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City refinances O-Village; Fortress out

Vancouver city manager Penny Ballem announced today that the city has refinanced the troubled Olympic Village by "buying out" financier Fortress Investment.

This morning, the city paid $319 million to the New York-based hedge fund to cover funds advanced to builder Millennium Development and took financial control of the project.

“We are now the lender,” city finance director Ken Bayne told a special meeting of council. “Actually owning this loan and removing Fortress has significantly enhanced our security.”

The city paid a $4 million penalty fee to Fortress for the deal, which was talked down from $56 million and then $19 million after “hard negotiations” between both parties, Ballem said. To finance the buyout, the city invested $240 million of its operating funds alongside a $90 million loan from the Bank of Montreal.

BMO has agreed to extend a line of credit of $400 million to the city at a rate of 3.25 per cent, which is much lower than the 9.5 per cent sought by Fortress.

And now that the city has taken control of the $750 million construction loan promised by the hedge fund before it stopped making advances to Millennium last fall, the controversial completion guarantee is void.

“We have gone from an agreement that was clearly not in the interests of taxpayers, to an agreement that puts Vancouver’s taxpayers first,” Mayor Gregor Robertson said in a statement. He added that the new deal should save the city about $90 million.

Bayne said the city will enter negotiations with Millennium within the week. He added that the city will likely charge the company higher interest rates than 3.25 per cent for the risk of taking financial control of the project.

“We will be compensated for our financing costs,” Bayne said.

Millennium currently owes the city over $600 million. That includes the $193 million land price, the $317 million received from Fortress and the $133 million advanced by the city to cover construction draws and cost overruns.

Vision Vancouver councillor Geoff Meggs was concerned about the city’s financial liability. “In effect the city has gone from no risk on this project to all risk,” he said.

Bayne agreed with Meggs. “Certainly yes -- we‘re now the lender,” he said. “Our risk will depend on how this project on the marketing side plays itself out over the next few years.”

Bayne said sales of the 480 Village condos on the market have been slow, but he assured council that Millennium cannot “fire-sale” any units without the city’s approval.

Asked whether the new financing arrangement for the $1 billion athlete’s village will affect Vancouver taxpayers, Bayne said the city’s operating budget will see no impact in 2009. He was optimistic for the future.

“I wouldn’t expect that we will see any impact in 2010 if there is ever any impact.”

Geoff Dembicki is a staff reporter for the Hook.

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