City to test pension-fund interest in Union Station
Major questions remain as investors are asked about desire to participate in renovation of landmark transit hub
JENNIFER LEWINGTON AND LORI MCLEOD
January 14, 2008
The first big test of the city's sweeping $388-million proposal to renew Union Station is expected this week, with an invitation to pension-fund investors to get on board.
A call for "expressions of interest" is likely to take place this week, as the city looks to private and public partners to refresh the country's busiest transit hub.
"The advice we have is there will be significant private-sector interest in participating in this project," says Toronto Mayor David Miller, who won a 39-5 vote at council in December to move ahead on a facelift of the landmark owned by the city since 2000.
This week's call to pension funds "will be the first signal whether the advice is right and I am confident it is," he said.
Despite optimism from city officials, the unofficial response of potential investors has been more muted.
Last week, speaking on condition of anonymity, officials with two major groups indicated they are not interested. Recently, another fund official said his group plans to look at the city's proposal.
Only a small number of Canadian public-pension funds, all with real-estate companies, have the qualifications to lead a bid group.
In the next few months, the fate of the project rests on answers to three questions:
Will deep-pocketed pension funds (with real-estate arms) want to operate new office and retail space at the Beaux-Arts landmark? A deal collapsed in 2006.
Will it be feasible to excavate a new underground retail concourse in the basement of Union Station, at an estimated cost of $81-million? Engineering experts hope to have a firm answer in two months.
Will the provincial and federal governments (supportive in principle but silent on their financial role) put up major funds needed to modernize the station for transit users?
City officials need answers to all three questions to stick to a September, 2008, deadline to approve the next phase (selection of the private partner).
City Councillor Karen Stintz voted with the mayor on the renewal, but remains uneasy that a potentially risky excavation for the retail concourse could distract from the station's transit objectives.
The end result, she said, should be "a train station that meets the needs of commuters and enables the city to minimize its financial exposure."
Meanwhile, as city officials negotiate with a potential pension fund partner, they also need to nail down commitments from the provincial and federal governments.
This week, GO Transit chairman Peter Smith expects to meet with Mr. Miller "to further our discussions." Last Friday, eager to move ahead, the GO board invited the city to make a formal presentation on the future of Union Station.
"It is the key to our whole service," said Mr. Smith. "It is absolutely critical to our service delivery."
GO Transit's annual ridership of 48.3 million in 2006 is expected to grow by 50 per cent in 10 years.
Through VIA Rail, the federal government also has a big stake in Union Station, but wants answers of its own.
"Before the federal government will consider a contribution and move forward on this project however, it is imperative that the governance structure be clarified," said a spokeswoman for federal Transport Minister Lawrence Cannon.
For now, the city's preference is for a landlord-tenant relationship with transit users, but Mr. Miller said, "I am confident we will be able to accommodate everyone's interest.
"The strength of the partnership [with other governments] obviously depends on their financial commitment." In the meantime, all eyes are on which pension funds might step forward.
Cadillac Fairview Corp. is an arm of Ontario Teachers' Pension Plan; Oxford Properties Group belongs to the Ontario Municipal Employees Retirement System; and Ivanhoe Cambridge is owned by Caisse de dépôt et placement du Québec. The Canada Pension Plan Investment Board, British Columbia Investment Management Corp., and Public Sector Pension Investment Board have significant real-estate holdings.
Potential investors will have about a month to respond to the city, which in turn will decide who qualifies to bid.
Typically, government contracts include unique restrictions. In the case of Union Station, the unusual requirement is that 51 per cent of the beneficial interest and equity funding must come from Canadian public pension funds.
This caveat has drawn some criticism from the real-estate industry. One prominent developer warns that shutting out other parties could limit the creativity that bidders can bring to the process.