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.

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.)

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…

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.

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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.

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?

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.

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.

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.

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, 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.

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.

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”