CentreVenture arranges 'weird deal' with Canad Inns over Winnipeg hotels
Investigative accountant Al Rosen questions legitimacy of the arrangement
New revelations about CentreVenture and its dealings in the expansion of the RBC Convention Centre has Winnipeg Mayor Brian Bowman reiterating his call for an update on how the downtown development agency operates.
"We have an obligation to Winnipeggers to ensure that everything that can be done to ensure greater openness and transparency, especially when it comes to land transactions dealing with millions of dollars — of taxpayers dollars," he said Tuesday.
CBC News has learned that Canad Inns owns 11 per cent of both the St. Regis Hotel and the former Carlton Inn in downtown Winnipeg, even though it never used its own money to acquire the stake in the two CentreVenture Development Corporation-owned hotels.
The company was asked to be involved in the deal by CentreVenture, the city's arm's-length development agency, so it could help avoid detrimental tax impacts the owners of the hotels would have to pay.
In a statement issued Tuesday afternoon, CentreVenture's board of directors said it has kept the city and the provincial government in the loop regarding its transactions.
"The first priority … was to purchase two properties in the district that posed safety and security issues — the Carlton Inn and The St. Regis Hotel. This effort was broadly supported by all of our downtown stakeholders. The City and The Province were kept abreast of these transactions, and provided financial support," the board's statement reads in part.
CentreVenture also maintains the deal was completely above board.
"I can assure you there is no benefit to them [Canad Inns], as well, no cost to them, they were accommodating an unusual situation to help us get through this," said Philip Sheps, the lawyer who acted on behalf of CentreVenture.
"Leo [Ledohowski, Canad Inns' executive chair] said, 'I am prepared to assist,'" according to Sheps.
CentreVenture bought the separate companies that owned both properties about two years ago, but it wanted to structure the deal so that the original owners would minimize the amount of federal tax they would have to pay.
If CentreVenture had bought the properties on its own, the owners would have been on the hook for capital gains tax on the sale. That meant CentureVenture needed to find a private sector partner who would be willing to assume part-ownership in the companies controlling the properties, which would lessen taxes the owners of the hotels would have to pay.
It asked Ledohowski to take part and gave him more than $1.4 million in interest-free loans so he could buy 11 per cent ownership in each hotel.
CentreVenture also spent nearly half a million dollars on legal and accounting costs to put together the two deals.
CentreVenture did not disclose Canad Inns' involvement in its statement of operations of 2013.
"It's just a weird deal that needed to be put together in this way," said Ross McGowan, the former CentreVenture president and CEO who oversaw the arrangement.
"The Income Tax Act is a very large act and we were caught in a little wee pinhole."
A real deal?
But investigative accountant Al Rosen questions the legitimacy of the arrangement.
"It questions whether the 11 per cent is anything other than an attempt to avoid paying taxes," said Rosen, an investigative accountant at Accountability Research Corporation in Toronto.
"It's almost a transaction that may have been set up to try to benefit the CentreVenture people, the people of Winnipeg, at the expense of the rest of Canada."
Bowman said he wants a thorough review of CentreVenture.
"You know, this is taxpayers' money. We want to make sure that we have all the facts so that we can make informed decisions and we're going to be doing a mandate and governance review with CentreVenture to ensure that, you know, the cheques and balances that Winnipeggers expect are being followed," Bowman said.
"And we have years and years of tax court decisions saying you didn't have anything at risk, so we're not going to deem this as a legitimate transaction," he said.
Canad Inns said it was just trying to help out when approached by CentreVenture.
"We acted on their request to assist them in a complicated transaction that, without a private industry investor, would have them [CentreVenture] and ultimately, the citizens of Winnipeg, pay an unnecessary tax," said Cindy Carswell, a Canad Inns vice-president.
"Their legal counsel explained the situation and that there was nothing untoward in the transaction. The transaction had also been recommended by Deloitte, their tax consultant."
Despite the part-ownership of the hotels, Canad Inns does not share in profits or losses.
The hotels lost nearly $31,000 in 2013, according to statements filed with the City of Winnipeg . All losses were covered by CentreVenture.
"That would be very uncommon because what you're saying is that you own 11 per cent of each of these two companies," said Rosen, "[and] you should be absorbing the losses and having the profits."
