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More Olympic village earthquakes today

January 12th, 2009 · 28 Comments

I have to say, it sounds nuts over at city hall today. There’s an in-camera meeting on right now and apparently Mayor Gregor is going to make a statement/announcement right after that. It could be just my imagination, but every time I talk to someone over there, they sound exactly like those CNN reporters covering hurricanes from the centre of the storm.

Then new city manager Penny Ballem will be briefing council at a special council meeting on the Olympic village project at 2 p.m., with promises of perhaps some new information than came out Friday. Undoubtedly there will be a lot of legalistic grilling, overblown rhetoric and general hysteria. And who knows what else?

It’s hard to think with one set of city storm-troopers after another coming over the barricades here.

Categories: Uncategorized

  • So, lets see. Judy Rogers walks away with what can be assumed as a very hefty severance despite her obvious machinations with this whole fiasco. Several Council members from the last administration still serve in the current one, even though they all supposedly agreed to all these secret arrangements. Sullivan walks away unscathed. No one has divulged any more information on the Estelle Lo “resignation” and how Council supposedly knew nothing about it. To top it all off, we are still spending an unknown amount of money to have Richard Peck “investigate”

    Disaster

  • Dawn Steele

    I have two questions:

    1) Is it even possible, in the current global liquidity crisis, for Vancouver to find $400 – 500 million in credit in the next month or so to finance the completion of this project if Fortress doesn’t decide to play nice? What will this do to our credit rating/ability to undertake other vital capital projects (e.g. social housing) or even to maintain normal operations?

    2) When did Estelle Lo and/or others start ringing alarm bells about the mounting risks with this project and why did no one listen or begin to take precautionary measures at the time?

    Some key historical milestones to remind ourselves that while the current dire context contributing to this predicament is highly unusual, it was certainly not unforeseeable to anyone with their eyes wide open:

    Fall 2006: A surge in US mortgage defaults signalled the first real rumblings that the North American real estate boom cycle was over.

    Spring 2007: It becomes widely known that most of the big US investment banks are being forced to write off billions in mortgage-based derivative products made worthless by mounting defaults and a plunging US real estate market – i.e. first rumblings that mortage defaults, combined with over-leveraging & the whole derivatives scam, threatened the very stability of the wider financial markets (and thus the availability of credit/capital in the near/mid term).

    July 2007: Vancouver real estate market peaked and began to decline, showing we were not immune.

  • T W

    The whole financial world, and Vancouver is no exception, is evidence that optimism bias prevails and decision makers are inclined to believe the most optimistic rather than the most realistic estimates. The whole point of governance is that decision makers ensure, to the extent practicable, that they recognise the tendency to favour the optimistic and govern themselves correctly. This, evidently, was not done at City Hall, and to be fair, was not done in Victoria either with respect to the Olympics.

    We all have to pay for that error.

  • Dawn Steele

    George, unless I misread it, Frances has reported here that while the entire Council agreed this past fall (2008) to deliver on the bailout that the City had previously committed to, the earlier decision in 2007 to commit to the specifics of that bailout was NOT unanimous (VV members opposed it after seeking independent advice).

    And also that Council’s 2007 bailout commitment went a lot further than an earlier commitment given by the previous Mayor in the 2003 bid book.

    Is that right, Frances? And was the 2007 commitment secret or was it just that the press and everyone else missed its significance at the time? (I’m not clear whether your update was intended to revise the earlier suggestion that the 2007 commitment was not disclosed.)

  • fbula

    Dawn,

    From the information we have so far, you are right. (And I have to always issue the caveat that none of us have ever seen minutes of the in-camera meetings so it’s all just hearsay.) But, yes, Gregor Robertson and Geoff Meggs said Friday that Vision councillors voted AGAINST having the city provide the $193-million guarantee and the completion guarantee in order for Millennium to get its financing in September 2007. Why they didn’t say anything about their objections until the deal started to look bad is unknown — either because they felt like they wouldn’t get any traction with their criticisms while everything was going along smoothly or because they felt constrained by the in-camera requirement for confidentiality.

