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The MaRS research centre is shown in downtown Toronto.DEBORAH BAIC/The Globe and Mail

The Ontario government has shelled out $308.8-million to bail research incubator MaRS (Medical and Related Sciences) out of a failed real-estate deal. The move leaves the province out of pocket and with an interest in a mostly empty office tower at a time when it is supposed to be selling off land to raise cash.

And the price tag may go even higher – the government is also considering subsidizing MaRS's operating costs and paying to move civil service offices into the building.

"The work MaRS does is important to our economy," Economic Development and Infrastructure Minister Brad Duguid said in a conference call Tuesday. "This decision was not made lightly."

MaRS made a deal with Alexandria Real Estate to build the tower on College Avenue in Toronto, across the street from the provincial legislature. Provincial Crown corporation Infrastructure Ontario (IO) loaned the project $224-million in 2011.

Once the building was built, MaRS ran into trouble: It could only fill one-third of the tower, mostly because its rents were too high for the start-ups and other innovative companies it was hoping to attract. Alexandria, the government said, needed the high rents to recoup its investment.

On Tuesday, the province announced it will pay $65-million to buy Alexandria out of the deal. This will allow MaRS to lower the rents. If all goes well, the charity will be expected to pay back the loan. If not, the government can seize the building.

The bailout appears to run counter to the government's plan to sell assets to raise cash for new infrastructure. Earlier this month, for instance, Mr. Duguid put the Toronto headquarters of the LCBO up for sale.

Coincidentally, the more than $300-million the government has spent on MaRS is a little more than it expects to generate from selling the LCBO lands.

"This is a government that's trying to divest public assets and at the same time acquire them out of an act of desperation, because of a bad business deal," New Democrat finance critic Catherine Fife said.

Leaked government documents last spring suggested that, instead of MaRS renting the tower to private companies, the government would pay out of pocket to finish the interiors of the offices and then lease them itself to house civil servants. The documents also said the government would pay MaRS's operating deficit for several years.

Mr. Duguid confirmed he is still considering both things. He has appointed Michael Nobrega and Carol Stephenson, the former pension CEO and the ex-dean of the Richard Ivey School of Business, respectively, to advise him.

"There has been a great deal of speculation as to possible options, and I have not given them any instruction to take anything off the table," he said.

Progressive Conservative finance critic Vic Fedeli estimated that, if the government leases the office space itself and pays some of MaRS's operating costs, the tab could be $600-million.

"The $308-million is only the starter," he said.

The failed deal has not led to a shakeup of either MaRS's executive ranks or its high-powered board.

Ilse Treurnicht, MaRS's long-time chief executive officer, remains in her job. She earned $532,501 plus $12,260.16 in benefits last year. Thirty-seven of MaRS's 97 employees made six figures last year. The board is packed with heavyweights from the business world and chaired by Gord Nixon, the chief executive officer of RBC.

IO CEO Bert Clark seemed at a loss to explain why his organization gave MaRS the loan in the first place: "The loan went through a very rigorous process of analysis through our risk committee and management board, and we took security of various sorts. The loan is not an issue."

Mr. Duguid said loaning the money was still a good idea – even though the deal ultimately went south – because MaRS is a great organization.

"It is not a mistake for our government to aggressively pursue innovation," he said.

With a report from Kelly Grant