Revenue streams at stake
Melnyk maintains that the 900 Albert St. apartments, which will be first to market, will mean slower condo and apartment (and retail) sales for years at the LeBreton project, thus squeezing multiple revenue streams the project depends upon to pay for the upfront construction. Who is right?
While it’s impossible to be definitive, given the size and complexity of these projects, we can now examine the assumptions each of the partners used in reaching their conclusions.
The Citizen has obtained copies of each of the three real-estate studies commissioned in 2015 and 2018 by the two businessmen and their partnership, RendezVous LeBreton.
What the reports reveal is a wide range of possible scenarios for housing depending on assumptions about population growth, the percentage of buyers who opt for condos or apartments compared to single-family homes, and how many people choose to live downtown.
Melnyk last April commissioned a report by PwC, a consulting group, while Trinity purchased one in August from Urbanation, a Toronto real-estate specialist. The latter was an update of the initial 2015 study paid for by RendezVous LeBreton.
PwC and Urbanation each estimated that condo and apartment projects already in the pipeline would add about 10,000 units to the downtown area over the next decade — excluding the units to be provided by 900 Albert St. and LeBreton.
However, the two consulting groups drew much different conclusions about how many people would actually purchase all these properties.
PwC reckoned that even under its most optimistic economic scenario, there would be room for both 900 Albert and LeBreton only during the first two years of the LeBreton project. Between 2020 and 2024, PwC expected 900 Albert and LeBreton would each make available about 200 units annually for a total of 400 — against estimated demand of only 170.
Under PwC’s pessimistic economic scenario, not only would there be no takers for 900 Albert or LeBreton, there would be a surplus of 480 residential units annually for all the other downtown projects between 2020 and 2024.
Urbanation saw things much differently, noting Ottawa’s population should grow by roughly 20,000 people annually, leading to projected annual demand for all types of housing (condos, apartments, single-family homes) of 8,000 units, compared to the 10-year average of 6,000.
Urbanation also suggested the drop in rental vacancies bodes well for new condo and apartment construction. It said the LeBreton project could take some comfort from the experience of housing developments around the downtown arenas of the Toronto Maple Leafs and Montreal Canadiens. Condos in these districts sold extremely quickly.
“Despite the large quantity of units proposed in the marketplace generally and at 900 Albert specifically,” Urbanation concluded in its August 2018 report for Ruddy, “market conditions have become highly supportive of new apartment development.”
But even in the Urbanation studies there were some warning signs. In a section that examined housing developments immediately adjacent to the LeBreton site, the Toronto consultants noted buyers have not been stepping up quickly. Claridge, for instance, had filled just 40 per cent of its 320-unit tower at 485 Preston St. after years of marketing. And Zibi — a major new development just north of LeBreton — had sold 71 units since December 2015.
It may well be that as the LeBreton area accumulates more residents it will acquire more cachet.
But, for the moment, Melnyk has reason for concern.
Here’s why. Because governments aren’t contributing funding, RendezVous LeBreton is counting on multiple streams of revenue from the project’s various components — condos, retail outlets, office towers, the NHL arena, entertainment venues and a hotel.
The precise allocation and timing of the revenue flows is not public, though Melnyk in his litigation claimed the partners agreed to split the proceeds roughly 50-50.
Melnyk however, faces significant upfront costs. He is responsible for financing and building a $600-million NHL arena, which was to have been in operation as early as 2022.
The condos and apartments, mainly Ruddy’s responsibility, are to be built over two decades — roughly 200 per year until 2027.
The key to making the LeBreton project work is the partners’ ability to quickly create a community that would attract visitors and buyers of condos and apartments — people who would spend money in the shops and buy NHL hockey tickets. The risk for Melnyk is that arena-related development and costs could outpace the other elements of the project, leaving him short of revenue.
It would have helped RendezVous LeBreton to have partners in place with shared history and understanding about this very large project — and a willingness to adapt to changing circumstance. But that was not to be.
When the NCC launched the competition to remake LeBreton, Melnyk had every intention of running the bid himself. According to two sources familiar with his business dealings that year, Melnyk invited several real-estate firms to consider joining him.
The sources say Brookfield Properties of New York took a close look but in the end passed, reportedly over concerns about the relatively small size of the city in relation to such a large project. Brookfield did not reply to a query by the Citizen.
It was Cyril Leeder, then chief operating officer for the Ottawa Senators, who introduced Melnyk to Ruddy in 2014. Shortly after,
Melnyk’s liver began failing. After his May 2015 transplant, Melnyk needed time for recovery — and it was during this period he signed the letter of intent that split the Rendezvous LeBreton proceeds 50-50.
As Melnyk’s health improved, so did his determination to protect his interests. As he became aware of the 900 Albert St. project, which grew in scope after 2015, he warned the NCC that he had engaged independent consultants (PwC) to assess the impact on LeBreton. In early January 2018, Melynk wrote to the NCC warning the agency his company was “reassessing its involvement in the LeBreton project.”
After city council approved the three-tower 900 Albert development that included significant retail, office and residential units, Melnyk pursued his case to Mayor Jim Watson.
It was a straight line from there to last week’s lawsuit.