    Then, in September 2008, when everyone had to vote on the $100 million to keep the project going, everyone at that point voted unanimously, to my knowledge.

    Finally, the 2007 bailout commitment committed the city to more than just the 2003 bid-book promise to build an athlete’s village of some description.

    I should add, however, that I believe all the Vision councillors voted in favour of Millennium getting the bid. That was a public vote, not in camera. And once the city was committed to Millennium, that had consequences down the road. When Millennium couldn’t get financing without city guarantees, the city was then in a position of having to go back and find another developer, with only two years left to go on the project to do all construction, or try to pressure Millennium into finding other financing without guarantees. Both risked delaying the village even more and potentially missing the deadline.

  • foo

    As I recall, Vision voted against the plan in 2007 because the low-income housing provision was reduced, not because of any concerns about financing. But maybe I’m wrong…

  • LP

    Francis,

    This raises another question then.

    If much of this was done in-camera, and was supposed to be confidential, how could the Vision councillors have sought outside advice which they claim led them to vote against that one motion they now claim to oppose?

    Are they allowed to take this confidential information and seek outside advice? If so, were these outside parties then forced to sign a confidentiality agreement?

    It seems as though they are hiding behind this in-camera confidentiality whenever it suits them while leaking the info out whenever it doesn’t.

  • Frances said:

    “Then, in September 2008, when everyone had to vote on the $100 million to keep the project going, everyone at that point voted unanimously, to my knowledge.

    True, but, Ms. Lo was not there and did not provide significant input into the briefing, at least according to what Gary Mason wrote back in November:

    “…I do understand that, in the spring and summer (of 2008), Ms. Lo had certain responsibilities taken from her that diminished her authority over the athletes’ village project – moves staff in the finance department found disturbing.

    In April (2008), Ken Bayne, one of the central architects of the deal with Millennium, was promoted to general manager of the new business planning and services unit. This made him responsible for new corporate business and other services that were formerly part of the Corporate Services Group that had been overseen by Ms. Lo.Responsibility for the Property Endowment Fund and the Capital Financing Group – the two primary funding sources for the city – was also taken away from Ms. Lo by the city manager.

    These actions meant Ms. Lo had little to no control over financing decisions being made related to the athletes’ village….”

    Point being that, in my opinon at least, if what Mr. Mason wrote is true, all this talk about the ‘unanimous vote’ last fall and how it means that VV councillors are also fully responsible for the ‘extra’ $100 million extra spent so far, is somewhat suspect.

    .

    .

  • A Dave

    It is quite likely that the councillors, whether for or against the loan, would be strongly encouraged to vote unanimously in the approval meeting so as to provide as united front to creditors. Those in the minority on council (Vision and Cope) would swallow this pill to provide a stronger negotiating front for the city (best interests of the city must trump political interests in these cases). I don’t think that’s unheard of in board or council votes, and Tim Stephenson, at least, seemed to have reservations enough to vote “nay”, yet he still voted for it in the end. Throw in some cajoling from Ms. Rogers, and the fact that the Olympic Village HAS to get done, and I don’t see the unanimous vote as all that surprising or damning for anyone on Vision. As Campbell and Owen said back in November, it’s all part of regular City business, really. The fact that they would lord it (the unanimity) over Vision in the election is pretty disingenuous, but that’s politics.

  • spartikus

    If much of this was done in-camera, and was supposed to be confidential, how could the Vision councillors have sought outside advice which they claim led them to vote against that one motion they now claim to oppose?

    I find the idea that councillors would be prevented from seeking independent 2nd opinions on such matters because they were dubbed “in-camera” to be extremely troubling.

  • Rod Smelser

    “Why they didn’t say anything about their objections until the deal started to look bad is unknown — either because they felt like they wouldn’t get any traction with their criticisms while everything was going along smoothly or because they felt constrained by the in-camera requirement for confidentiality.”

