By David Helwig
SooToday.com
Sunday, March 21, 2004

The emphasis of the arena debate at Monday's City Council meeting is expected to be on where the money will come from to replace Memorial Gardens.

So far, relatively little attention has been paid to the fact that the City has recently slipped into bed on this project with some of the biggest names in real estate and facilities management in the world.

IBI Group, the Toronto-based professional services company retained by the City to find a private-sector partner, is recommending that we immediately abort that search.

Instead, the consultant wants us to try to fund the project with equal contributions from the municipal, provincial and federal governments, and to start negotiations with another Toronto firm, known as O&Y/SMG, to manage and operate the new facility.

The involvement of O&Y/SMG is supported by the City's Arena Study Review Committee, a powerful advisory body convened under the chairmanship of Ward 1 Councillor Jamie Caicco.

Caicco works hard to ensure that the arena committee holds its meetings in secret, even though its all-male membership comes very close to being a controlling block of City Council votes.

His committee includes Mayor Rowswell and five other councillors: Steve Butland, James Caicco, Bryan Hayes, Terry Sheehan and Lou Turco.

Toronto firm already 'on board' as arena operator?

O&Y/SMG's involvement in the new arena project has yet to be debated in public by Council.

But a news release issued jointly last week by Caicco and Mayor Rowswell suggests the company is already on-board as the new arena operator.

"One of the committee's recent successes is the securing O&Y/SMG as an operator for the new arena project," says the release, prepared with assistance from corporate affairs officer Chris Belsito, whose services as a City employee are not supposed to be used for partisan political purposes.

"We are excited to have them on-board and feel that their presence will strengthen the amended application," Councillor Caicco says in the release.

O&Y/SMG gets access to City's business plan

IBI Group, the City's consultant, is also recommending that its business plan for operating the new arena be turned over to O&Y/SMG, so the prospective arena operator can determine whether the cash flow can be improved.

Wasting no time, Nick Apostle, the City's Commissioner of Community Services, indicates that process has already been commenced.

"The recommendation by the consultant to have the preferred operator, O&Y/SMG, review the business case for the new arena is being carried out," Apostle says in a recent letter to Mayor Rowswell and City Council.

"Having an experienced operator review the business case will add credence to an amended application," Apostle writes.

Who is O&Y/SMG?

O&Y/SMG is a 50/50 joint venture between two of the biggest names in global real estate and facilities management.

Founded in 1977 to manage the Louisiana Superdome, SMG is the largest private facility manager in the world.

The Philadelphia-based company manages 170 arenas, stadiums, convention centers, performing arts centers and other recreational facilities worldwide.

Each year, facilities run by SMG gross more than $1 billion, hosting more than 8,000 events and attracting almost 50 million patrons.

The Reichmann connection

The other side of the O&Y/SMG venture is Toronto-based O&Y Properties Corp., which rose after the 1992 bankruptcy of Olympia & York Developments Ltd., considered the greatest property developer in modern history.

Olympia and York began in the 1950s as a tile-importing house founded by Canada's devout Reichmann family, who masterminded the art of contrarian real estate development.

First, there was Flemingdon Park, a half-completed office project on the outskirts of Toronto that the Reichmanns picked up for a song when the original developer found itself overextended.

More than 100 big development projects followed, including Toronto's First Canadian Place, the World Financial Center at the south tip of Manhattan, and finally, Canary Wharf in London, England.

How to lose 10 billion dollars

Dogged by depressed global property markets and failure to attract even one British tenant to its oddly located Canary Wharf project, Olympia & York collapsed in 1992.

In London, Canary Wharf ended up in the hands of court-appointed administrators.

In Toronto, Olympia & York was placed under bankruptcy protection.

Philip Reichmann was involved with Olympia & York's attempts to make a go of it at Canary Wharf.

He'd started with the family company as a commercial leasing representative in 1978 and had also played a role in the development of New York's World Financial Center.

Starting over

After Olympia and York's spectacular demise, Reichmann and partner Frank Hauer started O&Y Properties Inc., managing and leasing ten office properties totalling nine million square feet.

Known for his generosity to hospital foundations and Jewish education, Reichmann today presides as chief exceutive officer over a company that employs 1,000 people, managing a real estate portfolio of more than 74 million square feet in seven Canadian markets.

To see Philip Reichmann with Toronto Mayor Mel Lastman four years ago at the groundbreaking ceremony for that City's Maritime Life Tower development (the first new office tower in downtown Toronto in almost a decade), please click here.

The Sault Ste. Marie connection

O&Y's joint venture with Philadelphia-based SMG exists to pursue facility management and planning contracts for arenas, stadiums, theatres and trade and convention centres across Canada.

O&Y/SMG manages the one-million-square-foot National Trade Centre at Exhibition Place in Toronto (shown in our image above), including the Ricoh Coliseum, home of Toronto Road Runners of the AHL.

The company also runs the Oshawa Arena, home to the Oshawa Generals.

No reasons given for O&Y/SMG's selection

Of the six companies and consortiums that responded to the Sault's request for qualifications to operate and manage the local arena, O&Y/SMG was involved in three.

The City's consultant, IBI Group, gave no reasons for its recommendation that O&Y/SMG be awarded the lucrative contract to run our new arena.

"In the event that the project is cancelled, the City of Sault Ste. Marie has no liability with respect to O&Y/SMG," IBI director Randy Grimes said in a letter last week to Nick Apostle.

Grimes estimates that under a private-sector operator, the Sault's new arena would earn first-year revenues of $1.38 million, compared to $1.17 million at a City-managed facility.

What's happening tonight

The arena issue is expected to come before City Council sometime around 5:30 tonight.

Council will be asked to change the funding formula in its application to Ontario's Sports Culture and Tourism Partnerships Secretariat, removing the obligation to raise between $5.6 million and $10.6 million in private equity or long-term debt financing toward the arena's capital cost, estimated at $20-$25 million.

Councillors are also being asked to approve a report from Nick Apostle that calls for awarding the contract to manage and operate the new arena to O&Y/SMG, and to approve the already-started process of turning over the City's arena business plan to the Toronto company.