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The Globe and Mail

Big budget questions surround Edmonton arena plan

The statue of Edmonton Oilers Wayne Gretzky stands in front of the Rexall logo at Rexall Place in Edmonton on Thursday Dec. 13, 2007.

The Canadian Press

Edmonton city council has pushed ahead on plans for a $450-million arena and the final behind-the-scenes work now begins on the potential future home of the Edmonton Oilers.

The big problem: everything's over budget. The arena is at $485-million and the whole project has climbed to $608-million from $557-million. City council, as part of its 10-3 vote on Tuesday afternoon to move ahead, wants the arena to come in at $450-million, and various cuts have been detailed.

With council's backing, and the budget in flux, the next month or so marks the key weeks of negotiation between the City of Edmonton and Katz Group, led by billionaire Daryl Katz, who owns the hockey team.

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There are eight deals that underpin the whole proposal, a master agreement, and seven ancillary agreements.

The city and Katz are generally agreed on four of the deals, and have work left to do on the other four.

There will be tension in the talks between the city and Katz, with the pressure on the budget, yet the yearning to create a beautiful building, one that is a spark for Edmonton's downtown. "Revitalize" is the lofty catchword. "Iconic" is often used.

The mayor, Stephen Mandel, frankly emphasized the need for a quality building again at Tuesday's council meeting. Seven years ago, he decried the "crap" architecture of Edmonton. He once more invoked the word Tuesday.

"We've heard time and time again from citizens, they don't want us to build anything for crap," said Mandel.

Rick Daviss, the city executive leading the arena deal, plans to present all of the eight financial agreements in detail to city councillors at in-camera meetings in late August or early September. The key vote by council on the deal with Katz would come several weeks thereafter.

"We think it's a fair deal," said Daviss in an interview last week before Tuesday's council meeting. "Would we like to get a better deal? Sure. Would Katz like to get a better deal? Sure."

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In an interview in late June in Edmonton, Katz said there was more work to do.

"We are not done," he said. "This deal is not done. I don't know if it will get done. Okay? If it doesn't get done, it would be an enormous loss to the city of Edmonton."

If council approves the financial deals, a final vote on the arena comes in January, on detailed arena design, and the budget. January is a point at which either the city, or Katz, can pull out. If the go-ahead is decided, construction would begin in the spring, with completion scheduled for about two years later - the summer of 2015 - ahead of the 2015-16 hockey season.

Whether the city can wrest any more money from Katz is unclear. The current deal sees the public putting up all the money up front, with Katz paying back half of the $450-million through rent and a ticket tax over more than three decades. Both sides have already spent tens of millions on land and connected investments.

But the arena, for Edmonton and Katz, is more about real estate than hockey. Katz made his money in drug pharmacies and retail, led by his Rexall chain-- but he has also assembled large real estate holdings. He plans much more development in the next decade.

The arena is a big part of the idea. Around the arena, located on a barren street on the north end of Edmonton's downtown, Katz aims to build 11 buildings -- hotels, retail, office, possibly upwards of 4-million square feet, over the next two decades or so. A casino is also proposed for the area.

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For the City of Edmonton, this real estate dream is a seeming windfall. A boon of cash has been forecast to pile in from new taxes, more than a $1-billion in new revenue.

A significant part of the forecast of new money is revenue from the Katz developments around the arena.

So the stakes are considerable, much greater than just a hockey arena.

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