    “I should add, however, that I believe all the Vision councillors voted in favour of Millennium getting the bid. That was a public vote, not in camera.
    And once the city was committed to Millennium, that had consequences down the road.”

    What should the Vision councillors have done in an ideal world? Should they have discussed in-camera decisions immediately? Should they have voted differently? If they had voted against this project, would they have been subjected to harsh criticism in the commercial mass media for opposing Vancouver’s Olympics?

    Who is the staff professional who detailed all of the possible “consequences down the road”, and where is that briefing paper, presumably written in 2007 when the binding decisions were made?

  • Dawn Steele

    I still don’t get how any of them – including all the so-called expert staff who advise City Council on these things- could have gone along quietly with what’s essentially a 100% taxpayer-based guarantee on a billion-dollar market condo development, especially with all the warning signs of an increasingly risky and volatile market.

    I can see a taxpayer guarantee on a social housing project or an Olympic facility that ends up in public ownership at the end of the day, but not in a project that is essentially market-based.

    What is the point of a P3 if the private partners aren’t assuming the market risk? Isn’t that the whole point or am I missing something here?

    What is a point of a deal where the private developer stands to get all the profits if things go well but taxpayers assume all the risk if things go south?

  • “What is a point of a deal where the private developer stands to get all the profits if things go well but taxpayers assume all the risk if things go south?”

    Sadly, this is business in the 21st century. We privatize the profits and socialize the losses. The United States is currently running a $700-billion experiment on this philosophy. The Olympic Village is Vancouver’s turn.

    Wait, Vancouver’s turn? Isn’t that the slogan for The Ritz-Carlton Vancouver? It is! And funny enough, the Ritz went bust too.

  • T W

    One constatbt dilemma for elected officials is ensuring that the staff on whom they rely for expert advice are not “captured” by special interests, directly or philosophically. The economists definition of regulatory capture is used to refer to situations where a regulatory agency created to act in the public interest instead acts in favor of the commercial or special interests that dominate the industry it regulates .

    It is an open question whether this in fact did happen and whether our elected officials had enough insight to recognise the potential.

    We may have to wait a calmer time for any evidence for or against regulatory capture to appear.

  • foo

    Dawn,

    Most of the ‘experts’ still don’t believe that it’s a risky and volatile market. Even now there are people saying that the condos will sell in the $1000/sq ft range.

    Aside from bloggers like VHB, and the community that gathered at his and few other similar blogs, there was no-one in 2007 saying it was a bubble and it was going to burst.

    Certainly no mainstream politician or bureaucrat was going to go against the prevailing wisdow back then.

  • LP

    With respect to foo’s comment #15, I used to belong to Ozzie Jurock’s Real Estate Action Group which meets every month.

    Almost all investors and Ozzie himself had steered clear of “Vancouver” real estate as far back as 3 years ago, siting the diminishing returns and better opportunity elsewhere. Ozzie continually warned everyone that it was incredibly risky to be in this market.

    I hate to say it but the smarter investors have been long gone for years, not even months. The ones buying into the realtor/Rennie/MPC Intelligence hype were very poorly informed, or just plain old greedy.

    It’s not just bloggers like VHB, condohype, etc..that knew better, there is a whole pocket of smarter folks out there, you don’t hear much about them.

  • Wayne

    Here’s a silly notion, and slightly off topic, but I can’t help putting it out there.

    It seems to me Peter Ladner might be one of the happiest people in Vancouver right now. I wonder, if like all councillors, he saw this train wreck coming and in a last ditch attempt to get out of the way he leaked the documents of the in-camera meeting.

    I’m sure this is just the product of my twisted mind but I’ll wager Ladner is sleeping a lot better than the incumbents who were re-elected.

  • patriotz

    Is it even possible, in the current global liquidity crisis, for Vancouver to find $400 – 500 million in credit in the next month or so to finance the completion of this project if Fortress doesn’t decide to play nice?

