Be afraid, be very afraid

http://www.flickr.com/photos/allstar/2762163124/

UPDATE 4:30 PM: OLYMPIC VILLAGE TAB MAY HIT $875-MILLION

According to the Vancouver Sun, the financier of the Millennium Water condo project is looking for as much as $875-million in loan guarantees:

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.

[The Vancouver Sun, “Taxpayers beware of millions more in Olympic Athletes’ Village loans,” January 8, 2008]

The situation is a total mess, even if we have yet to learn all the details. What we know is troubling enough: taxpayers are locked in a deal based on real estate speculation. The viability of the Olympic Village depends on market demand for luxury condos. If the market fails, the debt falls to the public.

In this scenario, the city would take ownership of the condos to sell, almost certainly at a serious loss.  If that pill’s too hard to swallow, the city could choose to speculate on a market bounce.  The price tag on the interest payments of waiting it out?  A world-class $1-million a week.

Bob Rennie once said you don’t have to buy to be a speculator. He was right.

Photo credit: Alistair Howard

20 Responses to “Be afraid, be very afraid”

  1. Dan Poh Says:

    I’m not given to playing the part of a helpful citizen, or even of saying much about anything… but I think the obvious solution here is for every Vancouverite to find every person with one of those “Olympic” support license plates or bumper stickers and send them the bill for every dollar over.

  2. The Urban Dweller Says:

    I’m very interested as to what we be revealed in the coming days. I’ve heard similar rumours. Lets just say the development circles chatter has gone up considerably. Surely that is a sign of a “bombshell” be released to the public. Not good.

    On a side note, what do you think of the village in terms of its look and feel? I strolled through it and it the buildings were much closer than your normal ‘hoods in Vancouver, kinda Europeanesque. I liked it.

  3. jesse Says:

    Maybe it’s time to “cityize” this developer. What prevents these guys from pissing away the loans? Part of the loan guarantee stipulation is massive oversight to prevent fraud.

    BTW for some good satire try http://lolfed.com/

  4. foo Says:

    Well, the refurbished Pennsylvania Hotel has now opened, and it appears that the capital cost averages out at $325k/room. So, the city could just use the Olympic village as social housing after the Olympics, with two benefits:
    1. Homeless is drastically reduced
    2. It’s the same price, or cheaper, than the current approach to social housing construction….

  5. Carioca Canuck Says:

    Looks like the new mayor will soon be able to brag that he has finally solved the homeles problem in record time……heh.

  6. K-Money Says:

    When I read about stories like this it’s a love\hate relationship much like when I read about the fake landlord renting out the one bedroom to 5 students and then keeping their deposit. Love how they came up with the proposal\idea and hate how they get away with it. We simply live in a world where it’s all about screwing over other people for a profit.

    My friend in high school who was a scam artist had a great saying “The world is divided into two kinds of people. Dumb people and people who take advantage of dumb people.”

  7. mk-kids Says:

    Let’s send Jack Poole and his Olympic-happy buddies the bill.

  8. dingus Says:

    Holy sh*t. $875 million: Vancouver faces potential $875 million Olympic price tag

  9. anon Says:

    Don’t worry…. every visitor to the Olympics is going to fall in love with the “best place on earth” and buy 10-20 condos and a house here and one on Vancouver Island, don’tcha know?

    For cash! That’s right. Rich Americans and Asians.

    It’s true. My realtor told me.

  10. jesse Says:

    Actually we can pretty much calculate how much the City is on the hook. Add the number of units still for sale at list price, cut 30-40% off, and subtract that from the total obligation. A few hundred million for sure.

  11. M- Says:

    That’s just unbelievable how the city managed o botch this one. Don’t forget also that the city sold the land to Millenium for $200M (IIRC), and then lent Millenium the money…

  12. islander Says:

    I’m with Dan Poh, as long as “bill” is a euphemism for “hand grenade shoved up their stupid @zzes.” Then I’m totally in.

  13. Larry Yatkowsky Says:

    hYpe: Curious whether a Realtor was involved in those negotiations. :>)

  14. Montery Says:

    If those units and land now belong to Vancouver tax-payers, the city should set-up some kind of time-share program so that we can enjoy the uber-high-end properties (plan was to sell at >$1000/sqft?!?).

    At least that way it might *not* turn into a ghetto.

  15. dingus Says:

    Well, at least for all that money, the city is creating much needed luxury condos. Thank God we have our priorities in order.

    ‘Cause, y’know, we just don’t have enough condos.

    Q: Is this worse than the fast ferries boondoggle? I’d say it is.

  16. anon Says:

    OK. It’s time. Who wants to start the “Cancel the Olympics” website and online petition?

  17. dingus Says:

    As I recall, the whole Olympics was supposed to cost 1.2 billion (then 1.6 billion), with 600 million coming from the province and the feds?

    So now the liability to the CITY is 3/4 of the projected entire Olympic budget, and 150% of the COMBINED commitments of the province AND the federal government?

    WTF?

  18. VancouverGuy Says:

    When it says we provided a “completion guarantee”, what does that mean? That does not sound like we guaranteed the loan; it just sounds like we guaranteed the project would proceed.

    There are a few key questions:
    1. When we provided this guarantee, was it just a guarantee that the project would proceed and be completed (meaning we would kick in for cost overruns or any costs not paid by someone else), or was it a guarantee of principal? If the former, maybe we’re okay, if the latter then the previous council and mayor should be lined up and shot.

    2. Is our current loan going in as senior debt, or is it subordinated to Fortress? If the former, then we are good, but if the latter then we are essentially just piling in capital on top of Fortress to ensure they get their money back. This is ridiculous.

    3. How much money did Millennium put in upfront? Are we going to ensure that their equity component is wiped out?

    I would be more than willing to take two weeks off work to go down to City Hall and help them sort this out (I’m not in real estate banking, but rather corporate banking, so maybe I would be of little help). Then again, my employer would probably not let me.

    Who was the financial advisor to the city? If it comes out that it was some accounting firm who should never be ANYONE’S financial advisor for anything bigger than a small deal… grrr.

  19. dingus Says:

    And a propos your previous post, I note the Sun article refers to “the tanking real estate market”.

  20. jesse Says:

    I like the comparison to fast ferries. I suppose, like the convention centre, the City will have a legacy. Never mind how much money was wasted in the process, of course!

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