Ron Bidulka's track record helping Guelph
Taxpayers on hook; Arena bailout will cost $3 million
It will cost Guelph taxpayers $3 million over the next four years to make Nustadia's payments on its bank loan for the downtown arena.
City administrator David Creech confirmed Wednesday that Guelph is now holding the bag for the $10 million "senior" loan for the Guelph Sports and Entertainment Centre, plus the $9.5 million "subordinated" loan the city was already paying.
Creech acknowledged that most of the $19.5 million debt for the $21 million arena is still outstanding. Nustadia's equity in the project was $1.5 million and the $9.5 million is to be repaid to the city during the last 10 years of a 30-year deal.
A majority of councillors voted behind closed doors Monday night to pay the $725,000 in principal and interest per year on the 20-year, $10 million bank loan for the next four years on the condition Nustadia repay the money when it makes a profit.
The issue landed in council's lap when Nustadia failed to make its June 1 quarterly payment of $181,250. The arrangement still needs the approval of Nustadia's board of directors, which should be nailed down within a week.
Creech also confirmed that if approved, the deal will remove the obstacle that Nustadia's exclusive rights to food court sales has posed in selling the Guelph Centre mall.
The offer from the Southside Group of London to purchase the mall for $1.2 million to redevelop it as a specialty food market died last month because Southside insists it acquire the exclusive rights to the food court from Nustadia. Another roadblock was a dispute with developer Milan Lesic over an easement for parking for his 14 condominiums next to the mall.
Creech said Nustadia's difficulties can be attributed to a number of factors, including failure to generate anticipated restaurant and food court revenue and lower-than-projected ticket sales from Guelph Storm hockey games. Nustadia expected 3,500 people per game but the average was closer to 2,800.
The four-year reprieve was recommended so that Nustadia's fortunes can be tested under ideal conditions.
"Everybody concedes the arena needs to get a full year under its belt with the mall operating," said Creech. Assuming the mall is sold this year and is under construction through 2002, it would be the hockey season that starts in September 2003 before the mall and the arena are both in full swing, and the end of 2004 before the financial bottom line is known.
Creech said he gave councillors an analysis of the pros and cons Monday night before they voted to make Nustadia's bank payments. The alternative, he said, is for the city to take over the arena, or for the city to contract out someone else to run it.
This week's situation is in sharp contrast to a report from senior city staff to Guelph council almost exactly three years ago that anticipated the downtown arena would revitalize the core.
"This will result in growth in the (tax) assessment," the report said, predicting "an additional $500,000 to $800,000 per annum in taxation will be realistically generated."
The deal with Nustadia was negotiated by then-mayor Joe Young, several city councillors, senior staff and the city's consultant, Ronald Bidulka of Arthur Anderson, the same firm that recommended last fall that the city choose Southside to buy the mall.
In 1998 Bidulka called the Nustadia deal "the new benchmark for such projects in Ontario" that allowed the city to participate with limited risk.
Also at that time, Creech listed Nustadia's bankruptcy as one of the risks associated with the deal, but he praised the deal's potential to help solve the problems with the city's downtown.
And city treasurer David Kennedy reassured councillors in '98 that ratepayers would not be burdened by a tax increase as the city's $9.5 million share would be financed through existing budget allocations, and through anticipated tax revenues from a revitalized downtown.
The 5,000-seat arena was built on the site of the former Eaton's store after the city purchased the failed mall from ING Barings for $1.7 million.
The private-public partnership was hailed as a great deal because it stipulated that the city would not be liable for Nustadia's operating losses, nor the senior loan.
The city will continue to pay Nustadia approximately $5,000 as manager of the Guelph Centre Mall, where there are now only a dozen tenants left, with several of those planning to leave.
Renzo Morrasut, president of Nustadia Developments, said Wednesday that not all of the details of the deal with the city over the payments to the bank have been finalized, so he could not comment.
Morrasut expects a decision from his board within the next week.
The City of Guelph is back in the arena ownership business.
The Guelph Mercury
The city took over ownership of the Guelph Sports and Entertainment Centre yesterday when Nustadia Developments Inc. officially walked away from the downtown facility, completing a controversial transaction that has been expected for weeks.
The deal that transfers ownership from Guelph Centre Partners, a division of Nustadia that was managing the arena, to the city leaves taxpayers on the hook for nearly $4 million in unanticipated debt plus the $9-million loan previously guaranteed by the city.
But interim city administrator Gus Stahlmann believes the situation is positive for Guelph.
"We are getting a building that is at this point in time worth between $27 million and $30 million," Stahlmann said. "My figure is probably low, it's probably $30 million. From our perspective, there is also a benefit to the community at large. There is an overall benefit, a spinoff to the community."
Trevor Cochrane, the president of Nustadia, was not available for comment and did not immediately return phone messages yesterday.
The facility, home of the Ontario Hockey League's Guelph Storm, cost $21 million to build and opened in the fall of 2000. The city contributed half of the cost of the project and also guaranteed a $9-million loan for capital costs, which was to be paid back by Nustadia.
Over the last four years, though, the city has been paying the principal and interest on the loan, plus Nustadia's capital taxes, which amounted to nearly $4 million that will not be repaid as expected. That came about when city council made a controversial deal with the developer after Nustadia missed the first payment on the loan.
Nustadia was to repay the money but a clause in the agreement between the city and the developer gave either side the ability to walk away with no financial obligations to the other. That deal expired on June 30, opening the door for Nustadia to get out and turn over the keys to the city.
One way the city can recoup money is by selling naming rights to the Guelph Sports and Entertainment Centre. It is something that will be actively pursued, Stahlmann says.
"It's going to take some time," he added. "The building has had some negative spin for a while. It's hard to get somebody to put a name to something that isn't positive."
This isn't the first time the city has owned and operated Guelph's main arena facility. The now-defunct Memorial Gardens, which closed in late 2000 after construction of the sports and entertainment centre was completed, was run by the city along with the Victoria Road, Exhibition Park and Centennial arenas.
Now that the transfer of the sports centre has been completed, it will be business as usual at the arena, according to Stahlmann.
But most facility employees were given termination notices effective June 30 -- some management will stay on until Aug. 19 to ease the transition of ownership, Stahlmann says -- and will need to be replaced in the near future.
"We have a process to go through with hiring," Stahlmann said. "We will try to turn around those positions very quickly. And we have a lot of part-time people. We hope to get to them in the next little while."
Stahlmann expects the change in ownership will have a minimal impact on the Storm, the arena's primary tenant since it opened in the fall of 2000.
The Storm played out of city-operated Memorial Gardens for nine years after the franchise moved from Hamilton. The club had a good relationship with the city in the past and team president Jim Rooney doesn't believe that will change now.
"All I can go on is the past and our past relationship with the city was mutually beneficial," Rooney said.
"We have nine years working together as a base. We had a real good relationship with the city when they were our landlord at Memorial Gardens. But we need to sit down and review the situation."
Last updated October 18, 2005