    Not only possible, but easy. There isn’t really a liquidity crisis per se. There is just a reluctance to loan to borrowers that are perceived as risky. Interest rates for safe borrowers have actually gone down, as we well know with the US and Canadian governments.

    500 mil is only 1K per capita and that’s well within the ability of the CoV to service. The city has a huge tax base and the capital markets know it. I’m not saying there would be no consequences in terms of higher taxes or service cuts, but it’s certainly doable.

  • Dawn Steele

    Sorry, the apologists here are just blowing my mind!

    Why worry about how much we risk losing in the long run because the falling market could defy all the odds and turn around? That’s not even the point. The question is why we did we take on so much risk in the first place?

    Or who could have foreseen this was risky? Hello! Aren’t markets by definition risky? Why were people playing in them with our tax dollars? Especially when the experts were predicting a market downturn after 2010 as far back as 3 – 4 years ago?

    Or why worry about the fact that we’ve committed to taking on $1,000 in debt for each man, woman and child in this city (assuming no further cost over-runs) that no one ever asked for or approved?

    Wow! Clearly the exact same thinking that created this whole mess in the first place. Why was I scratching my head pondering whether to vote for $5 – 25 mill here and there for community centres & whatnot in the last election if it’s OK for the City to just go out and commit to borrowing up to 1 billion or more (whatever it takes!) to build more luxury condos downtown?

    It’s looking more and more like the citizens of Vancouver were sold out with a billion dollar deal that essentially promised Millenium and Fortress: “Heads you win, tails we lose!”

    …and some people are wondering why the fuss? This wouldn’t be prudent policy in a casino, never mind for people charged with managing the finances of a city and money belonging to half a million taxpayers.

    And patriotz, there isn’t a global liquidity crisis?

    Why were EU Finance Ministers meeting all the way back in Sept *2007* to discuss it? Why have central banks been injecting trillions of dollars, euros, dinars, you name it, in recent months? Why do you think interest rates at or almost zero?

    Some economists believe it’s not just a liquidity crisis, but a liquidity trap – as per what happened to Japan in the 1990s and to the US in the Great Depression – something many believed could not happen again:
    http://krugman.blogs.nytimes.com/2008/12/16/zirp/

    I pray they’re wrong, but really, what do we think is going to happen when we have a global economy dependent on financial markets that artificially created and advanced 30 times as much capital as they’d actually got until they woke up one day and collectively realized that much of it didn’t actually exist? And that with the string of consequences now in play, any new investment is enormously risky until we can all clearly see the bottom, and distinguish between assets based on concrete and those based on wishful thinking.

    If it’s so easy for Vancouver to get credit and the project is such a sure bet, folks, why did Fortress back out in September, back when the market outlook was still looking a lot more rosy, and when they knew they had a 100% completion guarantee from the city backing the developer?

  • Fortress is a wild card and the terms of the financing remain hidden from the public. Dawn, like you, I find it strange is Fortress is no longer advancing cash even though they have the city’s guarantee. The city is an excellent debtor; it has huge assets and the ability to tax. Those loans are sure to be repaid even if not a single condo sells from this day forward. As I understand it, things got better for Fortress as soon as Millennium fell out of balance because it meant the city assumed responsibility.

    I think it’s possible Fortress no longer has the money to lend. If we look back, the money tap to Millennium closed in September. This is the start date of the stock market crash. Since then, investors have been pulling their money out of Fortress like mad. The cash outflow has been so large, Fortress had to close the gate on redemptions.

    Complicating things is the fact that the city doesn’t have the options to leave Fortress without incurring massive penalties. (When I say “fact” I’m assuming Miro Cernetig’s source is accurate.) It appears as though the city is stuck. Whether they have money or not, Fortress can be expected to hold the city to the contract.

  • foo

    Dawn,

    I don’t know of any expert locally that was publicly saying in 2004-2005 there would be a housing downturn. Certainly, any of the people who did warn of a bubble were laughed at.

