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Olympic Village May Not Get Finished


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Taxpayers beware of millions more in Olympic Athletes' Village loans

Vancouverites could be on the hook for hundreds of millions to guarantee Olympic Village loan

By Miro Cernetig, Vancouver Sun columnistJanuary 8, 2009

Vancouver's Olympic Village under construction.

Photograph by: Steve Bosch, Vancouver SunThe news from Vancouver’s Olympic Village is becoming dire. And next Thursday is the day this billion-dollar financial minefield could blow up for the world to see.

That’s when the companies that are building Vancouver’s billion-dollar Olympic Village hope to access more of a $750-million construction loan from Wall Street, to keep constructing the crown jewel of Canada’s 2010 Winter Olympics.

But suddenly, there’s a problem in getting that money. The city might have to offer as much as half a billion dollars in loan guarantees as security, significantly more than the $100 million it has already put up to keep the Olympic Village construction going.

The project’s main, U.S. financier, Wall Street’s formidable Fortress Investment Group, has toughened conditions for accessing its loan. Fortress is asking the City of Vancouver to guarantee most of the $750-million loan it has offered to build the $1.2-billion Olympic Village.

That borrowed money is the primary source of funds for the work crews and developers, working on an increasingly tight — and tenuous — schedule to get the Olympic Athletes’ Village built by this October.

But with its own share price in a slump, the global banking crisis still unwinding and a falling real estate market in Vancouver, Fortress essentially wants a guarantee from the City of Vancouver and its taxpayers that it will be paid. It wants the city to make good on the project’s loan and interest costs if the Olympic Village fails as a real estate venture.

In short, the profitability of the Olympic Village, whose condos were supposed to be sold to the public at great profit after being used by Olympic athletes, is no longer viewed as such a sure thing. In fact, those close to the deal — now watching condo prices drop dramatically — wonder if the deal will ever make a profit.

So here’s what Vancouver Mayor Gregor Robertson is facing. You’ll be hearing it in the next few days, when he makes it public:

The Wall Street financial firm is saying it will continue to lend the money to build the Olympic Village — on the condition Vancouverites absorb most of the future risk. The money will be loaned until 2010, as promised, under contract, if the city guarantees repayment of the loans to Fortress.

Here’s the financial — and political — challenge to Mayor Robertson, and why he’s got to find another way to get the village built.

First, the rates of Fortress’ loans, negotiated long before he took office, are high by today’s standards: about eight per cent (or more) per annum, roughly $50 million a year or more for the project, according those I spoke to close to the deal. That is eroding the project’s profitability. It’s also about double the rates that might be negotiated if a similar loan were renegotiated today, with the city’s backing and solid credit rating.

Secondly, it no longer seems the Olympic Village condos can be quickly sold off by 2010, as was expected. That was what made this deal work.

The local real estate market has slowed dramatically. Only 250 of the 750 Olympic Village condos have been sold. The new plan — a prudent one — is to delay the sale of the others until the market rebounds and avoid fire-sale prices at taxpayers’ expense.

But that prudence comes at a cost, too. It means loan financing costs won’t end on the Olympic Village by 2010. Instead, they could drag on for years, until all the units are sold.

That means the loans to carry the project will need to be extended, perhaps for years. That will entails tens of millions of dollars in added carrying costs a year, too.

But the Olympic Village’s red ink might deepen even further. There is no guarantee — if the real estate market sags longer than expected — that the Olympic condos will ever be sold at prices high enough to recoup the original investment and carrying costs.

So what’s the focus of the Gregor Robertson administration these days? It’s the only one left: Refinance, as soon as possible.

Mayor Robertson and his advisers hope to find alternative sources of financing for the Olympic Village project, to reduce loan costs for the city and the developers building the project. That might enable them to renegotiate the Fortress loan, using the leverage of the Triple A ratings of the provincial and federal governments.

So far, those governments aren’t saying much. The province, in fact, continues to say this is the city’s problem, not theirs. But that’s a mistake. This is the moment when the West Coast’s biggest city needs the help of the bigger boys at the negotiating table. The city’s past administrations messed up badly.

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Well, yesterday it was announced that the City of Vancouver is now on the hook for over $800,000,000 in order to fund the Olympic Village so it can be completed. Furthermore, real estate experts are doubtful that given the current economic situation, which is expected to pull down the Vancouver housing market for years to come, the city will be able to recover its investment through resale of the units following the Games.

Ah - the great Olympic con game continues, as cities and host nations are once again forking over $billions to this circus. Just think of where that money could have gone. Lies. Lies. Lies.

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again.....................its the return of olympics past Montreal!!!!!!!!!!!
Well, Montreal often gets cited as an example of out of control spending and Olympic debts, but there are a couple of things to keep in mind with Montreal 1976.

