Nowhere to go but up at LeBreton, says Firestone

Bruce
Bruce Firestone
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With the National Capital Commission recently choosing the bid backed by Senators owner Eugene Melnyk as its preferred plan for LeBreton Flats, here is a key question: how can the Sens pay for a new arena at the site without public funding?

The RendezVous LeBreton plan includes a new arena for the NHL's Senators.

Most major league sports owners in the United States ask their municipalities or states for some type of contribution towards the cost of building new stadia or arenas, whether it be tax breaks, public capital contributions, proceeds from new sales taxes or other incentives.

But I recently asked myself, “How can the Ottawa Senators pay for a new arena at LeBreton Flats without public money?”

As a refresher, here is the original plan we launched to bring back the Senators:

Buy 600 acres of land for $7.2 million ($12,000 per acre);

Put an NHL-calibre arena (the Palladium, now called Canadian Tire Centre) and an expansion team in the middle of it (on 100 acres);

Drive up the value of the balance of the property to $112,000 per acre (today, it actually trades for around $450,000 per acre), yielding a profit of $50 million ($100,000 per acre x 500 acres);

Put that dough in armoured trucks, drive it down to Manhattan and give it to the National Hockey League.

How well did this plan work? Well, it ran into a few hiccups, which I deal with in my book, Don’t Back Down: The Real Story behind the Founding of the NHL’s Ottawa Senators.

The major hurdles the team faced then were imposed by the provincial government of the time. The Sens were forced to build additional public infrastructure (the $30-million Palladium highway interchange, still the only such structure built and paid for by the private sector in Ontario’s history). In addition, the province refused to allow rezoning of the additional 500 acres of land.

Consequently, Terrace Investments, the original parent company of the Sens, took an $80-million writedown and eventually went bankrupt. It didn’t help that the team’s payroll rose from $6.5 million Cdn in the first year of operation in 1992-93 to $85 million 10 years later.

But now that Sens owner Eugene Melnyk and president Cyril Leeder are leading the winning proposal to build an NHL arena at LeBreton Flats and move the team downtown, could a variation of the founders’ original plan be updated and be made to work this time?

The answer is “Yes.” I think.

LeBreton Flats includes 21.4 hectares of development land (52.9 acres). The key question is: how much would you have to increase the allowable floor space index to generate enough extra money to pay for a new building?

FSI is the ratio of a building’s total floor area to the size of the piece of land upon which it is built. Since there is really no surplus land to sell off at LeBreton Flats, Mr. Melnyk would need to rely on increasing the density on the site to generate the necessary income from other development to pay for the arena.

Let’s say for a moment the NCC was to continue developing the lands as it has been so far, with a few condo towers plus an occasional monumental building such as the Canadian War Museum. My observations suggest the current FSI is about 4 the equivalent of the entire site being covered with a single building four stories high. This means that the total buildable envelope would be four x 52.9 acres x 43,650 square feet per acre, or about 9.2 million square feet.

Of course, that’s ridiculous. So let’s say instead that roadways, parkland, public squares and other amenities took up about a third of the site. You’d end up with an FSI of 6, a much more reasonable proposition.

In Ottawa, top developers will pay about $20 per square foot of buildable area, so I think the lands at LeBreton are worth about $184.2 million today. This works out to $3,485,000 per acre or $80 per square foot at the site’s current level of density.

By comparison, two adjacent downtown Ottawa sites (890 and 900 Bank St.) were purchased by Canderel in 2013 for a total of $7,640,000 or $219 per square foot for redevelopment as a mixed-use project, so $80 per square foot of land for LeBreton Flats does not appear unreasonable to me.

Now I don’t for a moment expect the Sens to pay the NCC anywhere near this much for their property; this is just what the site is worth if the NCC ever decided to break it up and parcel it out to big and small developers to do, say, a Vancouver-style Granville Island, only with a ton of residential uses thrown in.

But what level of FSI would the Senators have to achieve in order to generate an extra $675 million free and clear to build a new arena? That is my estimate of what a new building would cost today.

The calculations are somewhat complicated, but the results are easy to understand. The Senators would have to increase the site’s FSI from its current level of 4 to a whopping 27 to generate this kind of additional cash, based on the going rate developers are paying today.

What if Mr. Melnyk and Mr. Leeder got team sponsors to cover, say, half the cost of the new building? That would help it would reduce the required FSI to a more reasonable 16.

What if they also got the NCC to throw in the land for free? The FSI would fall further to 12. But since you can’t cover the entire Flats with buildings 12 stories high, more realistically you would likely need to construct a lot of 24-storey buildings to get an equivalent return.

I don’t think the Senators’ bid envisions this level of intensity or density of use, so other people smarter than me will have to come up with some more ideas on how to pay for everything.

Anyway, it’s some food for thought.

Bruce M. Firestone is founder of the Ottawa Senators and a broker at Century 21 Explorer Realty. Follow him on Twitter @ProfBruce.

Organizations: National Hockey League, Ottawa Senators, NCC Canadian Tire Centre Canadian War Museum Century 21 Explorer Realty

Geographic location: United States, Manhattan, Ontario Ottawa Vancouver Flats

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Recent comments

  • Frank
    May 13, 2016 - 12:19

    Very interesting analysis from someone with great insight into this type of transaction!

  • Peter QUINLAN
    May 12, 2016 - 08:14

    Good column, Thanks for crunching the numbers. Certainly interesting to watch & see what Mr. Melnyk & partners will do to make all this feasible, especially with the NCC involved! My guess is it will take longer than anticipated before they break ground (not unlike Lansdowne).