    Also, Fortress is not lending money because they have no guarantee they’ll get it back. The completion guarantee is just that – the city said it will complete the project. Not guarantee the loan.

    Even if/when the project is complete, someone is going to be out a few million dollars (0< few < $1b). Fortress doesn’t want it to be them.

    As it stands, they’re already out ~$150m ($350m they’ve advanced, minus the $200m loan guarantee from the city). Since the city still owns the land, and has first call (presumably) on Millenium’s other assets, Fortress doesn’t have a lot of collateral here.

    Not that I like hedge funds much, but they put the money up, they’ve lost a chunk already, and they’re just doing what lenders do to prevent themselves getting burnt any more. And it’s also possible they have no more money to lend.

  • Dawn Steele

    Foo, the City has a triple A credit rating, so if Fortress is not lending, it’s either because they expect this whole project to turn out very, very badly or, as condohype says, because they no longer have the cash to lend and are looking for an easy way out. The latter certainly makes sense, because so much capital has simply vanished in the past few months, despite the mind-boggling government injections.

    But that then leads back to my earlier question of just how easy it will be to find $500 million or more to borrow from someone else who just happens to have that kind of money sitting around in a top drawer.

    And as to what was predictable, read Gary Mason’s Globe column today about who knew what when, in terms of the risks associated with this project, based on minutes of in camera meetings held back in the summer 2007 before the NPA councillors approved loan and completion guarantees.

    The fact that the City chose to not believe the warnings that were there all around does not mean it was not imprudent to do so.

    Which brings us right back to the mysterious Estelle Lo, whose disappearance sparked all this, and whether we will ever learn what she advised the city and when and why she was gagged, sidelined and moved out.

  • T W

    On another post, I pointed out that according to a NY report today, the rating agencies are considering downgrading Vancouver’s debt rating. If so, the costs of borrowing go up. The rough debt calculations may well already be in error

  • foo

    Dawn,

    All the reports I’ve read say that if Vancouver is willing to guarantee the entire debt, Fortress will lend the rest of the money. So far the city has resisted. My point was that Vancouver made a “completion guarantee” not a “loan guarantee”.

    Of course the city’s (soon to be former) AAA rating will help, which is why Fortress wants that guarantee. Would you rather lend to Vancouver city or Millenium developers?

    And, in case you haven’t seen my earlier comments, I fully expect this project to turn out badly. Somebody is going to lose of the order of $400m, in my opinion.

    I’m not suggesting the city will be on the hook for that entire amount, but between Millenium, Fortress and you, me, condohype and the others here, there’s $400m down the tubes. I have a quarter in my pocket, so y’all are going to have to come up with the rest.

  • Dawn Steele

    Foo, you’re right – Mason’s story today notes there was the completion guarantee plus a loan guarantee for 200 million only, and like you say, they’re looking for a full guarantee covering the rest to proceed.

    Sigh! The more I think about it, the more I think we’re truly screwed… just how bad is anybody’s guess but I sure hope you’re wrong!

  • Fortress has no money to lend because it’s all been a house of cards, just like Millenium, aka, shell/holding companies. This project is just one of many, part of the illusion of the corporate/economic world created by elites. Anyone watching all of the public money being poured into corporate welfare these days (or getting ready to be shoveled in???

    That’s how most of these P3’s work, taxpayer money goes into developer company 1, who gets credit from lender corporation A (there’s probably a lobbyist involved in there too).

    In Millenium’s case, when the cash (ours) was flowing, they gave $3 million to VANOC (BC Liberals) to become an “official supplier.” There are a series of Millenium shell companies with differnet projects in BC (the Olympic village is just one). The Nanaimo project is reaching default, or is already in it. Other projects have stopped. The house has fallen, only taxpayers are going to be on the hook, all of the guys responsible will walk away with money socked away in the Cayman’s, or some other tax-free zone.

