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Saskatoon City Council may have deferred voting on the deal for a new downtown event and entertainment district, but one chief financial officer wants to end the partnership altogether.
Trevor Jacek is the CFO of Midwest Development, a Saskatoon-based real estate development company. On Oct. 29, he spoke to city council, saying he fully supports the vision of a “vibrant and connected downtown” and the city would benefit from the project, but not with a partnership involving the Denver-based Oakview Group 360 (OVG 36).
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Jacek’s concerns centre around the project’s funding and management, “and whether the deal on the table truly serves Saskatoon’s long-term interests.”
He said he reviewed for the proposed framework for the deal with OVG 360 and noted how the company’s contribution is set to be $15 million towards a project that’s estimated to cost around $1.2 billion, “making OVG’s contribution a mere 1.25 per cent.”
In exchange for that investment, “OVG would receive up to 30 years of management control and a share of future profits, plus commissions and management fees,” Jacek said.
He estimates in the long-run, the City of Saskatoon would give up roughly $90 million in operating cash flow, “in exchange for that $15 million up front.”
The deal, according to Jacek, would also make the city responsible for any of the convention centre’s operational losses.
“If OVG was bringing significantly more upfront capital or assuming a real share of the project’s long-term risk this structure might make sense, but at 1.25 per cent it simply does not,” he said.
Jacek compared the agreement framework with OVG 360 to buying a rental home.
He outlined how in that scenario, OVG 360 would offer a small portion of the purchase price to the homeowner and in exchange would manage the home for the next 30 years, taking a substantial portion of the rental income and deciding which tenants could occupy the space.
In this scenario, he said the homeowner would still be paying the mortgage and doing maintenance when things wear out, like the roof. OVG 360 would collect profits for years off of this home, while the homeowner covered all the costs and took nearly all the risks.
“No prudent investor would ever sign that deal,” Jacek said, explaining how any partnership “must be proportional.”
He also raised to council’s attention his concern that making a deal with OVG 360 could hinder the City of Saskatoon’s ability to get necessary provincial and federal government funding for the project.
“We have to ask ourselves, would giving up long-term control and a significant portion of the project’s cash flow to an American company help?” Jacek said.
Instead, he said the city can make a stronger case to governments if the project is municipally owned and operated, with decisions and revenues kept in Saskatoon.
