Mondo Condo Makeover P.02: The Plot Thickens
Last week we posted Mondo Condo Makeover, a report on some intriguing - to say the least - developments at the Travelodge Yorkdale Hotel at 2737 Keele Street in Toronto. Along with the intriguing developments were a myriad of troubling questions that the hotel's recently announced conversion to condominiums raises.
UFCW Canada's pension plan, CCWIPP, has a sizable investment in the hotel - some $32 million. The latest goings-on raise questions about the role of the union pension fund's trustees in this conversion: The UFCW represents the workers at this hotel. UFCW leaders sit on the Board of Trustees of CCWIPP. CCWIPP has $32 million invested in this business. The UFCW's original investment in this property was supposed to be all about creating good union jobs. If the hotel is converted to a condo, that will cost over 100 UFCW members their jobs. How does that equate to good representation of workers by their union? Or to job creation through investments of workers' pension funds?
At the heart of the condo conversion scheme is Joe Ieradi. A mysterious local builder, Ieradi was quoted in the local media stating last month saying that he was the new owner of the hotel. But records at the City of Toronto Land Titles Office reveal that he is no more the owner than MfD. Why is Ieradi claiming that he owns the hotel when he doesn't?
Then there are the lingering questions about the CCWIPP trustees' ongoing relationship with the real owners of the hotel - particularly the former-father Ron Kelly, whose various enterprises have been heavily funded by CCWIPP for over a decade. He's benefited enormously from CCWIPP's largesse. What has been the benefit to CCWIPP members? What's going on with the millions upon million of union members' dollars that have been invested in this and other hotels? We've been asking those questions for the past three years. So far, nobody in a position to know is responding.
If They Won't Tell Us...
If they won't respond, we'll find out for ourselves and we'll share what we learn with our community. And we're learning more each day.
Only a week has passed since our Mondo Condo story appeared and already the plot has thickened. Reports from a number of sources indicated that a sale of the hotel to Joe Ieradi was imminent. So we decided to check back at the Land Titles Office to see if there was any recent activity involving the property and sure enough - there was!
No, the hotel had not been sold to Joe Ieradi (or anyone else) but a few new items were registered on the public record - more liens.
Lien On Me
In Mondo Condo, we reported that approximately $500,000 of liens had been registered against the hotel by federal and provincial tax authorities since 2002. All of these liens relate to unpaid taxes by Chimo Hotels, one of Ron Kelly's companies which together with Royal Host REIT owns the Travelodge Yorkdale. On May 27, 2004 two more liens were registered by the Minister of National Revenue against the Travelodge for unpaid taxes at the Chimo Hotel in London Ontario and the Pinestone Resort in the Haliburton Highlands area of Ontario. According to the Feds, Ron Kelly's Chimo Hotels has an interest in both of these properties even though Royal Host reported in 1998 that it had purchased the London hotel from Chimo outright and the Pinestone Resort is now operating as a Delta Hotel. The liens are in the amounts $18,570.15 for the London hotel and a whopping $179,430.30 for the Pinestone Resort.
A further entry in the public record reports that on June 1, 2004, one of two liens registered by the Feds on May 12, 2004 - for $50,882.68 - had been settled. Nonetheless, as at June 16, 2004, a total of 10 liens (four registered by the Feds and six registered by the Province of Ontario) now totalling approximately $650,000 remained on the record. There may be a slight delay in any planned selling off of the premises.
Searching through the online records system at the Land Titles Office, we came across some old "inactive" property records for the hotel. These show a more detailed history of transactions involving 2737 Keele Street for the period 1992 to 2000. Here are a few more intriguing things:
We know from earlier searches that Ron Kelly's Kelloryn Hotels Inc. purchased the hotel on October 9, 1992 for $9,150,000. On that same day Kelloryn got a loan of $7 million from CCWIPP's Propco 14. On that same day also - and this is something we didn't know before - Kelloryn also got a loan for $7 million from the Canadian Imperial Bank of Commerce. The CIBC loan was discharged on May 12, 1993. On that same day, Kelloryn got a further loan from CCWIPP's Propco 16 for $8 million dollars.
Contrary to our report in the Mondo Condo story, the initial loans from Propco's 14 and 16 were in fact registered with the Land Titles Office but references to them and the CIBC loan were deleted from the current record at some later date.
