Manitoba·CBC Investigates

Former mayor, CAO invested in Arizona land with division of Winnipeg development company

About two months after Sam Katz's tenure as Winnipeg's mayor ended, he and former chief administrative officer Phil Sheegl joined together on a land deal with Terracon Development Inc. — the U.S. division of a Winnipeg company that worked on major projects for the city while Katz was mayor.

Terracon suing City of Winnipeg over cancelled land-development agreement

Former Winnipeg mayor Sam Katz invested in Arizona property with former CAO Phil Sheegl and a U.S. division of local developer Terracon, CBC News has learned. (CBC)

About two months after Sam Katz's tenure as Winnipeg's mayor ended, he and former chief administrative officer Phil Sheegl joined together on a land deal with Terracon Development Inc. — the U.S. division of a Winnipeg company that worked on major projects for the city while Katz was mayor.

Terracon, one of Winnipeg's largest industrial developers, was part of a consortium that built the $110-million extension of Chief Peguis Trail from Henderson Highway to Lagimodiere Boulevard in 2010.

Winnipeg ethics professor Neil McArthur said the optics are not good.

When city officials have worked with a developer on behalf of taxpayers, conducting personal business with the company "is certainly is the kind of thing that would raise people's eyebrows," said McArthur, the director of the University of Manitoba's Centre for Professional and Applied Ethics.

"We live in a time right now where people are very skeptical of the integrity of elected officials. And I think there's often good reason for that."

Neil McArthur, director of the University of Manitoba's Centre for Professional and Applied Ethics, says the business relationship between Terracon, Katz and Sheegl could pose a problem in terms of public perception. (Warren Kay/CBC)

McArthur said relationships between developers, politicians and city officials have always been the subject of suspicion — not just in Winnipeg, but around the globe.

Seeing close "post facto relationships" between elected officials after their terms and companies "is going to definitely, I think, confirm people's view that … these guys are all in it for each other," he said.

"I think it's a perception problem."

Terracon contracts

The city had various dealings with Terracon during Katz's time as mayor, from 2004 to 2014.

In 2011, the city awarded the contract to consolidate older Winnipeg Public Works yards into the East Yards to Ernst Hansch Construction. The company created a joint-venture with Terracon to build the $49 million project, according to Terracon's website.  

The developer is currently embroiled in a lawsuit with the city, after the current administration cancelled an agreement made with Terracon under Katz to turn 237 acres of vacant city-owned land into an industrial park. 

In 2015, chief administrative officer Doug McNeil told reporters the City of Winnipeg would not be willing to pay Terracon's share of provincial education taxes, which was a condition of the original deal.

Arizona land deal

Winnipeg lawyer Robert Tapper, who represents Sheegl and Katz, says they got together with U.S.-based Terracon Development Inc. in December 2014 to invest in Arizona land.

A few months later, they paid just over $1 million cash for a piece of property in Scottsdale, Ariz., according to land title documents. They later developed the property into a luxury-garage condo facility called The Toybarn at Scottsdale Airpark, along with the company that originated the concept.

Katz, Sheegl and Terracon U.S. later turned their Arizona property into a luxury-garage condo facility called The Toy Barn at Scottsdale Airpark. (The Toy Barn)

"As far as I know, the four entities went together into this investment," Tapper said in a phone interview with CBC.

The four were Katz, Sheegl, a Toronto businessman and the U.S. division of Terracon.

In addition to Katz and Sheegl, Tapper also represents Winnipeg developer Terracon and Norbert Hansch, a Terracon executive and the company's former president.

Tapper says while Hansch would have been involved on behalf of Terracon U.S., he is not personally invested in the land deal, adding Hansch has been divesting himself for years as a succession plan to other family members.

"Is the mayor not entitled to invest in Arizona?" said Tapper. "Is [Sheegl] entitled to earn a living?"

'Cut and paste' error with Terracon-related company

In 2014, four months before the Arizona investment came together — and while Katz was still mayor — a company managed by the U.S. division of Terracon listed Katz's home in Scottsdale as its domestic address.

