Arena deal gets better for Katz
Tower would be win-win proposition
It’s no secret: I’ve never been a big fan of the deal the city cut with Daryl Katz to build a new downtown arena.
In my view, the pact gives the Oilers’ billionaire owner virtually all of the financial upside from the project, in return for shouldering only a fraction of the costs.
My views haven’t changed. If anything, the deal looks even more lopsided with each passing month.
Under terms of Rogers Communications’ blockbuster 12-year, $5.2-billion deal to secure exclusive Canadian TV rights to the National Hockey League announced last month, the Oilers will receive $8.9 million a year, starting with the 2014-2015 season.
That’s nearly 50 per cent more than Katz will fork out in annual lease payments for the new arena, which is slated to open in time for the 2016-17 NHL season.
If you tack on the so-far undisclosed sum Katz Group will receive for naming rights to the new building — as part of a related $700-million investment Rogers will make in Alberta — his net costs shrink even further.
Now, with the city reportedly poised to award Katz Group and partner WAM Development Group the right to build an adjacent office tower that will house city employees by 2016, the arena deal looks even sweeter for the Oilers owner. It’s a win-win-win proposition all around.
The pending office deal, which Journal city hall reporter Gordon Kent broke in a front-page story Wednesday, is expected to be announced within days, confirms Cory Wosnack, principal and office-leasing specialist with commercial real estate broker Avison Young.
Although more than a dozen bona fide bidders submitted competing proposals to the city — including major players like Alberta Investment Management Corp. (AIMCo), Melcor and partner Bentall Developments, Dundee Realty, Morguard, and MacLab Enterprises — there was a widespread belief that Katz Group and WAM always had the inside track.
That view appears to have been confirmed.
“Certainly people expected that there was a high probability that this deal would be done with WAM and Katz Group,” says Wosnack, reached by phone in the U.S., where he is travelling on business.
“When the city’s RFP (request for proposals) came out about 15 months ago, most participants felt it was a foregone conclusion that the city would find a way to do a deal with WAM and the Katz Group,” he says, due to their interest in seeing the new arena district succeed. “The competition resulted in it being a compelling outcome for the city. If they didn’t go with the RFP process perhaps the financial offering of the WAM-Katz Group site (at the corner of 101st Street and 104th Avenue) wouldn’t have been so attractive. .
“But they had to go through a process and offer something financially competitive. And I can tell you what WAM and Katz Group offered was outstanding.”
Maybe so. But it’s a shame the process wasn’t more transparent, so taxpayers could judge for themselves. Wosnack said he couldn’t shed any light on the terms of the deal, which council approved behind closed doors by a 10-3 margin in early December.
The new tower will consolidate city staff in a single location, requiring about 350,000 square feet of office space. The move is expected to save the city about $160 million by 2039. City employees currently work in nine buildings around the city core.
Once it’s formally announced, the new tower will trigger key followup announcements, says Wosnack, including a new downtown hotel and an 85,000-square-foot Las Vegas-style casino. Both will be directly tied into the new arena.
“It’s not just a sports facility. The success of the project is defined by office, hotel and retail developments too, and now all of those pieces and components are falling into place,” he says.
“If WAM and Katz Group are successful (with the tower proposal) — and I believe there will be an announcement within days — then the hotel deal can be announced, the retail can be announced and the domino effects begin.”
Wosnack says negotiations with the hotel group “are nearly finalized.” He expects a firm announcement by the end of this quarter.
AIMCo chief Leo de Bever says the province’s $70-billion pension fund manager believes its proposed tower on the west side of 102nd Street, just north of the U of A’s Enterprise Square campus, remains an attractive location. But with no lead tenant, and a relatively soft downtown office market, the project is likely to remain stuck on the shelf.
My take: in the end, the downtown arena project may be good for Edmonton, but the way it’s shaping up, it will be far better for Daryl Katz. One can only wonder why the city didn’t strike a tougher bargain, so taxpayers could have shared more of the upside.