In a previous post The Pope highlighted a spreadsheet looking at the City’s loan to Millennium to fund the Olympic Village construction and how much of the loan amount could be recouped should only sales revenue from this development be used. The calculations ignore interest payments, ongoing management of the whole process, land value, unpaid property taxes and strata fees amongst a handful of other (comparatively) small expenses.

The outstanding loan was $731MM. Millennium recently repaid $192MM of this amount. I’ve updated the spreadsheet to reduce the primary debt owed to the City.

The big item ignored, of course, is going ruthlessly after the collateral of the debtor, Millennium, which the City is now doing according to fearless City reporter Frances Bula:

Vancouver is taking aggressive action to secure the corporate and personal assets worldwide of the Olympic village’s private developer after acknowledging that the developer did not pay the full amount of its first $200-million loan payment to the city. …

As well, the city, which took over financing the village construction in February of 2009 after Millennium’s original lender refused to continue making payments because of cost overruns, has told Millennium that it either has to pay out the $561-million it owes the city or prove that it has a solid plan for making the loan payments that were originally scheduled.

The City is starting to put feelers into Millenium’s holdings to uncover how much additional collateral is available to repay the loan. But it’s unclear how much collateral Millennium actually has. Many of its holdings are highly mortgaged and it’s uncertain, at least to me, if the owners can face judgment against their personal holdings. Long story short, the City won’t be the only creditor represented at a bankruptcy hearing.

It may well be Millenium will go insolvent. But given how many tiered creditors Millenium has, we don’t know how quickly the City can recoup the money it is owed beyond the collateral of the OV itself.

On the plus side, the City just got $192MM from Millennium. How does that change the calculations? If Millennium does go technically insolvent before its next scheduled debt repayment, we have the following approximate shortfalls:

At $700psf, there is a $200MM shortfall; selling all the rentals and retail space reduces this to about $100MM. (Interest payments to the City’s creditors on the total balance outstanding will be on the order of $25MM for a year.)

$600psf – $250MM shortfall ($170MM if rentals/retail sold)
$500psf – $300MM shortfall ($230MM)
$400psf – $350MM shortfall ($300MM)

The question is, what will be the average price of the market units? If we do a bit of analysis based solely on rental income and assuming some “rosy” rental rates of $2.75psf/mo (500sqft flat $1500/mo) and a “rosy” 150 price-to-monthly rent ratio, we end up with a market “value” around $450psf.

I think the sales staff for the Olympic Village can do better than this. It involves, in my opinion, finding people who are willing and able to pay well above rental rates for a building with unproven infrastructure and a less-than-whole strata. But it will involve selling these condos reasonably quickly or the price will likely continue to drop.

In summary, it looks like Millennium has come up with some cash to reduce the City’s shortfall on this project. That is a good thing for ratepayers. Loss estimates are now better but still ostensibly in the neighbourhood of $250MM-$300MM, minus any additional funds Millenium coughs up. Better, but still one helluva mozza ball.