Patience, we dont have catastrophe here There is value in them theirs 3000 acres and buildings Stelco management stole from land trust.
Stelco the landlord sees big bucks in leasing out surplus industrial land The steelmaker says it has already recouped its $20 million investment after leasing only 20 per cent of the property NEWS Aug 23, 2019 by
Mark McNeil The Hamilton Spectator
Stelco CEO David Cheney - Barry Gray,The Hamilton Spectator
A view of Stelco from the Mountain Brow. - Scott Gardner , The Hamilton Spectator
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Stelco says it is on course to make a windfall profit from surplus Bayfront property it bought in a controversial land deal more than a year ago.
Company CEO David Cheney recently told investors that the steelmaker has signed a leasing agreement with an unnamed company — for one-fifth of the property — that will recoup the $20 million it spent on the entire surplus land acquisition.
"To do the math for you, the lease square-footage represents only 20 per cent of the purchase square-footage and the (net present value) is equal to the entire purchase price," he said in a conference call to discuss the company's second-quarter results.
That means future revenue generated from the remaining 80 per cent of the property — from an original parcel of 500,000 square feet of industrial space, 100,000 square feet of office space and 37 acres of land — will all be profit for Stelco.
The development is interesting because it shows Stelco's Bedrock Industries Group owner "bought the property for a song," according to Hamilton Mayor Fred Eisenberger. And it rubs salt on the wound that the City of Hamilton never had a chance to make a bid for the property itself.
"We remain disappointed that we were shut out of the process," said Eisenberger. "We were quite unhappy about how the city was left in the dark about all this. By the time we were aware, the whole arrangement had been made. They got an absolute sweetheart deal on this."
He believes there would have been great interest in buying the property if it was put up for general sale, rather than being sold through a closed-door deal that never saw a "for sale" sign posted.
Eisenberger says the property has huge economic value to the city and should be leveraged to maximize employment opportunities and tax revenue for the city. And that's not necessarily something Stelco — looking more specifically at maximizing revenue from lease payments — would focus attention on.
McMaster University business professor Marvin Ryder said "they could have avoided all this if they had just done this at the beginning. Why did they go through the process of creating (the land trust known as) LandCo only to have it wrap up so quickly?"
"Something clearly happened ... when their boots hit the ground that they saw more value in the land a year later than they saw on the day they acquired the company."
This is how Stelco ended up with the property:
June, 2017 — After three years of bankruptcy protection,
Stelco remerged into the marketplace owned by American-based Bedrock Industries. But the restructured company no longer owned the land it previously operated on in Hamilton and Nanticoke. Instead, a provincially-backed land trust became a kind of landlord, leasing a portion of the property to Stelco with surplus land to be later remediated and developed for future sale or lease. The unorthodox arrangement was created to protect the restructured Stelco from liability from historical environmental contamination, as well as to create a revenue source for pension payments and pension benefits in the future for retirees when surplus land was sold or leased.
June, 2018 — Stelco and the land trust administrators suddenly announced the steelmaker had changed its mind about the arrangement and
wanted to buy almost all of the property the land trust was administering. In total, $114 million was paid for 3,000 acres of property in both Hamilton and Nanticoke — property that was both in active use and surplus. It was sold under carry-over supervision from the bankruptcy protection process, before the land trust governance was up and running and before any remediation was completed.
Especially significant about the deal was a highly unusual, if not unprecedented, provision that
protected Stelco's Bedrock Industries owners from future liability from historical environmental contamination. The protection it had under the former arrangement was being grandfathered forward.
Cheney reminded investors in the conference call about the significance of the liability protection.
"The company continues to receive the benefit of the environmental release in respect of the Hamilton Works lands that was granted by the Ministry of the Environment, Conservation and Parks on closing of the (Companies' Creditors Arrangements Act) reorganization," he said.
As it stands now, it's not known who the first client is and whether the company will create a few or a lot of jobs, or whether it would push up tax assessment a little or a lot.
"We will be endeavouring to find out what that future use will be to find out the employment opportunities that come with it. If it is minimal then we should have another conversation with (them)," said Eisenberger.
"This leads to a broader conversation about the balance of this property, about what the plan is, how we can work together to exercise that plan and how we can jointly agree that maximizing employment opportunities is still the direction we both want to take," he said.
mmcneil@thespec.com