August 29, 2007

The Government of Canada will proceed with transferring ownership of nine federal office properties into private hands. The properties will be sold to Larco Investments Ltd. for $1.644 billion and will be leased back for 25 years.

The office buildings are located in Vancouver, Calgary, Edmonton, Toronto, Ottawa and Montreal.

This announcement is the result of a study Public Works Government Services Canada (PWGSC) commissioned last September. Following a competitive process, PWGSC hired BMO Capital Markets and RBC Capital Markets to review 40 Crown-owned properties across the country and explore various options for more cost-effective and efficient accommodation of federal departments. They recommended that the government sell and lease back nine of the properties.

Owning real estate is not part of the government’s core business.

Therefore, following a competitive process, PWGSC hired Deutsche Bank in June to review the top bid and compare the projected cost of the sale–leaseback with that of the status quo (retaining ownership and outsourcing management of these assets to the private sector). Deutsche Bank confirmed the transaction represents fair value to the Crown, taking into account the financial terms of the leases. Deutsche Bank also concluded the marketing process had been robust and thorough, and endorsed the top bidder selected by PWGSC.

The Government of Canada will continue to occupy the buildings and ensure federal visibility in every region of the country. This transaction will be seamless to Canadians and will not affect government services or programs offered in the buildings. For instance, passports, Employment Insurance, Canada Pension and other services will continue to be provided from these locations with the same level of service.

This is a good news story. Our Government is yet again taking steps to bring remedies to challenging issues. Our approach, when we deal with a problem is to determine the needs and work towards a solution. Prior governments failed to invest sufficient funds in the portfolio to such a degree that our deferred capital repair bill over the next 13 years is in excess of $4 billion.

The Government of Canada has set favourable conditions for this deal to make it very beneficial for all Canadians.

• Proceeds from the sale were $250 million above what was anticipated;
• The buildings were sold for 1.644 billion, approximately $450 million above their appraised market value;
• The new owners will have to shoulder 100% of the superstructure repairs associated with each of the buildings (roof, massonry, outside shell, etc…). Experts have estimated that this will save approximately $500 million to taxpayers;
• The government timed the transaction almost perfectly by moving quickly at a time where real estate market conditions were very favourable;
• By acting now, we are reaping tangible benefits and avoid inheriting obsolete buildings with little value in 25 years.
  

Very few Canadians own their office and wouldn't expect the federal government to own its office space either.

I am very proud of this initiative which will emphasize a greater degree of private-sector discipline in the management of Crown occupied office space.