The company went on to acquire two buildings, and Katz's home address also appeared on the deed.  

Terracon executive Michael Falk told CBC News in 2016 that it was a clerical error and would be corrected.

"There is no association between Sam Katz, his home address in Arizona and these particular properties," said Falk at the time.

A group photo from the Manitoba Heavy Construction Association's 2011 annual golf tournament shows from left to right: City of Winnipeg CAO Phil Sheegl, Manitoba Heavy Construction Association chair Bob Reidy, Mayor Sam Katz, former city councillor Justin Swandel, Terracon's Norbert Hansch and then Manitoba Infrastucture deputy minister Doug Mcneil. McNeil went on to become Winnipeg's CAO in 2015. (Manitoba Heavy Construction Association)

Falk said the company had used the same lawyer as Katz and that was the source of the mistake.

"We do meet with the mayor, and had met with the mayor, and did know he had business interests down there, and we simply looked for a referral and he provided one," said Falk.

That lawyer later blamed the error on a "cut and paste" mistake because his associate likely used Katz's recently-formed company's incorporation documents as a template. 

"Obviously, some lawyer made a mistake and that's the end of it," said Katz in 2016.

The company changed its address shortly after.

Sheegl and Katz controversies

During his time in office, Katz was widely criticized for what was viewed as mixing private and public business.

Sandy Shindleman — owner of the Winnipeg real estate firm Shindico — was a shareholder in Katz's Winnipeg Goldeyes baseball team for nearly the entire time Katz was mayor.

Katz came under fire for buying a million-dollar house in Arizona from Shindleman's sister-in-law, and for purchasing an Arizona company from Sheegl, his CAO, for $1.

Sheegl was hired as director of the city's property, planning and development department in 2008. His time at city hall was controversial from the start because of his friendship with the mayor.

In 2011, Sheegl was promoted to CAO but resigned in October 2013, shortly before the release of an external audit that found Shindico received information not available to other bidders for the construction of new fire paramedic stations. 

In 2016, the RCMP searched Sheegl's and Katz's bank records as part of an investigation into the $214-million construction project that saw a downtown Canada Post building turned into the Winnipeg Police Service headquarters.

Court documents said the Mounties were looking into a $200,000 payment the contractor on the project made to Sheegl. Sheegl had split the payment with Katz.

Tapper said the money Katz and Sheegl received was a down payment for a portion of property they owned in Arizona.

"This was a land deal. It's as simple as that," Tapper said in January 2017.

'Still trying to sort out exactly what happened'

"I think we're still trying to sort out exactly what happened under the Katz administration," said U of M ethics professor McArthur.

He believes part of public cynicism comes from the fact that deals made between governments and developers lack transparency because they're not done openly.

Tapper said the business relationship between Katz and Sheegl has been reported on in the past and Katz is no longer mayor. 

"We knew all along that Sam was doing land development in Arizona. We knew all along that Phil was doing land development in Arizona. We knew all along that the two of them are friends and did deals together. Is that a surprise?" Tapper said in an interview in 2017

"I think it is very important that we hold politicians to a high standard and that … we care about the things that they do," said McArthur.

"When there's a perception that 'the fix is in,' then it becomes harder for honest politicians to do their jobs and for everyone to make good democratic decisions."

Former Winnipeg mayor Sam Katz invested in Arizona property with former CAO Phil Sheegl and a U.S. division of local developer Terracon, CBC News has learned. 2:06

With files from Bartley Kives

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About the Author

Caroline Barghout

Reporter, CBC Manitoba

Caroline began her career co-hosting an internet radio talk show in Toronto and then worked at various stations in Oshawa, Sudbury and Toronto before landing in Winnipeg in 2007. Since joining CBC Manitoba as a reporter in 2013, she has won an award for her work on crowded jails and her investigation into Tina Fontaine's death led to changes in the child welfare system. Email: caroline.barghout@cbc.ca

With files from Bartley Kives