Melnyk drops gloves over arena bid
One day in August, the Ottawa media was summoned to City Hall to observe the tail end of a private meeting that looked for all the world like it had been cordial and productive. At the head of a gleaming, gilt-edged table sat the city’s mayor, Jim Watson. On his right was John Ruddy, a prominent local real-estate developer. On his left was the billionaire owner of the National Hockey League’s Ottawa Senators, Eugene Melnyk.
It was a public gesture intended to calm the public’s nerves over the future of a grand $4-billion project to develop a swath of unique real estate in the heart of the nation’s capital.
Several blocks west of Parliament Hill, past the Bank of Canada and the Supreme Court and across from the Canadian War Museum, LeBreton Flats sits empty. It is a 21-hectare expanse not far from the shore of the Ottawa River, and for decades it has been the subject of ambition for those frustrated that Ottawa sometimes still feels more like the sleepy timber town it was at its founding than the modern capital of a G7 nation.
Ruddy and Melnyk were partners in the bid that had won the competition to finally redevelop the Flats, the last significant patch of clear land near the city centre and perhaps the best chance to elevate the nation’s capital into something more. Their RendezVous LeBreton Group’s ambitious plan had beaten a bid funded by Quebec’s powerful Desmarais family and Guy Laliberté, the founder of Cirque du Soleil. It would, they promised, revitalize the area with retail and housing, and a new home for the struggling Senators, an 18,000-seat arena that would be the showpiece of the development.
Smiles, handshakes and all the right words. “The LeBreton project is going to be one of the most exciting projects in the history of the city of Ottawa,” Watson told reporters. Shovels should be in the ground “as quickly as possible.”
The show of unity was necessary because questions were swirling about the future of the project and the RendezVous group. And behind the smiles, the reality was the project had been in a two-year-long death spiral, the relationship between the partners seated at the mayor’s table that day collapsing irreconcilably.
On Thursday, at a meeting of the National Capital Commission, the Crown corporation responsible for planning and stewarding the capital region, it was finally revealed publicly what deep trouble the LeBreton Flats redevelopment deal was in.
(IT’S) GOING TO BE ONE OF THE MOST EXCITING PROJECTS IN THE HISTORY OF THE CITY.
The NCC’s chief executive officer, Mark Kristmanson, announced Melnyk’s and Ruddy’s companies had both informed him they had “unresolved issues” and were unable to close a partnership agreement.
The NCC, Kristmanson assured the public, had “pulled out all the stops” to move the redevelopments forward over four years. “We are disappointed,” he said.
Reluctant to kill the project then and there, however, the NCC board voted to give the two partners until January to “get their act together,” as Watson put it. Failing that, the NCC gave itself the option to start the process all over again.
But the added time to reunite Melnyk and Ruddy seems an unnecessary pipe dream.
On Friday, Melnyk dropped a bombshell, filing a lawsuit against his partners, the statement of claim filled with remarkable allegations of political interference, conflict of interest and betrayal. Ruddy fired back, hours later, strongly denying the allegations, which have not yet been tested in court.
Defendants have not yet had the opportunity to respond to the allegations in the claim. But through legal filings, as well as insider accounts from behind the scenes and previously unreleased documents reviewed by the National Post, a picture is emerging of how the monumental deal fell to pieces — a story that blends high-stakes business and politics against the backdrop of two pillars of Canada’s identity: the nation’s capital and the national game.
On July 15, 2015, as Melnyk recovered in Toronto from a liver transplant surgery that had lasted 11 hours and saved his life, a small circle of his close confidants clustered around him.
Among them were Sheldon Plener, the Senators’ longtime legal counsel and alternate governor with the NHL’s board of governors; Geoff Publow, the Senators’ vice-president of strategic development; and Ken Villazor, an adviser and another alternate governor for the hockey club. Cyril Leeder, the Senators’ longtime president, was patched in by phone.
There was just one thing to discuss: LeBreton Flats, specifically the partnership agreement with Ruddy’s company, Trinity Development Group, that Plener and others had been working on while Melnyk was out of commission.
