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The PC party has accused the Ontario Liberal government of secretly approving a $317 million bailout of MaRS.

Galit Rodan/The Globe and Mail

A Toronto medical-sciences business incubator was trying to attract a massive philanthropic donation when, facing a two-thirds empty tower and preparing to default on its loan, it approached the government for help, according to documents that reveal for the first time the difficulty MaRS Discovery District has had luring tenants to its prime downtown location.

The Liberal government has been planning to spend $317-million to buy the newly completed tower and extinguish the loan. The documents provide a glimpse into the troubled times at MaRS, where more than 50,000 Ontario entrepreneurs have received guidance and training since the first section opened in 2005. But those documents also have the Progressive Conservatives crying scandal, leading to another spending decision the Liberals must explain to taxpayers ahead of an election June 12.

The first phase of the MaRS project – which is designed to bring together medical and scientific researchers with business types who can commercialize their discoveries – is at capacity.

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But the second phase has been plagued by construction halts and delays and has attracted only a few of the entrepreneurial tenants that are supposed to provide the lifeblood of the building, according to an April 29 briefing for the secretary of cabinet and a confidential May 13 report to the treasury board, both obtained and released by the Progressive Conservatives.

The documents show that Ontario government officials feared a default on the second phase of the project would erode the "MaRS brand" and cause "reputational harm to Ontario."

The documents also warned that it could jeopardize a plan to give naming rights to the building to an unnamed philanthropist who was preparing to make the "largest donation to academic institutions in Canadian history," to MaRS and its partners at the University of Toronto, the Hospital for Sick Children and the University Health Network.

That plan was already far enough along that the donor had requested garden statues outside the building, located at College Street and University Avenue.

It's unclear why MaRS had such difficulty attracting tenants to the 20-storey building.

Only two tenants had officially signed a lease as of March 26: Public Health Ontario, which will operate its labs out of the top floors of the tower, and the Ontario Institute for Cancer Research. Both are government funded and expected to fill 27 per cent of the space in the building. Only eight other tenants had signed offers for space, according to the documents. Of those, four were retail food and coffee outlets, including a Starbucks and a Freshii.

There are hints, however, that the terms reached with Alexandria Real Estate Equities, Inc. (ARE), the U.S. developer that built the second phase, were too onerous to attract labs and startups as intended. "The removal of prior restrictions imposed by ARE may improve MaRS' ability to lease the phase II building," one of the documents says, adding later that "the terms of MaRS sublease with ARE are preventing the successful lease-up of the building."

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Neither ARE nor MaRS Discovery District responded to requests for interviews Thursday. MaRS issued a statement touting its successes and did not address the government's plans to buy its second tower and accompanying lands, transforming the building primarily into a home for public servants.

Although that sale is not yet finalized, the May 13 document lays out in detail how the plan would radically alter the original purpose of the building. At least 51 per cent of its space would be filled with bureaucrats, moved from leased locations elsewhere in the city.

The document raises the possibility that this change could cause the building to lose its property-tax breaks with the city.

Former PC MPP Frank Klees released the documents Thursday morning, calling Liberal Leader Kathleen Wynne's plan a "bailout" and a "deal [made] in secret to avoid another public embarrassment for her scandal-plagued government."

The Liberals were quick to counter the criticism, stressing that the deal has not been finalized and colouring the purchase of the tower as a smart investment. The Liberals said the negotiations had to be put on hold once the election was called after the NDP rejected the 2014 budget, but insist the deal would have been made public once it was complete.

Ms. Wynne even worried aloud that the attention drawn to the tentative deal could kill it before the papers are signed.

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"I hope that what [Mr. Klees has] done doesn't derail the negotiation and doesn't derail the agreement because it's in the best interest of the people of Ontario that this building be used in this way."

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