City needs more from Mac to justify $55-million

Hamilton City Council is considering a request from McMaster University for $55-million to build a medical arts building on the property that currently houses the public school board headquarters.

The McMaster building is being promoted as a major breakthrough for downtown redevelopment as it is estimated by McMaster the building will bring 450 jobs, 4,000 student visitors, and 54,000 patient visits to the core each year.

McMaster is making an offer they believe City Council will be too afraid to turn down, lest they were known as the Council that kept McMaster from locating downtown.

We’ve seen City Council make decisions motivated by fear of a major community stakeholder leaving the table. The stadium debate last year was the starkest example of this dynamic in play.

Repeatedly, members of Council would state ‘I don’t want to be remembered for losing the Tiger-Cats’. This unwillingness to walk away from negotiations, even if the other party was not negotiating, allowed the Ticats to dictate the terms of the stadium debate.

The result is a renovated stadium with minimal city building potential.

City Council must not repeat this error; we need to make sure the city building potential of McMaster University downtown is not lost.

This building will not fix what ails the core and City Council needs to receive more in return for the $55-million that McMaster is requesting.

McMaster is dangling the possibility that, in the future, the university may consider building commercial space and condominiums on the north side of the property where the school board parking lot currently resides.

Upon first glance, it appears McMaster is negotiating from a position of overwhelming strength. The University has the funding to build their medical centre anywhere they choose. None of the funding for the building restricts the site.[pullshow id=”McMeekinDowntown”]

David Braley, now a member of Canada’s Senate, donated 50-million dollars to McMaster’s Faculty of Health Sciences in 2007. $10-million of this donation is directed to the new family medicine centre. Braley was clear in 2007 when, during the donation announcement in the McMaster University Student Centre, he stated McMaster should work with all three levels of government to locate in the core.

During the media scrum after the announcement, Ted McMeekin, MPP for Ancaster-Dundas-Flamborough-Westdale, stated:

“I cannot think of any place better where $10-million dollars can go than here at McMaster to go towards building a family medicine building in the downtown core” [pullthis id=”McMeekinDowntown” display=”outside”]“I cannot think of any place better where $10-million dollars can go than here at McMaster to go towards building a family medicine building in the downtown core” – Ted McMeekin, MPP[/pullthis]

It is clear that the political direction that influences McMaster is pushing the university to locate the building downtown.

The province and federal governments have both committed funding to the project.

McMaster’s negotiating position is equal to City Hall. They need the money from the City to successfully expand their medical program.

The university’s bond rating was downgraded in 2010 by DBRS. The rating remains high at AA (low). The downgrade was reflective of concerns about the university’s high pension deficit and the expectation that McMaster will be returning to the bond market in the near future to raise $100-million.

McMaster, like all Ontario universities, received a partial reprieve from pension plan solvency obligations last summer. The province extended the usual five year timeline for meeting solvency obligations to ten years for universities. McMaster’s pension deficit previously stood at $373-million, the second highest of any Canadian university.

The University’s unfunded pension and post-employment liabilities reached $589.9-million in 2009-10. The plan’s most recent evaluation was completed on July 1. It was expected to return a higher liability figure. (No response was received from McMaster University’s office of public relations to email sent Monday requesting the updated figure.)

McMaster’s debt was $153.3-million as of April 30, 2010.

Patrick Deane, the new president of McMaster University, has wisely started addressing the long-term financial challenges facing the institution. It is in this context that one must view the University’s requirement that City funding for the new building include a long-term lease commitment to house staff of the City’s public health department.

McMaster’s current hand contains a “We’ll move it to the Innovation Park” card. Will McMaster play this card or is a bluff?

It is, yet it is not, a bluff. McMaster could play this card, but playing it will impact the long-term revenue of the university. The MIP lands are designed to generate revenue for the institution by either housing private corporations (leasing revenue) or facilitating research that generates patents which are licensed or commercialised.

{I wrote about IP policies for Maclean’s in 2007)

The family medicine centre will not be a revenue generating facility and there is a limited supply of land at the MIP. It is not in the long term interest of the University to find the facility at MIP due to a lack of presently available capital funds.

The City does have its own trump card. McMaster needs the $20-million upfront and-$35 million long term.

It is not in the City’s interest to overplay its hand either.

The City is facing the real possibility of a vacant building directly across from City Hall. It’s not healthy for a prominent intersection such as the one housing City Hall to contain two vacant properties. It will further depress the downtown core.

The medical building will not correct the greatest problem facing the inner-downtown core. It will not bring any new permanent evening population into the inner-core.[pullshow id=”MacInnercore”]

[pullthis id=”MacInnercore”]The downtown needs McMaster to locate a student residence building in the inner-core[/pullthis] with an eventual expansion of undergraduate programs into the core.

The City of Hamilton should request, in exchange for $55-million for the medical building, that McMaster sign a Memorandum of Understanding committing to locating their next student residence in the downtown core.

The City should include a commitment to assume a third of the mortgage on the building in exchange for a commitment from the university to operate the residence as a summer hotel. The addition of hundreds of hotel spaces in the summer will greatly assist the city to secure convention business (one of our main barriers is a lack of accommodation). Additional conventions will make HEFCI a more attractive asset to potential private sector operators.

Hundreds of students living in the core will spark a boom in businesses catering to a younger demographic. One only needs to look at King and Main streets west of Catherine to see the impact of a student residence on the core. The Columbia College student residence in the former Holiday Inn on Catherine Street South is the driving force supporting a number of small businesses. The sushi restaurants in this area have become an attraction drawing people to the downtown core.[pullshow id=”RoyalConnaught”]

[pullthis id=”RoyalConnaught”]Imagine the possibilities that a joint bid by the City and McMaster University for the vacant Royal Connaught Building would create.[/pullthis]

University conversions of high quality hotels are success stories for every institution that have expanded their residences using this method. It’s also more cost-effective than the construction of a new building.

There’s an opportunity for City Council to see great returns on $55-million, they just need to see the forest for the trees they are hiding behind.