According to sources familiar with events, staff from the office of John Baird, then Canada’s Minister of Foreign Affairs, and senior officials from the NCC, had first courted Melnyk to anchor the development the summer before. Contacted by the Post, Baird said he couldn’t recall whether such a meeting took place. “I know there was a competition, a completely open and transparent competition on selecting who would be the proponent,” he said.
The Senators’ current home, the Canadian Tire Centre, has long been a problem, one that is blamed for attendance woes. At some 30 kilometres from the downtown core, in the western Ottawa suburb of Kanata, a trip out on game day can be an hour-long journey on a clogged highway. The Senators are one of the few NHL teams to play in the suburbs and NHL commissioner Gary Bettman has said a downtown arena is “vital to the future” of the franchise.
Melnyk was skeptical the idea would fly, but the prospect of a downtown home in a new, state-of-the-art arena was irresistible.
“It’s no secret that I was very sick for more than a year and I had a life-saving liver transplant while we were putting our bid together for the NCC,” Melnyk said in an interview. “But it was important to the Senators organization that we be part of the LeBreton Flats redevelopment.”
He put Leeder as his point person on the deal for CSMI, Melnyk’s company that owns the Senators. Leeder assembled a team. Several builders contacted the Senators about being involved, including, CSMI says, John Ruddy.
Leeder started exploring whether Ruddy should join the fold.
Ruddy, trained as an architect, moved into retail development and founded Trinity Development Group in 1992. Neither is he a stranger to sports. As the majority shareholder of Ottawa Sports and Entertainment Group, he owns the Canadian Football League’s Ottawa Redblacks, the Ottawa Fury Soccer Club and the Ontario Hockey League’s Ottawa 67’s.
Ruddy was also developing a 1.2 hectare property directly adjacent to LeBreton Flats, known as the 900 Albert Street project.
Ruddy seemed a smart fit, since Melnyk — who made his money in medical publishing, specialty pharmaceuticals and horse racing — had not been involved in a real estate project anywhere close to this magnitude. Further, Ruddy was well-connected in Ottawa and seen as affable and well-liked while Melnyk was widely seen as a quixotic figure.
Several requests by phone and email for Ruddy and Trinity officials to comment for this story were declined or not responded to, Friday. People who answered the phones at Trinity’s Ottawa and Toronto offices said there would be no comment on LeBreton developments.
Thursday, after the NCC’s announcement, Ruddy issued a written statement saying: “As a lifelong resident I remain committed to the redevelopment of LeBreton Flats, the cleanup of this site in the shadow of the Peace Tower, the revitalized downtown core of the nation’s capital, and a new smart-growth community where people can live, work and play.”
Back in December 2014, Melnyk and Ruddy met faceto-face for the first time at the Canadian Tire Centre, the current home of the Senators, and things looked remarkably optimistic.
At the southwest corner of Booth and Wellington, on the edge of a flat, empty expanse of the LeBreton Flats, there is a small fountain and a handful of interpretive signs, at once a memorial to what came before and a wistful hint of the future.
LeBreton Flats has been variously seen as a visual scourge and a jewel in the rough for generations. Its very name was born in scandal.
In 1820, John LeBreton, a retired army captain, bought the land with an eye for a profitable real estate flip. LeBreton alienated civic authorities and was accused of land speculation but his name remains attached to the ill-fated plot.
In 1900, a devastating fire gutted the wooden houses and thriving lumber industry on the Flats, an interpretive sign says, and an industrial, working-class neighbourhood was rebuilt.
It was under Prime Minister Mackenzie King that redeveloping the plot first caught the federal government’s eye. After a very long study, Jacques Gréber, an urban planner from France, reimagined Ottawa as a true capital city in 1949. The renewal of the blighted LeBreton neighbourhood was an important part of the remake.
It has remained a fantasy ever since.
In 2014, the NCC made redevelopment a renewed priority.
“The redevelopment of LeBreton Flats offers a unique opportunity to create a dynamic new community in the heart of the Capital,” the NCC said in a splash on its website.
