Wow, not sure I've seen a secret deal that's been publicly announced before.
Do you know the option terms? I have not seen them yet. I have never, ever, and I practice real estate development law for a decade, heard of a deal with options that did not have a price point. How would you even know if you want to exercise your option if you do not know how much it would cost you? Do the Flames have a triple net lease where they have to pay maintenance and municipal taxes? Has that information been released, because the municipal taxes on a property like that over 35 years would probably be worth over 100 million bucks.
My guess, and it is only a guess because stuff like that is not known right now or is what some would call secret, is that the option price is real low, basement level type price and that the property will not be on a triple net lease. That should add another 150 million+ from the city to the Flames.
Last edited by Aarongavey; 04-27-2023 at 01:48 PM.
By coming out with the statement of "secret deals" in the agreement it was just Notley dog whistling to her supporters to further put a negative spin on Smith without any credibility.
Right. Total dog whistle after all of the complete transparent evidence of the deal Smith provided.
If anything Smith should be viewed in a positive light for explicitly defining this as an election issue, until the next day she said it isn’t.
But seriously, what’s $300 million anyways, not a big deal after paying $1500 million for an inoperable pipeline.
Wow, not sure I've seen a secret deal that's been publicly announced before.
But she said officials straight-up told her about it, so really not a secret. What it really means is that there may be some information being kept private, such as things that could affect third parties, until the deal can be finalized. In most cases, this is not unreasonable. Having said that, I do get that the timing with the election coming up makes it an issue for a lot of people. But again, this should be an issue people have with the City and CSEC, not the UCP.
Just to be clear, I am not a fan of Danielle Smith and the party is obviously using this for political purposes, but I think people are barking up the wrong tree here. And I am sure Notley understands that this particular point is between the City and CSEC, but framed it around Danielle Smith, which is deceiving. When challenged on it, the best Notley can say is; "Because you can't trust Danielle Smith, so uhh, like yeah".
I actually feel bad for people in Alberta who have to vote for either of these politicians.
__________________
"A pessimist thinks things can't get any worse. An optimist knows they can."
The Following 2 Users Say Thank You to FlamesAddiction For This Useful Post:
But she said officials straight-up told her about it, so really not a secret. What it really means is that there may be some information being kept private, such as things that could affect third parties, until the deal can be finalized. In most cases, this is not unreasonable. Having said that, I do get that the timing with the election coming up makes it an issue for a lot of people. But again, this should be an issue people have with the City and CSEC, not the UCP.
Just to be clear, I am not a fan of Danielle Smith and the party is obviously using this for political purposes, but I think people are barking up the wrong tree here. And I am sure Notley understands that this particular point is between the City and CSEC, but framed it around Danielle Smith, which is deceiving. When challenged on it, the best Notley can say is; "Because you can't trust Danielle Smith, so uhh, like yeah".
I actually feel bad for people in Alberta who have to vote for either of these politicians.
They are both quite bad... To the point where my wife and I may vote opposites and just null our votes.
Flames rent goes up by 1% each year to account for inflation. If the City can borrow money at lower than 1% they could make money on the spread on the loan, otherwise they are losing money on the loan. Hopefully they find a rate lower than 1%.
I'm sorry, this is incorrect. The relevant benchmark here is the 5%, not the 1%. The city arrived at an estimated contribution of $316M from CSEC through their rent payments at a discount rate of 5%. Implicitly that's the value to the capital stack of the debt that would be secured by the lease. If they can raise debt at less than 5%, then the CSEC lease will enable a higher amount of upfront debt capital, if rates move against the city then the lease will support a smaller amount of upfront debt capital, which will create a shortfall somebody's got to pay for.
The 1% escalator only serves to shape the payments over time. Capital tariffs like this are often flat nominal, but where there are big differences in cost of capital between the two parties involved it can make sense to shape the tariff. For example, utilities (power companies) often have lower opportunity cost of capital than oil companies, so when the power company builds a cogen for an oil company you can escalate the tariff by a few percent per year. When the utility company looks at that revenue stream and applies their opportunity cost of capital discount factor they see a number, let's call it X. When the oil company uses their opportunity cost of capital to discount that financial commitment (larger discount), they see a number smaller than X. Strike the right balance and everyone's happy.
The 1% could just as easily be set to 2% with a smaller initial payment, and the resulting PV at 5% would be the same.
TL;DR the 1% is not useful to focus on, the city is betting they can finance the loan at 5%.
