Nine federal buildings in cities across the country have been sold to a private Vancouver real estate company for $1.64-billion and will be leased back to taxpayers for at least the next 25 years, the government announced on Monday.
Public Works Minister Michael Fortier said the deal with Larco Investments Ltd. was a good one for taxpayers, who will pay about $1.3-billion in today's dollars to rent the buildings.
"This is a fair deal for Canadian taxpayers, particularly since the transaction was concluded when markets were very favourable," Mr. Fortier said in a statement.
The government insisted the sale would not affect any services or programs and said it retained the right to fly the Maple Leaf and name the buildings.
The properties comprise two buildings in each of Vancouver, Ottawa and Montreal, and one in Edmonton, Calgary and Toronto. They offer services in areas such as passports, Employment Insurance and the Canada Pension Plan.
A major public sector union criticized the sale, noting that an analysis by economic research firm Informetrica Ltd. concluded that the government sold the nine buildings for $630-million less than their actual value to Larco.
The Informetrica study, commissioned by the Public Service Alliance of Canada, valued the prime federal properties at almost $2.3-billion.
"This is a give-away of colossal proportion," said Patty Ducharme, the union's national executive vice-president.
"In addition to ceding ownership of nine premium properties, the federal government has, in effect, written a $630-million cheque signed by Canadian taxpayers."
Under the agreement, Larco cannot sell the buildings for at least 10 years. It must also carry out a backlog of repairs over the next decade or will have to take lower rent.
However, the union complained that taxpayers are responsible for all maintenance and upgrades to the interior of the buildings, things such as heating systems, windows, elevators, plumbing and electrical systems.
In addition, the transaction provides that taxpayers will pay the new owners a management fee based on a percentage of the gross rent paid at each building.
"This a sweet deal for the new owners and a lemon for taxpayers," Ms. Ducharme said.
Owned by brothers Amin and Mansoor Lalji - one of the richest families in Canada - Larco Investments has 30 years in the real estate industry. It is also the parent of Larco Hospitality, a full-service hotel-management company.
"We participated in a bid process and we were selected. That's as much as I can tell you," Thaddas Alston, an executive director with Larco, said in an interview from Vancouver.
"It's a commercial transaction that we bid on and we're very delighted to be selected."
Mr. Fortier was not available to comment directly because his wife had just given birth to their sixth child and was in hospital in Montreal, a spokesman said.
However, in his release, Mr. Fortier called office space just another commodity the government does not need to own to use.
"Most Canadians don't own their office," Mr. Fortier said.
"Other public and private sector institutions have undertaken sale-leaseback arrangements so they can focus on their core priorities."
The transaction transferred responsibility for the costs of maintaining the buildings to the private sector, and will ensuring the buildings are kept up properly, Ottawa said.
The government would be able to sublet the offices should its space requirements ease, insisting the deal was not a case of selling off valuable assets for short-term gain.
"For these nine properties, private-sector advice showed the sale-leaseback option would achieve the best value for the Crown," Ottawa said.
A year ago, the government commissioned a review of 40 office properties it owned looking for cost-effective options at housing various departments.
BMO Capital Markets Real Estate Group and RBC Capital Markets Real Estate Group Inc. recommended the government sell and lease back the nine properties, which were put on the market in May.
Deutsche Bank analyzed the top bid to see if the lease-back idea made sense and confirmed the transaction was fair, the government said.
The deal increases the percentage of properties Public Works leases to 47 per cent from 43.
The properties being sold are:
In Vancouver, 401 Burrard and the Sinclair Centre;
In Calgary, Harry Hays Building;
In Edmonton, Canada Place;
In Toronto, Joseph Shepard Building;
In Ottawa, Thomas D'Arcy McGee Building and the Skyline Complex;
In Montreal, 305 René Levesque West and 4225 Dorchester West.