Montreal was the first Olympics following Munich, and the new security demands placed upon Montreal's organizing committee by the IOC were never part of the original bid budget because the PLO terrorism at Munich hadn't taken place by that time. Those costs were substantial but not part of the original estimates. Additionally, the TV network revenues back in those days were no where near where they are today. The TV rights for Montreal 1976 brought in about $34.8 million. That's all!

The costs overruns in terms of construction were definitely an issue, but additional costs didn't help. And back then, with less than $35 million in revenue from TV rights, the organizing committee had really no other way to raise the funds to cover the costs.

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I'll buy a fire sale condo!

Wasn't/isn't Vancouver already suffering from a glut of condos even before the Crash of '08 and the appearance of the OV?

I wonder how much of a lesson this is to the IOC -- with their idea of adding even a few more sports?? I mean the IOC should really be called the Idiotic Olympic Committee.

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Wasn't/isn't Vancouver already suffering from a glut of condos even before the Crash of '08 and the appearance of the OV?

I wonder how much of a lesson this is to the IOC -- with their idea of adding even a few more sports?? I mean the IOC should really be called the Idiotic Olympic Committee.

New flash, the number of participating athletes have been frozen since Athens: any new addition of a sport or a discipline must be counterbalanced by a reduction in other sports/discipline.

<_<

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New flash, the number of participating athletes have been frozen since Athens: any new addition of a sport or a discipline must be counterbalanced by a reduction in other sports/discipline.

<_<

No need to get all sarcastic, jeremie. I thought the athletes number was frozen at 10,000. Then it became 10,500. So I can never take such pronouncements of the IOC seriously. And the hosts always seem to oblige to accommodate a few more last-minute additions. So it's like in reality, the IOC never sticks to the so-called "frozen number." I mean they get away with it in the WInter, I don't see why that should stop them for the Summer Games as well?

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Vancouver's housing market seems to have not "crashed", just slumped a bit, in the past year...not much change when compared to other cities.

So what is the "frozen" athlete number for the "frozen athletes"....Winter Olympics, that is?

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The whole issue is overblown by the media, and posters from Skyscraperpage describe the actual situation quite correctly:

Jlousa

I can't disclose all the details, but I can assure you the city won't lose any money on this deal. Vision is out making waves and I have no idea why, they won the election it's time to let it go. The only possible scenario of the city losing money on this is if they go ahead and turn it into non-market housing or rentals, which I would not put past this council. They can very well try and use this to push their cause at the expense of the NPA.

People seem to think the city could be out millions of dollars, in the worst case scenario, the numbers speak for themselves, even if they sell the remaining units at a slightly less price then the old ones they will still be able to cover all expenses, the remaining units are also the most desireble/waterfront units, up until now only the least desireable units have been sold. Those that have purchased have placed 20% down, at that downpayment the developer isn't too worried about people walking away, even if they do, the developer could reduce the price and resell them. Prices have contracted but not by 20% from the selling prices. The biggest factor which is the media isn't covering is this, Millenium has put up it's other COV properties as collateral in this deal. Which means even under the worst case scenario the city gets ownership on Millenniums other properties which is a sizable portfolio and includes the Province building downtown (not the pacific press building). I think one of the biggest reasons Canwest has been blowing this out of the water is a bit of resentment because they lost out on the games to ctv/bell/globeandmail. I am finding the stories in the globeandmail must more balanced.

Johnjimbc

This is being pushed as a calamity a bit too strongly. We are talking about marketable and sellable units in a new neighborhood. It's not like there is a billion dollar stadium going to sit empty.

So any reporting showing the total exposure without even attempting to determine sales figures that can be expected in the next 2 to 3 years are just reporting shoddy attention-grabbing headlines. It's no different than me going out to the corner of Robson and Granville and yelling, "The Sky is Falling - Our City is Doomed" at the top of my lungs.

How about this for a worst-case scenario. One or two of the buildings becomes affordable or mixed-income housing? Geez, would that mean they were a "loss" to the city or contributing to assist the affordable housing deficit.

I know it is en vogue to peddle the "end of the universe as we know it" angle (after years of pushing the "a new millennium of wealth of prosperity has dawned" meme), but honestly can't someone report on this with a small tidbit of journalistic integrity.

As for the situation itself, I still get this sense that the financiers on Wall Street are playing the city on this. I just can't shake that sense from anything I do read or hear about the situation. I imagine lead executives looking for ways to eliminate ANY of their risk and still get all the benefits of the huge loan by thinking to themselves, "This is THE Olympic Village. There is NO WAY they are going to let it fail. Tell them we won't pony up any more money unless they take on all the risk. They'll squirm, but in the end they'll pony up. Then we'll get our money with more favorable terms to us, and any risk in the project will be off our books and lower the overall risk of our portfolio."