The Following 12 Users Say Thank You to RoadGame For This Useful Post:
I'm sorry, this is incorrect. The relevant benchmark here is the 5%, not the 1%. The city arrived at an estimated contribution of $316M from CSEC through their rent payments at a discount rate of 5%. Implicitly that's the value to the capital stack of the debt that would be secured by the lease. If they can raise debt at less than 5%, then the CSEC lease will enable a higher amount of upfront debt capital, if rates move against the city then the lease will support a smaller amount of upfront debt capital, which will create a shortfall somebody's got to pay for.
The 1% escalator only serves to shape the payments over time. Capital tariffs like this are often flat nominal, but where there are big differences in cost of capital between the two parties involved it can make sense to shape the tariff. For example, utilities (power companies) often have lower opportunity cost of capital than oil companies, so when the power company builds a cogen for an oil company you can escalate the tariff by a few percent per year. When the utility company looks at that revenue stream and applies their opportunity cost of capital discount factor they see a number, let's call it X. When the oil company uses their opportunity cost of capital to discount that financial commitment (larger discount), they see a number smaller than X. Strike the right balance and everyone's happy.
The 1% could just as easily be set to 2% with a smaller initial payment, and the resulting PV at 5% would be the same.
TL;DR the 1% is not useful to focus on, the city is betting they can finance the loan at 5%.
Super helpful and interesting, thanks. Would love to see that calculation and run some sensitivities.
Super helpful and interesting, thanks. Would love to see that calculation and run some sensitivities.
If anybody had insight into the profitability of the Flames, pairing that with the uplift in valuation of the oilers following the announcement of their arena deal (as something of a proxy) between the various people on the board who do this sort of thing for companies professionally, we could build a decent outside-in model of what this deal might be looking like for the Flames relative to, say, relocation.
But that would be a busman's holiday if ever I've seen one.
The Following User Says Thank You to RoadGame For This Useful Post:
By coming out with the statement of "secret deals" in the agreement it was just Notley dog whistling to her supporters to further put a negative spin on Smith without any credibility.
Quote:
Originally Posted by Zarley
Wow, not sure I've seen a secret deal that's been publicly announced before.
Quote:
Originally Posted by Boreal
Right. Total dog whistle after all of the complete transparent evidence of the deal Smith provided.
If anything Smith should be viewed in a positive light for explicitly defining this as an election issue, until the next day she said it isn’t.
But seriously, what’s $300 million anyways, not a big deal after paying $1500 million for an inoperable pipeline.
Just because there are claims of "dog whistles" and that Notley is claiming "secret deals', I will repost this so people can see what was actually said (read through the whole twitter thread). She does refer to the there being a "confidential financial arrangement" which she and we are not privy to. and she says it is to be kept secret until after the election and a definitive agreement is signed.
If Smith says "this is an election issue" I think it's completely fair for Notley to say "OK, what's the deal".
I'm sorry, this is incorrect. The relevant benchmark here is the 5%, not the 1%. The city arrived at an estimated contribution of $316M from CSEC through their rent payments at a discount rate of 5%. Implicitly that's the value to the capital stack of the debt that would be secured by the lease. If they can raise debt at less than 5%, then the CSEC lease will enable a higher amount of upfront debt capital, if rates move against the city then the lease will support a smaller amount of upfront debt capital, which will create a shortfall somebody's got to pay for.
The 1% escalator only serves to shape the payments over time. Capital tariffs like this are often flat nominal, but where there are big differences in cost of capital between the two parties involved it can make sense to shape the tariff. For example, utilities (power companies) often have lower opportunity cost of capital than oil companies, so when the power company builds a cogen for an oil company you can escalate the tariff by a few percent per year. When the utility company looks at that revenue stream and applies their opportunity cost of capital discount factor they see a number, let's call it X. When the oil company uses their opportunity cost of capital to discount that financial commitment (larger discount), they see a number smaller than X. Strike the right balance and everyone's happy.
The 1% could just as easily be set to 2% with a smaller initial payment, and the resulting PV at 5% would be the same.
TL;DR the 1% is not useful to focus on, the city is betting they can finance the loan at 5%.
I'm sorry, this is incorrect. The relevant benchmark here is the 5%, not the 1%. The city arrived at an estimated contribution of $316M from CSEC through their rent payments at a discount rate of 5%. Implicitly that's the value to the capital stack of the debt that would be secured by the lease. If they can raise debt at less than 5%, then the CSEC lease will enable a higher amount of upfront debt capital, if rates move against the city then the lease will support a smaller amount of upfront debt capital, which will create a shortfall somebody's got to pay for.
