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Ontario government gave University $18.3-million to fit floor in the MaRS West Tower.

Matthew Sherwood/The Globe and Mail

The Ontario government gave the University of Toronto $18.3-million to fit out a floor in the MaRS West Tower for a collaboration with a biotech firm, money that is additional to the loans the province has made to keep the building afloat.

The money was announced in the fall, but the province did not reveal that it was given to the university for work on the building. Instead, the grant was presented as an overall investment toward bringing JLabs, a biotech subsidiary of Johnson & Johnson, to Toronto. Terms of the funding were included in documents U of T provided in response to an Access to Information request from The Globe and Mail.

The grant renews questions about how much Ontario is spending to turn MaRS West into the engine of innovation the provincial government envisioned, and whether it is putting more cash than it has made public into the high-rise building situated in the heart of Toronto's downtown hospital district.

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Along with the $18.3-million to U of T, the province gave another $1.1-million to the university for the operation of the lab. The entire amount came from the province's Jobs and Prosperity Fund, which has also funded equipment and research and development at auto industry companies Linamar and Honda.

"Our investments tend to go in the infrastructure that's being built, in this case, building labs," said Brad Duguid, the Minister of Economic Development and Innovation. "It was a fierce competition with other jurisdictions to try and land JLabs."

MaRS West is the second phase of a research complex that began in 2005 as a non-profit charity and was seen at the time as a way to drive commercialization in life sciences and medical technology. The initial buildings are fully occupied and more than 50,000 entrepreneurs have participated in many programs offered through MaRS. But MaRS West has courted failure several times. It has been rescued through several injections of government-backed loans totalling approximately $380-million.

In 2014, Ontario's Auditor-General said the lack of transparency in how the project aligned with the government's innovation agenda could lead to perceptions that the loans were a "bailout."

The latest such loan was a $86-million credit line advanced in December 2014 to MaRS Discovery District, the non-profit group that runs the building. It has been used to offer prospective tenants rental allowances, including money to finish the "core-and-shell" space.

The University of Toronto and MaRS negotiated more than $6-million from that credit line toward rental allowances for three other floors it is renting in the research tower. That space will be occupied by researchers in the school's faculty of medicine and the newly established Ted Rogers Centre for Heart Research.

JLabs is sub-leasing the 13th floor from the university. In turn, it will rent the approximately 40,000 square feet of space to as many as 50 biotech startups in a model it has pioneered in Boston and San Diego.

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"Our team will provide emerging companies with many of the advantages of being in a big company, without the capital investment," said John Lacey, a Johnson & Johnson spokesman. "We offer extensive financing, networking events, drug and device development, educational events and mentorship."

The University of Toronto is confident the research tower's future is bright. Along with renting almost five floors in the 20-storey building, it has also bought a 20-per-cent equity stake in the trust that owns MaRS West.

"It's a key vote of confidence," said Scott Mabury, vice-president, university operations. "We are going to be here for decades, even centuries."

The equity investment cost $31-million, minutes of an in-camera meeting of one of the university's executive boards provided to The Globe show.

Facing a space crunch for researchers in its faculty of medicine, the university had at one point considered renting one floor at MaRS West. But it was determined also to become a building owner, because the stability of that arrangement would enable it to attract donors for the project and collaborations like the partnership with Johnson & Johnson.

"I think it's because we're a co-owner with MaRS that Johnson & Johnson was able to have a comfort level," Dr. Mabury said.

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The province asked the university to pay about $13-million more than it had initially expected, the documents also show.

"In our view, it was a good deal – although it stressed us a bit – because we could immediately occupy space. It would have taken many years and lots more money to build space," Dr. Mabury said.

In the minutes of the in-camera meeting, the higher price tag is presented as "offset" by the province's grant for the JLabs collaboration.

Dr. Mabury, however, said the equity purchase and the $18.3-million grant were "completely separate" transactions.

For MaRS, U of T's tenancy and its equity investment help put it on the road to health envisioned by the province.

"The value of the building is to some extent driven by the calibre and the quality of the tenants you have in place," said Tim Jackson, executive vice-president for corporate and community relations at MaRS.

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The building is 84-per-cent leased now, a big increase from the 30 per cent it was facing a year ago. It will likely be full this year, Mr. Jackson said.

An expert panel struck in 2014 estimated that by 2019, with the building fully occupied, MaRS could begin to pay back the province by privately refinancing some of the loans.

Mr. Jackson said that process could begin as early as this year.

"Our hope is that we will beat the deadlines," he said.

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