After whittling proposals down, first to four, then to two, in April 2016, the NCC named CSMI-Trinity’s submission, branded RendezVous LeBreton, the firstranked bid.
The “world-class event centre” — the arena as the home of the Senators — was promoted as the anchor, with promotional material heralding it all as a future “destination of national and international significance.”
Melnyk, however, had graver things on his mind. His heath was spiralling to the point he urgently needed a new liver, within “a week at most,” his doctor at Toronto General Hospital said. On May 14, 2015, it was Leeder who delivered a plea at a hastily called press conference for someone to volunteer as a live liver donor.
The plea was answered and, on May 19, 2015, the gruelling surgery left Melnyk weak — physically and mentally — but slowly on the mend.
It was at this point that Melnyk was briefed in Toronto on what had gone on with LeBreton Flats while he was sick.
Melnyk wasn’t impressed, according to those familiar with the situation. He wondered why Trinity’s position was boosted in the deal from the early discussions and he worried about the impact of the 900 Albert development on LeBreton. He told his team to improve the deal.
A six-page memorandum of understanding was eventually cobbled out, a document reviewed by the Post, and signed six days later by Ruddy, Melnyk and Leeder. The agreement between CSMI and Trinity said each had a 50 per cent interest as Master Land Developer and responsibility for half of all equity.
That document allowed work to continue to submit an official bid together, but left a final partnership agreement unresolved.
As intense community consultations came together and as Melnyk regained strength and ramped up his work schedule, the two business partners at the head of the project were getting further apart.
“After I began recovering my physical and mental capacities, which took several months, I realized that our partnership with Trinity had changed dramatically while I was away,” Melnyk said. “As I became healthier and re-engaged in the process.”
He had growing concern of where Trinity’s priority lay.
As the LeBreton plan wallowed, Trinity’s 900 Albert project trotted along. The proposed density of 900 Albert seemed to grow each time Melnyk heard about it, he complained, and it offered some dazzle of its own; a three-tower complex of 65, 56 and 27 storeys — two of which would be the tallest buildings in Ottawa.
By July 2016, just three months after being named the first-ranked proposal, CSMI and Trinity and their blue-chip lawyers were already at an impasse and in secret mediation to settle their differences.
Internally, Melnyk took Leeder off the LeBreton file and replaced him with Publow and, in January 2017, fired him from the Senators organization.
Contacted by the Post, Leeder declined to comment on “the sad state of affairs.”
At a contentious meeting with the NCC on Sept. 29, 2017, Ruddy gave an update on recent city hall approvals of his 900 Albert venture: three towers on a retail podium with a projected density of 1.75 million square feet of space. CSMI learned that Trinity sold off part of its interest in 900 Albert and brought in two new partners.
InterRent Real Estate Investment Trust took a onethird interest in 900 Albert for $14.2 million in August 2017, according to the lawsuit. “This represented an approximately 30% increase on the previous value of the land,” the suit states, suggesting the proximity to the LeBreton project was boosting its value, providing “considerable cachet.”
Ruddy was proud of what he was creating at 900 Albert, and it showed at the meeting, CSMI said. The Albert development, Melnyk and his team noted with alarm, was taller and larger than expected and coming to market earlier.
Even the NCC seemed to see a problem.
At the meeting, after seeing artist renderings of 900 Albert, Marco Zanetti, the NCC’s real estate specialist and lead negotiator, allegedly said Trinity’s project will “take the wind out of the sails of LeBreton,” according to the lawsuit, filed by Melnyk on Friday.
Melnyk alleges Trinity was working behind his back to push and finance 900 Alberta at LeBreton’s expense.
The joint venture failed “because of an egregious conflict of interest on the part of Trinity and its principal, John Ruddy, that ought to have been identified to CSMI and resolved but instead only worsened over time,” the lawsuit alleges.
At a meeting with the NCC on Jan. 5, 2018, the commission was formally warned in a prepared statement that CSMI was re-assessing its involvement because of the “size and scope” of 900 Albert.
Despite CSMI’s concerns, the NCC, the lawsuit alleges, pushed the parties to move forward, telling both CSMI and Trinity to settle the outstanding issues of their partnership in 48 hours, a deadline that was never met.