    Some of us have always known and tried to warn others about the high-risk of P3’s for taxpayers. Too much money to be made for most to listen. Many of us may not know, but most city parties take a LOT of money from developers (all 3 have in Vancouver, some more than others, but all have, it’s all in their disclosure statements). There is always risk for taking the donations and reasons people donate. That’s how business & politics have worked for a very, very long time.

    I’ve written a series of stories on a lot of this, connecting dots:

    What’s Old is New Again: Stories on Olympic projects, Millenium and the Players

    http://westcoastindienews.blogspot.com/2009/01/whats-old-is-new-again-stories-on.html

    Here’s another story from the International Herald Tribune:

    Fortress, the hedge fund, is crumbling

    “once-celebrated company has lost 89 percent of its market value over the last year”

    http://www.iht.com/articles/2008/12/04/business/04place.php

  • Fortress has no money to lend because it’s all been a house of cards, just like Millenium, aka, shell/holding companies. This project is just one of many, part of the illusion of the corporate/economic world created by elites. Anyone watching all of the public money being poured into corporate welfare these days (or getting ready to be shoveled in???

    That’s how most of these P3’s work, taxpayer money goes into developer company 1, who gets credit from lender corporation A (there’s probably a lobbyist involved in there too).

    In Millenium’s case, when the cash (ours) was flowing, they gave $3 million to VANOC (BC Liberals) to become an “official supplier.” There are a series of Millenium shell companies with differnet projects in BC (the Olympic village is just one). The Nanaimo project is reaching default, or is already in it. Other projects have stopped. The house has fallen, only taxpayers are going to be on the hook, all of the guys responsible will walk away with money socked away in the Cayman’s, or some other tax-free zone.

    Some of us have always known and tried to warn others about the high-risk of P3’s for taxpayers. Too much money to be made for most to listen. Many of us may not know, but most city parties take a LOT of money from developers (all 3 have in Vancouver, some more than others, but all have, it’s all in their disclosure statements). There is always risk for taking the donations and reasons people donate. That’s how business & politics have worked for a very, very long time.

    I’ve written a series of stories on a lot of this, connecting dots:

    What’s Old is New Again: Stories on Olympic projects, Millenium and the Players

    Here’s another story from the International Herald Tribune:

    Fortress, the hedge fund, is crumbling

    “once-celebrated company has lost 89 percent of its market value over the last year”

    http://www.iht.com/articles/2008/12/04/business/04place.php

  • Fortress has no money to lend because it’s all been a house of cards, just like Millenium, aka, shell/holding companies. This project is just one of many, part of the illusion of the corporate/economic world created by elites. Anyone watching all of the public money being poured into corporate welfare these days (or getting ready to be shoveled in???

    That’s how most of these P3’s work, taxpayer money goes into developer company 1, who gets credit from lender corporation A (there’s probably a lobbyist involved in there too).

    In Millenium’s case, when the cash (ours) was flowing, they gave $3 million to VANOC (BC Liberals) to become an “official supplier.” There are a series of Millenium shell companies with differnet projects in BC (the Olympic village is just one). The Nanaimo project is reaching default, or is already in it. Other projects have stopped. The house has fallen, only taxpayers are going to be on the hook, all of the guys responsible will walk away with money socked away in the Cayman’s, or some other tax-free zone.

    Some of us have always known and tried to warn others about the high-risk of P3’s for taxpayers. Too much money to be made for most to listen. Many of us may not know, but most city parties take a LOT of money from developers (all 3 have in Vancouver, some more than others, but all have, it’s all in their disclosure statements). There is always risk for taking the donations and reasons people donate. That’s how business & politics have worked for a very, very long time.

    I’ve written a series of stories on a lot of this, connecting dots:

    What’s Old is New Again: Stories on Olympic projects, Millenium and the Players

    Here’s another story from the International Herald Tribune:

    Fortress, the hedge fund, is crumbling

    “once-celebrated company has lost 89 percent of its market value over the last year”