The Ontario government is claiming victory after the successful private sector refinancing of a government bailed-out building project at the downtown Toronto MaRS Discovery District.
MaRS announced Thursday that it has completed a $290-million private financing of its west tower building project, which has enabled it to repay three-quarters of the nearly $400-million in loans received from Ontario to complete the stalled project.
"We're pleased that the decisive action on the part of government to bridge finance MaRS has paid off in the interest of all Ontarians," Ontario economic development minister Brad Duguid said in a statement.
Manulife Financial Corp., Sun Life Financial Inc. and iA Financial Group led the transaction, investing in 19-year bonds at market interest rates, believed to be under 5 per cent. "The west tower is an impressive state-of-the-art research complex with an exceptional roster of tenants, in one of the most desirable locations in Toronto," said Candace Shaw, head of private fixed income with Sun Life.
"It's a real milestone for MaRS," said MaRS chairman Gord Nixon, former CEO of Royal Bank of Canada. "It's been a rocky road to get here but now that we've proven to have gotten it right, people should feel good."
Three years ago, it was revealed the province had bailed out MaRS to finish the tower at the complex, which is dedicated to innovation in health, clean tech and information technology.
The tower was to have been built in partnership with U.S. developer Alexandria Real Estate Equities, hosting established companies and research bodies, with startups provided with cheaper space subsidized by donors and rental income. But after the 2008-09 financial crisis, Alexandria halted construction, leaving behind an unfinished stump. The government stepped in to finance construction as MaRS, partly funded by the province, lacked the resources to do so.
The tower was completed in 2013, but Alexandria retained the right to approve leases. A year later, the building was only 30-per-cent leased and the project's difficulties became public. Reports revealed Infrastructure Ontario approved the loan before any leases were signed and that the government considered filling the building with public servants instead of innovation-minded tenants, drawing criticism from Ontario's Auditor-General.
The government tapped former OMERS head Michael Nobrega and retired Ivey School of Business dean Carol Stephenson for advice. They recommended Queen's Park boost its commitment to nearly $400-million so MaRS could buy out Alexandria and make the tower tenant-ready. The plan was to fully lease the building by 2017, repay $224-million to government by 2019 and pay off the balance by 2035.
Several recent developments have improved the fate of MaRS' tower project. The 20-storey, 780,000-square-foot building is now 100-per-cent leased, attracting such tenants as Facebook, Airbnb and Autodesk, public-sector organizations including the Ontario Institute for Cancer Research and University of Toronto (now a part owner of the building), and several venture capitalists. Startups on-site include League, the latest from Kobo co-founder Mike Serbinis. Last year, real estate advisory firm Altus Group assessed the building's value at $513-million.
MaRS is now three years and $65-million ahead of its repayment commitment to the province. "They came through with flying colours," Mr. Nobrega said in an interview.
When the building is fully occupied later this year, it will generate about $20-million in annualized net operating income, enough to make it self-sustaining, MaRS CEO Ilse Treurnicht said.
MaRS will now focus on fundraising, with a goal of bringing in more than $50-million from private donors for programming to help startups. MaRS board members have personally pledged close to $7-million of that amount.
"It's really exciting because we now have what we always needed – long-term stable financial base for the infrastructure of Mars," Ms. Treurnicht said.