Ontario's Liberal government will provide an $86 million line of credit to the MaRS research facility in downtown Toronto to help attract tenants and protect the province's original investment.
The government has previously loaned MaRS $225 million and paid another $65 million to buy out an American real estate company's interest in the project.
The news came one day after Ontario Auditor-General Bonnie Lysyk's annual report alleged that the government's lack of transparency on the first MaRS loan made it appear more like "a bail out" than an investment.
The facility, which is mostly empty, has been expensive and risky for Ontario taxpayers, according to the report.
The benefits of the province's first loan of $225 million to MaRS are "uncertain," said Lysyk.
"There was a lack of transparency surrounding the government’s support for its research and innovation agenda through this loan,” she wrote in her report. “The lack of transparency regarding the policy objectives and outcomes to be achieved from this loan creates the perception that this transaction was a 'bail out' of a non-government organization."
MaRS CEO Ilse Treurnicht defended the Phase 2 project today against that accusation.
"The bail out makes nice headlines, but it ignores the fact that projects like this are funded by construction loans. It is fully secured against the building, land and other assets of MaRS," she said on CBC Radio's Metro Morning.
"A bail out is a description of something that is not reflected in a funding envelope that secured against a physical asset."
New loan comes with accountability promise
The government said in a release on Wednesday, announcing the new loan, that in order to fully protect taxpayers’ investment, it promises to:
- Institute leasing benchmarks and appoint a supervisor to monitor and approve all facets of fully leasing the building.
- Hire a financial expert, who will oversee the process and ensure that all drawdowns on the line of credit, landlord’s work and efforts to make the space ready for tenants are appropriate.
“I am confident that if the Ontario government follows our recommendation, the loan will be fully repaid with interest, and this project will have the stability it needs to succeed," said Michael Nobrega, a MaRS Phase 2 adviser, in the statement.
"There is now significant demand for this space, and I am confident it will be leased up soon.”
Facing challenges filling the building, Ontario's government spent hundreds of millions to gain control of MaRS from a private real estate developer in hope of finding tenants.
The building that sat empty
MaRS currently has letters of intent from prospective tenants that would see 65 per cent of the building leased right away, and an additional 60 per cent in tenants either in advanced negotiations or strong prospects, the government said in Wednesday's announcement. "This would bring the total lease up to well beyond the available rental space in the building," the statement claims.
Asked by CBC's Matt Galloway why it was a good idea to build a brand-new office tower when MaRS didn't know who the tenants were going to be, Treurnicht said that before the 2008 financial crisis there "was a strong pipeline of tenants."
"In 2007 there was significant demand and pressure to develop Phase 2," she said. "The unprecedented global financial crisis derailed the process for the developer and we have been solving that problem since because this building is critically important."