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Waterfront Toronto considered contributing Quayside lands as equity to fund Sidewalk Toronto project

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Waterfront Toronto considered offering Quayside land as equity to fund its development with Sidewalk Labs, Google’s sister company, but did not disclose those discussions to its board, nor did it include the option in its initial Request for Proposals (RFP), The Logic has learned. Land value estimates suggest that the equity could be used to secure a loan worth upwards of $2 billion.

The two organizations, which have been working together for the past 13 months to develop Toronto’s Quayside into a smart-city neighbourhood, have not revealed how either would make money off the project.

Government documents reviewed by The Logic, however, outline preparations for a December 2017 meeting between Kelly Gillis, deputy minister of infrastructure, and Will Fleissig, then-Waterfront Toronto CEO, in which they discussed the idea of offering equity to help fund the project. The documents were prepared for Gillis by infrastructure officials.

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An assessment previously reported by The Logic revealed that the 12 acres of land—currently owned by Waterfront Toronto—are worth between $432 million and $675 million. If provided as equity to the project, the owner could borrow upwards of $2 billion dollars, according to a leading real-estate appraisal expert.

That kind of funding arrangement was not included in the initial RFP that resulted in the selection of Sidewalk Labs as the winning bid.

“If the business and development constituents would have known that Quayside lands were to be contributed as equity, there would have been hundreds of bids from everywhere by experienced developer/innovation firms, since that type of equity seeds billions of dollars of development,” wrote Julie Di Lorenzo, a Toronto real-estate developer and former Waterfront Toronto board member, in an email.

Talking Point

Ontario’s auditor general is about to release a report raising questions about Waterfront Toronto’s relationship with Google sister company Sidewalk Labs. In the lead-up to that report, government documents show that Waterfront Toronto considered offering land as equity to the Quayside development. Land value estimates suggest that equity could be used to secure a loan worth upwards of $2 billion.

“At the very least in normal circumstances a 50 percent partner would have brought equal equity to the table, which I believe in this case is at least $500 million.”

Di Lorenzo resigned from Waterfront Toronto’s board this summer, in part citing concerns that Sidewalk Labs was devaluing the 2.7-million-square-foot public asset.   

The news comes as Bonnie Lysyk, Ontario’s auditor general, prepares to release her report on Waterfront Toronto. As The Logic reported last week, that audit is expected to raise questions about Waterfront Toronto’s governance and its relationship with Sidewalk Labs.

Helen Burstyn, chair of Waterfront Toronto’s board of directors, said the board explored “various economic and governance options,” but that members did not discuss equity.

“Contributing land as equity was not an option supported by the Quayside Committee or discussed by the Board,” Burstyn wrote in an email to The Logic.

Andrew Tumilty, a Waterfront Toronto spokesperson, said the discussion around land-for-equity was related to the initial Framework Agreement between his organization and Sidewalk Labs, which is now out of date.

“Equity refers to the fact that should the MIDP be approved, and construction commences, the Quayside buildings will be built on land currently owned by Waterfront Toronto,” wrote Tumilty in an email, referring to the Master Innovation and Development Plan.

Following the selection of Sidewalk Labs as the winning bid in October 2017, Coulter Osborne, who served as the process’ fairness advisor, ruled that while the project was “somewhat unusual,” the RFP was “fair in all respects.”

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Some critics have called for the RFP process to be restarted. Among them was Jim Balsillie, former co-CEO of Research In Motion (now BlackBerry). In October, Balsillie wrote in a Globe and Mail op-ed that the project “requires a restart with a new RFP that accurately frames the urban issues Toronto is trying to resolve and the vision its citizens have for this particular piece of land, their demands for municipal control of data and digital infrastructure and the protection of their digital rights.”

Other documents—all of which were provided to The Logic by NDP MP Charlie Angus—outline a number of ways Sidewalk Labs can make money to give back to the funding of the Quayside project. A January 2018 report prepared by Waterfront Toronto lists technology venture capital—investing in companies “to help grow the urban innovation cluster in Toronto”—as something that could generate investment returns on the Quayside project. It also includes real-estate returns through Waterfront Toronto—or independently, if Sidewalk Labs is permitted to purchase land—and infrastructure investment, of which “user fees could be collected to offset costs.”

The new Plan Development Agreement (PDA)—which was released in July 2018 and superseded the earlier Framework Agreement—states that the $50 million Sidewalk Labs has set aside for the project so far does not count as purchase of the land, and that Sidewalk can only purchase the land if the MIDP, which is the final agreement, is approved.

Angus also provided a scenario note outlining the meeting of an intergovernmental steering committee on the revitalization of Toronto’s waterfront on Nov. 6, 2017. The meeting included representation from all three levels of government, as well as from Waterfront Toronto.

According to the note, part of the meeting agenda included a review of when Waterfront Toronto should fold, as outlined in the Toronto Waterfront Revitalization Corporation Act, which could happen as soon as 2023. Waterfront Toronto is requesting an extension beyond 2028, saying that some commitments—including the long-term development of the Port Lands and Quayside—would run “well past 2028.”

Waterfront’s board of directors is scheduled to meet on Thursday to discuss the auditor general’s report. Following that, their next publicly-scheduled meeting is on March 21, 2019.