Being almost 12 months behind achieving key milestones, the “narrow” window of opportunity presented in April 2017 seems to have widened indiscriminately. At $25 million Madison’s current project budget is nearly 30% more than initially presented. The conditional sale of Estonian House to Revera, accompanied by an incomplete zoning application, call into question whether a sale can be completed. If a sale is completed, will the proceeds cover a majority of Madison’s project costs? Cost increases and a lower sale valuation has put greater reliance on the capital campaign that, to date, highlights the success of a non-binding donor arrangement that has yet to be satisfied. With concerns growing around the viability of the Madison Project, Tulge Külla (“Tulge”) asks “what if” Revera is unable to satisfy its own density requirements and decides to walk away from their conditional purchase.
The due diligence report explains: “(The) Property has been sold conditionally to Revera, a large senior care provider, owned by the Public Service Pension Plan.” (p.11) A possible consequence of this condition is that: “In unlikely event that less than 120,000 sf is achieved, Revera has right to “walk” from deal…” (p.22) The likelihood of that condition being realized is solely Revera’s to decide; however, it is a condition that requires a contingency plan. The current contingency option is to sell to “an alternate Purchaser at a non-rezoned market value, estimated at $12 million.” The time lag of finding another purchaser and executing a deal will stretch the Madison development timeline even more, which may increase costs. Rather than stress the Madison budget even more, in his last letter to Veiko Parming, Väino Einola suggested: “Walk away from the project. Experienced developers do this when they recognize that the financing does not work.” This would be the same type of prudence Revera would use in their decision to “walk away” if the 6 storey development limitations on Broadview do not sync with their economics. The due diligence report quantifies that “abort scenario” with a $4.1Million cost.
It is possible to manage the effect of those “abort” costs by looking at the multi-faceted revenue opportunities and a maximized development approach that Broadview can provide. If financing of Madison does not work because the sale of Broadview is delayed, or the sale proceeds do not cover a majority of the Keskus costs, then managing “walk away” (abort) costs would be better to deal with than dealing with a non-sustainable project. The risk to many organizations is real. Financial stress is already being realized with the news that some organizations will experience an immediate 25-50% reduction in their program funding so that monies can be focused on carrying through the Madison Project.
Like these community organizations, Estonian House shareholders do not and will not benefit from the protection granted to the 3 Orgs when it comes to monies and funding. As the due diligence report states: “Support from above 3 organizations will be provided in form of loans to be repaid upon certain events including should the new Estonian Centre ever be sold in future.” (p.12) That is a contingency we don’t want to plan for but acknowledge. Estonian House shareholders and our community may not have anything left should the Estonian Centre have to be sold. Our youth need us to plan for every possibility. Foremost, we need to create an environment that best assures our youth an Estonian-Canadian presence for generations to come.
As a contingency the Broadview location provides our community more room to work with, more space to lease and rent, more types of revenue, fewer development complications and no restrictions that would limit our organizations from operating as they do today. Rather than fix ourselves to a single contingency option to sell Broadview to another purchaser, the Tulge option only asks “what if” we stay and look at maximizing our opportunities where we already are.
To be continued ...
The Tulge Külla Steering Committee