"It's really no different than you or I taking advantage of the tax laws when we are doing our personal income tax. You try to take every benefit that you can," McGowan said.
"Why would we pay additional taxes as a public institution than we have to," he added, noting that lawyers, accountants, the CentreVenture board and the Manitoba government were consulted before it was "determined the risk was worth the business deal."
"They are complicated deals, and they are weird deals, but they are done with absolute utmost propriety," said McGowan.
After initially denying the request, CentreVenture eventually gave CBC News a chance to review its agreements with Canad Inns.
The agreement contains a potential purchase option clause for Canad Inns, subject to a future agreed-upon price.
CentreVenture's development manager, Loretta Martin, explains that this clause does not benefit Canad Inns if it decided to buy the hotels.
New CentreVenture CEO stands behind deal
"It needed to happen from our perspective so we could get access to these properties that, in our opinion, were causing some grief in the downtown, in the most cost-effective way," said current CentreVenture president and CEO Angela Mathieson.
She said the downtown neighbourhood has already benefited from the deal.
- CentreVenture acquires Carlton Inn, plans to redevelop it
- Booze ban drops emergency calls at St. Regis Hotel
- Winnipeg convention centre project muddied, mishandled
"Once these sites are redeveloped, there will be ample evidence this was the right thing to do," she said. "It was the right thing to do to deal with these properties and get them into better uses."
CentreVenture's full statement
On Tuesday afternoon, CentreVenture's board issued a statement defending its projects, as well as the agency's role in the expansion of the RBC Convention Centre.
CentreVenture was created 15 years ago to stimulate downtown revitalization by creating an environment for private sector businesses and government to work together and to promote the downtown to investors, businesses and residents.
Since that time, the benefits to the people of Winnipeg have been substantial, increasing downtown property taxes by $8.5 million a year. Through the direct efforts of our volunteer board of directors over 73 successful projects including The Bell Hotel, Paterson GlobalFoods Institute, the Avenue Building, Central Park redevelopment and a multitude of new housing and heritage restoration projects have been completed. Young people have new places to study and work, businesses are thriving, families are experiencing the benefits of living downtown, and new attractions are bringing more and more people back to our downtown. This is the grand vision.
From the outset, the interests of the community and the economic future of downtown have been our guiding principles throughout our involvement with the Carlton Inn site and will continue to be as we move forward on this and other initiatives.
For the past five years, CentreVenture has been focused on building the new Sports and Hospitality District (SHED) in downtown Winnipeg. It will be a distinct and dynamic new urban neighbourhood with amenities and attractions for all Winnipeggers. CentreVenture views the SHED as one of the most important initiatives in downtown Winnipeg and, to that end, wishes to ensure we work collaboratively with all stakeholders towards that larger vision.
The first priority, in doing so, was to purchase two properties in the district that posed safety and security issues - the Carlton Inn and The St. Regis Hotel. This effort was broadly supported by all of our downtown stakeholders. The City and The Province were kept abreast of these transactions, and provided financial support.
For the Carlton Inn site, it was CentreVenture’s view from the beginning that the right calibre of development was required in order to allow the RBC Convention Centre to attract the types of events it was seeking and to complement the overall vision of the SHED. All parties involved supported this objective.
Stuart Olson was tasked with bringing a hotel project to fruition beginning in late 2011. By April 2014, Stuart Olson, despite efforts, was unable to build a hotel to a standard that would meet this objective and so they asked to be relinquished from it and tabled a settlement agreement for $3.75 million.
Through to April 2014, CentreVenture supported Stuart Olson’s efforts, but once the settlement agreement was being pursued between Stuart Olson and The RBC Convention Centre, it was incumbent upon CentreVenture to pursue an alternative development for the site. The City of Winnipeg was aware of our efforts in this regard and it was deemed to be the most responsible course of action.
In the fall of 2014, once the discussions between Stuart Olson and The RBC Convention Centre were far enough advanced that we believed it was certain that the $3.75 million settlement agreement would be signed, we continued to pursue an alternative development for the site. CentreVenture had obligations with respect to the site and to the community to ensure it was developed consistent with the vision of the SHED and the needs of The RBC Convention Centre.
At CentreVenture we will continue to work with and consult all the downtown partners, including The City of Winnipeg and the RBC Convention Centre on the future of SHED District and the grander vision for downtown Winnipeg.