15 responses so far ↓

• 1 jesse // Nov 4, 2010 at 8:52 pm

  WTF? City managers are trying stare down a terminally ill cancer patient in a standoff. Delaying selling these units is the worst thing the City can do.

• 2 Mo // Nov 4, 2010 at 9:13 pm

  Oh my. Time to send the Developer to the cleaners. Grab their assets and kick their asses to kingdom come. They lied now they need to pay the piper.,

• 3 IanS // Nov 5, 2010 at 6:17 am

  That seems odd. Doesn’t the City already have a “guarantee” and security over some of the developer’s assets to cover any shortfall? Wouldn’t the better solution be to sell the units, even at a lower price, and then recover any shortfall against the secured assets?

  I’m not a real estate expert, but, between the holding costs and the uncertainty inherent in holding on to so many units, the City is risking a much more significant shortfall which may not be recoverable from the developer’s assets.

• 4 MB // Nov 5, 2010 at 9:04 am

  I wonder if other developers are pausing to reconsider their donations to Vision as the result of this action?

• 5 Morven // Nov 5, 2010 at 11:43 am

  We might understand how we got to this problem if we knew what the legal language of the contract is/was. I have no idea where that is buried.

  But so far, it resembles a Mexican stand-off.
  -30-

• 6 Crazy! // Nov 5, 2010 at 2:43 pm

  Let’s see the contract, please.

• 7 Creek'er // Nov 5, 2010 at 5:15 pm

  “That seems odd. Doesn’t the City already have a “guarantee” and security over some of the developer’s assets to cover any shortfall? Wouldn’t the better solution be to sell the units, even at a lower price, and then recover any shortfall against the secured assets?”

  Or are the Oly properties the only secured assets? Millenium Village is likely incorporated separately from Millenium itself and the city is thus unable to recover from the parent company. The city may be trying to have other assets included to secure the loan.

  However, if this new pricing is indeed 100million short, you could see why Millenium would be unwilling to do so. Much better to simply walk away from that obligation and leave the city holding the bag.

• 8 Frances Bula // Nov 5, 2010 at 6:02 pm

  @Creek’er. Clearly, I need to go back to news writing class. The point of the story was meant to illustrate the fact that the city, in fact, doesn’t have enough assets certified or doesn’t know what they are worth. That’s why they’re making Millennium prove what they have or provide new assets. They don’t actually know if there’s enough to cover the loss.

• 9 IanS // Nov 6, 2010 at 5:41 am

  @ Frances #8,

  You write: “the city, in fact, doesn’t have enough assets certified or doesn’t know what they are worth. That’s why they’re making Millennium prove what they have or provide new assets. They don’t actually know if there’s enough to cover the loss.”

  Really? The City entered into the deal without ensuring that the proposed security could cover the potential loss? If so, that’s surprising. It’s a pretty basic step to ensure that the security you take will be sufficient. (By analogy, when you get a mortgage from a bank to buy a property, the bank makes sure it receives a current appraisal and will only lend to a percentage of that appraisal.)

  My recollection, from reading stories about the transaction, is that the City took security over all of the assets held by Millennium, either directly or through subs. I haven’t seen the deal itself, but that would make sense. If that’s so, then the City must already have all the security it’s going to get.

  If the security didn’t encompass everything initially, I am doubtful that Millennium would provide additional security at this point. (Further on the residential mortgage analogy, imagine that you took a mortgage on a property, but there’s a drop in prices and, when the bank realizes its security over the land no longer coves the debt, it comes to you asking for additional security over your other assets. How likely are you to give that additional security?)

  In short, the City should have ensured that it was taking sufficient security at the outset of the deal its due diligence. If it failed to do so, it’s unlikely (IMO) that it will be able to obtain additional security at this point.

  And, given the status of the project and the increasing likely of (what now appears to be) an unsecured shortfall, wouldn’t it make sense to take steps to minimize the potential loss rather than fail to take steps to sell the units and minimize the shortfall?

• 10 Frances Bula // Nov 6, 2010 at 10:27 am

  @IanS. All excellent points and ones that people involved in various parts of this fracas have been making.

• 11 Creek'er // Nov 6, 2010 at 11:44 am

  well, thanks for your efforts on this file Frances.

  I suppose my point is that Millenium is unlikely to provide other assets as security for the loan if it is, as you say, significantly underwater. A strategic default may be their best case scenario. The city, as creditor, would be left to pursue whatever remedies are available, including attempts to pierce the corporate veil to get at Millenium’s other assets.

• 12 Westender1 // Nov 6, 2010 at 12:22 pm

  IanS’ well-reasoned comments include as one of their conclusions:

  “… the City should have ensured that it was taking sufficient security at the outset of the deal its due diligence. If it failed to do so, it’s unlikely (IMO) that it will be able to obtain additional security at this point.”

  But what if the City had an avenue available to it that is available to almost no other creditor on a land-development deal? What if the City had the opportunity to increase the value of some of the assets of the debtor? It has been reported that the City has registered an interest in the Millenium property at 1215 Bidwell Street – this is the same property for which City Council agreed to increase the development potential, and therefore increase the value of the asset.

• 13 IanS // Nov 6, 2010 at 1:45 pm

  @Westender1 #12,

  I hadn’t thought of that at all. At first blush, that seems like a pretty big conflict of interest to me, particularly given that Millennium is competing with other developers.

  Have to give that one some thought.

• 14 IanS // Nov 7, 2010 at 1:57 pm

  @Westender1,

  The more I think about it, the more I think this potential conflict of interest issue is a potential problem for the City. By connecting its financial interest to Millenium in this fashion, the City has given itself a motivation not just to assist that company, but to hinder that company’s competitors.

  What happens when a competitor of Millenium seeks a development permit for a competing project (by way of example) near 1215 Bidwell? I do not know enough about the process to gauge whether it can, or would, take into account the City’s pecuniary interest in delaying that competing project, or even seeing it fail, but I bet that any competing developer unhappy with the results of the permit process will be raising that conflict as an issue.

• 15 Michael Geller // Nov 9, 2010 at 11:35 am

  Ian, you are correctly highlighting the problems that any muncipal government faces when it decides to get into the development business. It is possible to walk the fine line, but too often there are real, or potential conflicts of interest.

  And when municipal developers say they are treated like any other developer, whether in Vancouver or Surrey, it’s hard for most people to believe this, whether it is true or not.

  I was astounded that no one raised the potential ‘conflict of interest’ issue when the Bidwell/Davie proposal was going through the rezoning process. The fact is, some might argue the city did go out of its way to allow the developer to maximize the value of the site. A site it might one day take back….I certainly thought so.

  However, that project is now on the market, and there won’t likely be any changes to the zoning, especially with all of the West End eyes on the project.

  The biggest challenge facing the city right now is separating what is the best financial solution, from the best political solution.

  This is not to discredit any city staff…it is simply an observation having worked for CMHC and the federal Ministry of State for Urban Affairs for 10 years. We were often faced with similar challenges, and far too often, we did what was politically smart, rather than what was fiscally smart.

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