Developers must earn out - Griffintown; Better a project with flaws that can be fixed than no project at all

Paru dans The Gazette, le 13 mars 2008, p. B-5

The public consultations on the Griffintown redevelopment project have given citizens and stakeholders the opportunity to lay out what they want. One resident requested a community garden. Another asked for a skating rink. Other interveners have rejected the developer's concept and suggested he should create a neighbourhood ambiance akin to the Plateau.

These might all be super ideas, who knows? So let me add my grain of salt: how about a bingo hall? After all, quite a few people still enjoy bingo, especially among the elderly and the less well off. You're laughing? But didn't the developer promise seniors and social housing? So why not a bingo hall for all those who don't go to concerts and won't go skating? Better still, profits from bingo are turned over to charity groups. That should salve our consciences. Oh yes - I should also disclose that bingo is my pet pastime.

I am being sarcastic, of course. I have no idea if any given special request is sensible and affordable, or if it is interesting but too costly, or if it is just plain crazy. But what I do know is that each little add-on tends to bloat a project's costs - usually without increasing its expected income.

If the developer were obligated to add or subtract from his original concept to the point where it is substantially transformed, the business case might stop making sense. Comes a point where a rational businessman will cut his losses and take his ideas and his money to a more hospitable jurisdiction. I don't know whether we've got to that point, but everyone must be aware that it does exist.

A significant portion of the funds that the developer, Devimco, proposes to invest would come from two Quebec pension funds. Their role is to ensure their members' financial security in retirement. They are mandated to invest in the best opportunities they can find, which may include Griffintown.

In their place, I would not invest a penny in a project if it were less profitable than other opportunities available to them, in Quebec or elsewhere. Would you?

Does the profitability requirement cancel out all urban design considerations? Of course not: every project can be improved. But can we ignore this dimension? No way. Without adequate earnings, there can simply be no project. Naysayers will have won an ideal project - in their minds. But not a single square foot of concrete will have been poured. Not a single roll of grass will have been laid. Which do we prefer - a perfect imaginary project or an imperfect project that actually gets built?

When was the last time Montreal received a $1.3-billion private investment? Actually, we never have. There have been projects of this scope, but only of the publicly funded variety. Remember the Olympic Stadium complex ($1.5 billion). Then, there are the two mega-hospitals, which will be financed mostly through public debt. With these and other publicly funded projects, cost overruns have been observed or are anticipated. This is a risk that grows when profitability is not an issue.

No doubt Montreal needs more private investment from developers and their backers who are able and willing to bear the construction and business risks. Are we so rich that we can turn our backs on a project of this size?

Some of the project's opponents have scoffed at city officials who value the added tax revenue that Griffintown would produce - $33 million a year at term. That's more than three times what the Bell Centre pays. In their world, revenue from in-city economic growth doesn't seem to matter.

If Montreal is strapped for cash and unable to repair its crumbling infrastructure, well why not just ask the provincial and federal governments for a bailout? Or better still, tax the suburbs.
To be sure, I don't know what Devimco's project is worth from an urban design standpoint. Again, it can surely be improved upon. But I do know that Montreal needs $1.3 billion in private investment and $33 million in tax revenue. We would all lose out if the sum of conditions and special requests were to kill the project's profitability. All parties purporting to improve the project should recognize that it must remain a sound business proposition.