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Originally Posted by Lanny_McDonald
Well that’s what a biased article with details from an uninvolved third party and no access to the agreement is saying. I also think he should return his business diploma. He’s complaining about the construction costs being one sided and the Flames making their payments over time. That is what happens when you own a building and then lease it out. Also, what business in their right mind is going to sign a lease where they pay more in years of positive revenue but still pay the same in years of poor or negative revenue? Yeah, I want this guy representing or running my business. What a terrible article.
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While I'm not a huge fan of the deal, I am a huge fan of getting facts straight. This one lost me. Without being too cocky, I have significant experience around infrastructure projects and their related commercial deals.
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However, Fazel notes the city’s upfront costs are much higher, since CSEC is only putting in $40 million at the start of construction. It will pay back an additional $316 million in annual payments that begin at $17 million and climb by 1 per cent each year.
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The $316 million is clearly noted as the present value of the lease payments using a 5% discount factor. The amount of the lease payments starting at $17 million, increasing by 1% each year for 35 years is about $708 million total.
If you compare that to the City's initial $515 million investment, that's about a 1.8% IRR over the 35 year term, which is not great (the city better hope property values an investments in the area increase the tax rate to realize better returns). That's on quick math without having all of the details of ins/outs of cash during the construction process, etc. I think Fazel is probably not privy to/doesn't know where some of the additional up front cash is coming from - there's likely more to the story on that.
It's also not uncommon at all for the owner/lessor to simply just recoup and earn an ROI, and not participate in the operating profits/losses (imagine the uproar if the City had to pay a portion of CSEC's losses if there's another extended strike or lockout?). The structure, in my opinion, helps to mitigate some of the risk from a taxpayer perspective while limiting upsides, which is the tradeoff.