“NCC turned a blind eye to CSMI’s concerns,” the suit claims, applying pressure even though it knew Melnyk’s group was still investigating its viability.
Both Trinity and CSMI commissioned studies to back their position on what the overlapping projects might mean to LeBreton.
In an April 2018 report prepared for CSMI, PricewaterhouseCoopers questioned the ability of the region to support both projects. The developments would “directly compete with one another,” it says.
Trinity offered a market study, prepared by Urbanation, that was far more optimistic, saying the local economic slowdown due to cutbacks in public sector spending was over and Ottawa was in a “rebound.” It predicted an oversupply in demand for space.
What Melnyk saw, however, was a competing, potentially project-killing development right next door being pushed forward by his own partner.
“The experts told us 900 Albert would have a devastating financial impact on LeBreton,” Melnyk said. “We repeatedly raised this issue with Trinity, the NCC and city officials.”
From Melnyk’s side, in October, there was an appeal to the mayor’s office for intervention, Melnyk’s lawsuit alleges.
The alleged response is remarkable.
Watson was no doubt concerned with the disarray in such a marquee project in his city. The mayor’s office was also allegedly concerned about what it might mean for him politically if the deal collapsed during the “election cycle,” the lawsuit claims.
The mayor’s office responded to the Melnyk group’s concerns with “threats and intimidation,” the lawsuit alleges.
BY JULY 2016, JUST THREE MONTHS AFTER BEING NAMED THE FIRST-RANKED PROPOSAL, CSMI AND TRINITY AND THEIR BLUE-CHIP LAWYERS WERE ALREADY AT AN IMPASSE AND IN SECRET MEDIATION TO SETTLE THEIR DIFFERENCES.
“Serge Arpin, the chief of staff to Mayor Watson, informed CSMI’s Chief Operating Officer that any attempt to withdraw from the LeBreton Project during the current election cycle … would be viewed as a direct attack on the mayor’s political career and reelection effort,” the lawsuit claims
“It would result in a ‘severing’ of any relationship between Mayor Watson and Melnyk and CSMI. CSMI interpreted this as a thinly veiled threat that Mayor Watson would not only withdraw support for any new arena project, but would oppose any initiatives by Melnyk or CSMI for the during of his mayoralty,” the suit claims.
The mayor’s office declined a request to respond to the allegations. “As the matter is before the courts, Mayor Watson and Serge Arpin are unable to comment,” spokesperson Livia Belcea said in an email.
Melnyk was already concerned about what was happening in political backrooms, his people say.
Graham Bird, who served as project manager with his eponymous consulting and property management company, had allegedly met at least five times with city officials about the project without notifying CSMI. Melnyk only learned of the meetings this July when speaking with Bird and Brendan McGuinty, who has held a number of political positions including as an adviser to Watson, and is the brother of former Ontario premier Dalton McGuinty.
CSMI says it doesn’t even know what McGuinty’s role in it is. In the lawsuit, the swift passage of the Albert project is dubbed a “political coup” by Bird and McGuinty people who are not registered lobbyists.
McGuinty told the Post “the claim is 100 per cent false.”
The allegations, not yet tested in court, make it impossible to believe Melnyk and Ruddy will jointly put a ceremonial shovel in the ground let alone erect a glittering arena and a retail and condo palace.
Melnyk confirmed as much to the Post.
“As an organization, we just didn’t have the confidence and the comfort that we would actually be building a viable project for the city at LeBreton, instead of a white elephant.”
In a statement Friday, Ruddy was equally forceful. “Trinity strongly denies the allegation in CSMI’s lawsuit and intends to vigorously defend the claim. For over 30 years, I have sought to make a contribution to the communities in which Trinity operates, and in particular my hometown of Ottawa. I will always find ways to build Ottawa up and continue to make a contribution to our great City”
The NCC officially clings to the dream.
NCC board member Aditya Jha, a plainspoken entrepreneur, said at Thursday’s meeting that the NCC is “long on process and patience and we are kind of short on reality.”