With that in mind - and if the terms are going to require the city to carry any risk anyway - I'm with the person who just suggested it become a federal government LOAN. May as well have the terms with a government entity. Don't reward the financiers for hanging the city over a barrel. In fact, make them pay in the loss of business.

With a viable alternative, I suspect they'll change their tune and be a bit more amenable to an equitable sharing of risk and more favorable terms to the city.

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I still think my comment that how can 87.5% of an entire ventures cost still be outstanding and a risk to the City of Vancouver with much less than a year until competition.

The media doesn't like to post much positive/good news about the Olympics.

Though I think CBC is loving the shadefrauden with Bell/Rogers overpay.

Edited by Faster
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Vancouver's housing market seems to have not "crashed", just slumped a bit, in the past year...not much change when compared to other cities.

So what is the "frozen" athlete number for the "frozen athletes"....Winter Olympics, that is?

I don't think the IOC is 'freezing' themselves into a 'frozen athletes' number. I mean they are desperately seeking very telegenic sports (and countries) to add to the Winter program. Plus, there's also the luxury of at least 2 major OVs as evidenced by one in Vancouver, another in WHistler. Maybe SOchi mighy have one. Will PY have two?

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I mean its bad enough Montrealhad unfinished venues but to have it repeated so long afterwards on the western edge of canada says a lot about what goes on in between.

Well...did Montreal really have unfinished venues? Yes...We all know that the stadium tower and the roof were not complete by the time of the opening ceremony. How embarrassing. But the tower wasn't a sporting venue and the retractable roof was not a requirement for athletics. In fact, the roof would have been required to be opened/removed for all athletics competitions. They did have a close call with the construction strikes and cost elevations, but not a single athlete competing in Montreal missed out because their competition venue wasn't ready.

As for the other side of the country, once again, all of Vancouver's sporting venues are complete. And the Village, too, will be complete by the time the athletes arrive in 2010. This is a requirement and there are contracts and deadlines to be met. It will happen.

The problem is making up for the slow sales in a slow economy. This article sums up the problem nicely: Economics of Olympic Village

Of course this isn't as sexy as the disaster scenario some around here would like to see... But in the end, the Games will go on. The stadium roof isn't falling. The athletes won't be sleeping in card board huts. And if some snow falls, they'll remove it.

No need to worry. ;)

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The media doesn't like to post much positive/good news about the Olympics.

That's because "Olympic Organization Going Hunky Dory" just isn't a very appealing headline to them. Every Olympics has some kind of headline event. The only ones in recent memory that didn't claim some kind of media hounded organizational problem was Sydney, but the media had the bid scandal to contend with. Sydney did get a bit bruised, but nothing like Salt Lake. I remember in the build up to the Atlanta games it seemed there were a large number of media stories on "could another terrorist attack happen?"...it was as if the media wanted something bad to happen. And thanks to the Centennial Olympic Park pipe bomb, they did get their incident.

So if there was ever an Olympics without organizational woes, political intrigue, terror threats, drug scandals, competition controversies...the media might not even show up.

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Well considering that the Vancouver Housing market has been like San Francisco's or much of the Us West Coast a City government could still on these units until they did indeed get the price they wanted . North Vancouver on Waterfront in a couple of years will grow in value. In the Meanwhile as they sell off single units at the asking price they are getting huge tax revenues.

This cannot be compared to Montreal 1976 at all. Hardly a new venue was complete this far out from the Montreal Games where as pretty much all the venues are complete for Vancouver 2010 and with relatively small increases in price from original estimates. There are no huge cost increases here just ability to finance on the developers part.

There is a Deadline to get the athletes village done but the nature of a housing development is you have many possible tenants and then possible buyers afterward. The city could easily Occupy to Capacity the Athletes Village Post Games with Renters while having the units go for the ultimate asking price for the Complex being 1.1 billion. The contract with the developer includes the provision that the City can take full ownership of the Development if it looks like the Developer cannot compete and that is without any legal recourse for the developer.

this is a big number to bandy about but it is certainly not like Montreal where you have a Stadium costing 500 million at the time of the Games then escalating further to over 1 billion post games. These units can be completed without drama the onyl thing preventing it would be a total turning of the back from the City and perhaps the Province. they can forget Stephen Harper for money as they drew the line in the sand with the last bailout.

Jim jones

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The only ones in recent memory that didn't claim some kind of media hounded organizational problem was Sydney, but the media had the bid scandal to contend with. Sydney did get a bit bruised, but nothing like Salt Lake.

You reckon? My memory of the years 1993 to 2000 here was of constant negative media outrage, scandal, bad press etc over everything from the rotating doors of SOCOG chief execs, ticketing issues, scandsals (that seems to be one for every games), panics about construction schedules etc etc and so on and so on ad nauseum. Really, the feel good effect ofor the Sydney games in the media here only really started kicking in when the flame arrived at Uluru.

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