Financing of 2010 Winter Games a worry

OTTAWA — When Montreal announced that it would be the host of the 1976 Summer Olympics, Mayor Jean Drapeau promised that the Games could "no more have a deficit than a man can have a baby." Ultimately, those Games left behind about $1.5 billion in unexpected debt that was paid off only two years ago.

Now, as residents of Vancouver voted in a municipal election Saturday, the freeze in credit markets and a collapse of the city's real-estate market have made the financing of the 2010 Winter Games a critical issue.

Looming over the debate are the fortunes of the Fortress Investment Group, the hedge fund and private-equity firm that controls the main Olympic skiing venue, Whistler Blackcomb, and is the primary source of financing for a $1 billion athletes' village under construction downtown.

On Thursday, Fortress reported a third-quarter loss of $20 million, in contrast to earnings of $111 million in the period a year earlier.

Last month, the Vancouver City Council voted at a closed meeting to advance nearly $100 million Canadian dollars to cover cost overruns on the village, according to reports based on leaked information.

That was in addition to $193 million Canadian dollars in loan guarantees to Fortress previously provided by the city. Then, according to news reports, Estelle Lo, the city's director of finance, quit to protest the action. And last week, Mayor Sam Sullivan asked police to investigate the source of the leaks.

When combined with the lack of public information surrounding the relationship among the city, Fortress and Millennium Development, which is developing the village, the situation has been something of a political boon for Gregor Robertson, the leader of Vision Vancouver, a left-center political party, and one of the potential successors to Sullivan, who is not running for re-election.

"They chose Fortress because of a sense that this was a solid partner," said Robertson, a former provincial politician. "It doesn't look so solid now."

First bit of anxiety

The first bit of Fortress-related anxiety came last month when the fund had to renegotiate $1.68 billion worth of debt related to its 2006 leveraged buyout of Intrawest, the Canadian ski-resort company whose holdings include Whistler.

Fortress reached an agreement with lenders at the last minute, although it has not disclosed the terms.

A greater source of concern for Vancouver, however, has been the Olympic Village project and its potential financial exposure for the city.

The project sits on what is perhaps the most valuable real estate in Canada: about 50 acres of former industrial land in the city's downtown along an ocean inlet known as False Creek.

Until recently, Vancouver had one of the most vibrant real-estate markets in Canada. The market was fueled to some extent by absentee owners, including many from Asia, who bought condominiums as investments.

The strength of that market combined with the desirability of the city-owned False Creek site provided the local government with an opportunity to profit from the Olympic Village without the headaches of financing and supervising its construction.

Millennium, however, has run into hard times and is among the companies that have suspended or stopped other real-estate projects in Vancouver.

Work at a project costing $400 million Canadian dollars in nearby West Vancouver has stopped, and that complex is the subject of about $400,000 Canadian dollars in liens from unpaid contractors. With real-estate sales down by 42.9 percent in September, it is not alone. Several condominium projects in the Vancouver area have gone into hibernation.

Valerie Wan, a spokeswoman for Millennium, said the company had no comment about any developments. The city's vote on a bailout for the village was intended to be secret, but The Globe and Mail, a Toronto newspaper that publishes a separate edition for British Columbia, reported the news and the apparent resignation of Lo.

Eager not to be seen as the source of the leak in advance of Saturday's election, all members of the Vancouver City Council have volunteered for lie-detector tests to clear their names.