject in some municipalities to a requirement for affordable socially assisted housing, and that's provided for. That's a level playing field with any developers.

A third area in a broad sense is that there are federal programs that municipalities can derive social housing from, and we participate in those. The one that's most relevant to us is the surplus federal real property for homelessness initiative, SFRPHI, whereby municipalities' social housing providers can obtain funding to acquire property from our developments, in which they put formalized social housing programs. We always accommodate those and have done so in about six or seven projects across the country.

[Raj Grewal, Liberal, Brampton East, ON]

Are there any planned projects for this year?

[Robert Howald]

Within the planning exercise that we have under way and projects that are just commencing, Wateridge, the Rockcliffe project here in Ottawa, has a variety of housing types. There's also development now happening, homes being built at Stanley Greene, at Downsview Park, where the obligation for approximately 130 affordable housing units for the City of Toronto is being provided. There are very active discussions and negotiations with the City of Vancouver on a couple of significant properties. In that case there's a positive obligation to be providing and there are three-year community benefits of affordable housing within the city of Vancouver.

[Raj Grewal, Liberal, Brampton East, ON]

In your experience, is this driven by the municipalities? Is it a seamless process? Are you always willing to compromise to ensure that buildings are converted for affordable housing, to participate in the program?

[Robert Howald]

On that point, in most cases we're receiving raw land without buildings. It's new-build instances that provide the affordable housing in most cases. There are instances where we have taken over military bases that have existing private married quarters, single family homes, that have been used for short-term and long-term affordable housing products.

To the significance of your question, it's working with municipalities as to the type and form of affordable housing. We work co-operatively and, yes, we do try to accommodate. We don't resist.

[Raj Grewal, Liberal, Brampton East, ON]

How do you evaluate and come to a decision on what properties to acquire and what properties to sell? Is there a metric on the return on investment, or is it by project that you judge on what the financial metrics are that make sense in this scenario?

[John McBain]

The policy states that Canada Lands, within our mandate, is able to acquire what are deemed to be strategic properties that are declared surplus by the government. These are properties that are of high interest, complex in terms of the nature of the disposal, or are deemed to be of high value. We acquire them from the custodian, paying the market value as they sit.

To get to your point, then comes the work that we do with professionals who work in the industry, understanding the market in that area, what the capacities are, what the interests are—stacked homes, single family, high rise. Then we start to engage the community and of course the municipality.

[Raj Grewal, Liberal, Brampton East, ON]

There are a lot of concerns, especially in the news today, from bank CEOs on the housing bubble. Is there any concern with your department, and more importantly, are you putting in a process to ensure that you are adequately leveraged to see a downturn in the housing market?