A provincial government proposal to bail out the MaRS innovation hub — put on hold by the election — would cost Ontario taxpayers as much as half a billion dollars, secret cabinet documents reveal.
The high-level reports released Thursday by the Progressive Conservatives reveal that before the election the Liberal government was close to a deal with MaRS and a U.S. developer to purchase the brand-new — but virtually empty — MaRS Phase 2 tower in downtown Toronto.
The proposal would see the Ministry of Infrastructure purchase the building and land for $317 million, effectively erasing a $234-million loan the government provided to MaRS in 2011.
MaRS, a registered charity funded heavily by the province and aimed at fostering innovation and research, was unable to lease most of gleaming 20-storey facility to bring in revenue it needed to pay back the provincial loan — only 31 per cent of the building is currently leased.
“Failure to act will likely result in a MaRS event of default, foreclosure and fiscal writedowns,” the internal documents state.
The government proposal to purchase the building did not receive Treasury Board approval, which was necessary to give the deal the go-ahead. The election call meant the discussion at the Treasury Board, scheduled for May 13, did not take place.
Liberal Leader Kathleen Wynne downplayed the documents, saying they are simply the outline of a real estate deal that would consolidate a number of government offices and agencies — and potentially save money in the process. Wynne said that no final deal had been made.
“The Ontario government occupies more than seven million square feet in more than 100 buildings in Ontario,” Wynne said while campaigning Thursday. “What this agreement would do, if it is finalized, is allow the consolidation of some of those government offices into a building that would be owned by the province.”
Wynne’s campaign referred to the documents, prepared by the Ministry of Infrastructure and the Ministry of Research and Innovation, as “drafts” and said any conclusions based on the documents would therefore be “hypothetical.”
A Star analysis of the documents — a confidential report to the cabinet secretary and a ministerial proposal to the Treasury Board — reveals that on top of the $317-million acquisition cost, taxpayers could foot the bill for an additional $106 million over the next three years to renovate and prepare office and lab space for building tenants.
The tenants are expected to pay back those costs over time, but those tenants include government departments — who would occupy more than half of the building — and MaRS’s major tenants, Public Health Ontario and the Ontario Institute for Cancer Research.
Further costs include “operating shortfalls” projected for the facility over the next two years that drive the cost up an additional $54 million. The risk for those operating shortfalls, according to the plan, would be borne by the province.
That brings the total projected price tag up to $477 million over the next three years.
The documents make reference to several other potential costs, including interest on overdue rent payments, but in some cases do not provide specific dollar amounts. That means the total could be even higher.
In 2011, the province announced a $345-million expansion of the MaRS innovation and science complex in downtown Toronto. Part of the deal involved a $234-million loan from Infrastructure Ontario to MaRS to help finance the construction of the new tower on land owned by the non-profit kitty-corner to Queen’s Park. MaRS would repay the loan through rental income from tenants.
But by early 2014, MaRS was unable to make payments on the loan “posing a fiscal risk to Ontario,” according to the documents. The deal proposed to Treasury Board would see the Ministry of Infrastructure purchase the building and the land and, in effect, erase MaRS’ debt to Infrastructure Ontario.
Of the $317 million purchase price proposed in the documents, $65 million would go to Alexandria Real Estate, a U.S. developer of science and high-tech infrastructure, the initial contractor on the MaRS tower project that retains an interest in the building. The remainder would go to erasing the MaRS loan, and “building and tenant improvement costs.”
When the Star asked MaRS about the plan, the organization issued a press release that consisted of a list of its accomplishments and made no mention of the Phase 2 tower.
A former MaRS senior executive speaking on the condition of anonymity told the Star the organization has been having trouble renting the new office and lab space to private-sector tenants and has therefore been unable to keep up with the loan payments.
“Everything was good except for one decision, which was they didn’t have tenants for the building before they started building it,” the insider said. “Just take a look at the building. Do you see any trucks outside loading and unloading? Do you see anyone in the windows, using the offices?”
PC Leader Tim Hudak criticized the Liberals’ plan, calling the proposed purchase a “mess” that he would have to “clean up” if elected on June 12.
“This is another wasteful Liberal scramble and coverup,” Hudak told reporters at the Pre-Apprenticeship Training Institute in Toronto. “It shouldn’t happen in secret, it shouldn’t happen with a lack of transparency . . . Kathleen Wynne has learned a lot of lessons from Dalton McGuinty. That’s obvious, and that’s disappointing.”
NDP Leader Andrea Horwath expressed concerns about the MaRS deal given past Liberal debacles.
“I am quite concerned if we yet have another example of the Liberals doing anything and everything to try to avoid any suggestion that the decisions they’ve made have been wrong decisions,” she said.
MaRS was established in 2002 under then Progressive Conservative premier Ernie Eves with the goal of bringing together innovators, researchers and companies to monetize groundbreaking inventions in Ontario. MaRS is funded primarily by the government through various grants.
- With files from Robert Benzie and Richard J. Brennan