The 1% escalator only serves to shape the payments over time. Capital tariffs like this are often flat nominal, but where there are big differences in cost of capital between the two parties involved it can make sense to shape the tariff. For example, utilities (power companies) often have lower opportunity cost of capital than oil companies, so when the power company builds a cogen for an oil company you can escalate the tariff by a few percent per year. When the utility company looks at that revenue stream and applies their opportunity cost of capital discount factor they see a number, let's call it X. When the oil company uses their opportunity cost of capital to discount that financial commitment (larger discount), they see a number smaller than X. Strike the right balance and everyone's happy.
The 1% could just as easily be set to 2% with a smaller initial payment, and the resulting PV at 5% would be the same.
TL;DR the 1% is not useful to focus on, the city is betting they can finance the loan at 5%.
This is excellent analysis. The City basically built the debt structure/PV valuation of the CSEC contribution on the premise that their borrowing rate/ability won't change substantially between now and whenever it's paid off. Their rates are *generally* stable, but not immovable.
Notley needs to be handle this carefully and stay in the provincial lane. Something like:
- as a hockey fan I'm encouraged that a deal is coming together
- it's not my place to judge any financial arrangements between the city and CSEC, only what investments and obligations the province would take on
- the publicly released information suggests that provincial funding is only to be used for infrastructure. As you know I'm a fan of infrastructure investment and would look favourably on this
- I haven't heard any assurances that the province's involvement ends there and until the rest of the details are known I can't judge the deal from the province's perspective
The Following User Says Thank You to edslunch For This Useful Post:
I am still in shock as to how the city was able to get bent over this badly in this deal. Zero lipstick to boot! A lot of people are focused on Smith and the politicking that is going on and that isn't good, but the provinces portion for infrastructure etc isn't the end of the world. Timing is suspect etc but how did the city negotiators and city council go about this?
I would have assumed that the starting point for the new arena would have been a similar split to before and then going from there. This new deal actually looks like Edwards was hell bent on extracting serious leverage and pain onto council and the mayor. There is no other way about it. How does the city lose out on
1) More upfront cash
2) Cover upfront capital costs and associated interest/financing costs
3) Naming rights, ticket tax, Calgary Municipal Land Corp as project lead, cost over runs for Flames only
4) Additional land from the Stampede board for development purposes (Stampede is city owned land)
& More that we don' even know. This is perplexing how badly they got taken above and beyond more and it stinks to high heaven. I am pro business, pro Flames, pro development, pro arena and district redevelopment and more. I am just stunned as to what I have witnessed here and it needs serious explanations and it's not going to be garbage about "world class city with world class event center" and some district that is going to be a few bars, restaurants, some chain crap and more promising all this tax lift and tax dollars to the city. We have clearly seen how the city is spending tax dollars on private enterprise and people are going to want THEIR take.
On #4 - most Stampede land is city owned, but I believe the Stampede bought these particular blocks themselves (though of course stampede also gets funding from all levels of gov’t)
Sent from my iPhone using Tapatalk
__________________
CP's 15th Most Annoying Poster! (who wasn't too cowardly to enter that super duper serious competition)
The arena deal between the City and CSEC aside, do people object to the province funding infrastructure improvements in Calgary in general?
lol yup, everyone who doesn't like this deal is telling the province we pay taxes into to get bent with their money. No more provincially funded infrastructure ever said no one.
Notley needs to be handle this carefully and stay in the provincial lane. Something like:
- as a hockey fan I'm encouraged that a deal is coming together
- it's not my place to judge any financial arrangements between the city and CSEC, only what investments and obligations the province would take on
- the publicly released information suggests that provincial funding is only to be used for infrastructure. As you know I'm a fan of infrastructure investment and would look favourably on this
- I haven't heard any assurances that the province's involvement ends there and until the rest of the details are known I can't judge the deal from the province's perspective
Are you suggesting that a politician, particularly a socialist, take a reasonable, sensible and measured approach? The nerve.
Are you suggesting that a politician, particularly a socialist, take a reasonable, sensible and measured approach? The nerve.
We certainly saw so many reasonable, sensible and measured approaches out of the conservatives, didn't we? Particularly during Covid and during the first few month of DS taking power
__________________
I hate to tell you this, but I’ve just launched an air biscuit
Are you suggesting that a politician, particularly Danielle Smith, take a reasonable, sensible and measured approach? The nerve.
Fixed that for you. It is wild that the UCP have picked the one candidate that can lose them the election.
Seems to be an issue with the Conservatives as well. Scheer was terrible, O'Toole seemed decent but had a terrible campaign, and I don't think Poilevre will resonate with Ontario and Quebec and will hand the election back to the Liberals