We have wondered on occasion why CCWIPP loaned Kelly $15 million for a property that he purchased for only $9 million. Now we wonder why the CIBC or CCWIPP would loan him $7 million for a property worth $9 million that already had a $7 million mortgage on it (since the loans were made on the same day, the CIBC might not have known about the CCWIPP loan and vice versa). But now we have a lot more to wonder about.
As it turns out, CCWIPP actually loaned Kelloryn a whole lot more than $15 million. According to the older Land Titles records in the years that followed, CCWIPP - through still another "Propco" investment corporation - loaned Kelloryn an additional $18.5 million dollars. Follow this action:
- A $3.5 million debenture from IP Holdings (1) Ltd. was issued to Kelloryn on November 11, 1993.
- Another $3.5 millon debenture from IP Holdings (1) Ltd. was issued to Kelloryn on July 7, 1994. A supplemental debenture of $2.5 million was issued on November 10, 1994 bringing the total of this loan to $5 million. We know that 3.5 plus 2.5 equal 6 and not 5. The loan document, however, states that the supplemental debenture is for $2.5 million bringing the total of the original debenture to $5 million.
- A further $10 million debenture was issued to Kelloryn, again by IP Holdings (1) Ontario Ltd., on June 1, 1995.
IP Holdings (1) Ontario Ltd. is another one of CCWIPP's investment corporations. Its Directors are Cliff Evans, Eugene Fraser and Howard Preston, all of whom are members of CCWIPP's Investment Committee. Evans is the Investment Committee's Chairman.
These additional loans bring the total amount that CCWIPP floated to Kelloryn in connection with this hotel (there were other properties that Kelloryn purchased during the 1990's with separate loans from CCWIPP) - a property that worth somewhere around $10 million - to $33.5 million. Where did all of this money go? CCWIPP members and the workers whose jobs are now on the line at the Travelodge Yorkdale deserve some answers. Surely the funds were not reinvested in the hotel. Three construction-related liens registered against the property in in 1994 and 1995 suggest that cash was in short supply.
Indeed when we examine CCWIPP's financial statements from 1995 to 1997, we see that the amounts of the loans from Propco's 14 and 16 increase slightly each year. You can see this incremental growth in the "cost" of this investment on a spreadsheet analysis of CCWIPP's investments in Ron Kelly's enterprises that we put together based on information from CCWIPP's audited financial statements from 1995 to 2001. The Propco 14 and 16 loans (at 10% and 8.75%) respectively are shown in the first two line items. Notice how they grow from year to year? What do you think is happening here? A plausible explanation, in our opinion, is that the interest on the loans is not being paid.
And as if that's not enough, as with the loans from Propco 14 and Propco 16, information set out in CCWIPP's financial statements about the loans from IP Holdings (1) doesn't jibe with information in the Land Titles Office records. While the loans channeled through IP Holdings (1) that we discovered in Land Titles Office records add up to $18.5 million, CCWIPP's financial statements show a total of only $11 million.
Show Us the Money
So what happened to all that money? Where did it go? By 1997, Kelly had rid himself of most of the Canadian hotels that he purchased during his CCWIPP-fueled shopping spree in the early 1990's. Most were acquired by AFM Hospitality Corporation - another CCWIPP-subsidized enterprise that's having a few problems lately (it's a whole story in itself and we intend to tell it shortly). By 1998 Kelly had moved on and, with more help from CCWIPP - $155 million and counting - was gobbling up hotels in the Bahamas.
But Kelly seemed to have a special place in his heart for the two towers at the corner of Keele Street and Wilson Avenue in Toronto's west end. Even as he was dumping his earlier purchases, he chose to hang on to a half interest in the place.
According to the Land Titles Office records, all of Kelloryn's loans connected to this hotel were discharged on September 18, 1998, the day that Kelloryn sold it to Royal Host and Chimo Hotels (another one of Ron Kelly's companies). What's quite interesting about the September 1998 date is that all of these loans initially had much earlier due dates. The initial loans of $15 million from Propcos 14 and 16 were due in October 1997. The $3.5 million debenture issued in November 1993 was due on May 31, 1994. The discharge of all these loans in September 1998 suggests that their due dates were extended, in some cases for years, while still more money was loaned to Kelloryn. Perhaps not surprisingly, the $7 million that Kelloryn borrowed from the CIBC on the same day in 1992 that it got $7 million from CCWIPP, was paid back when it became due in May 1994. The banks drive a hard bargain with their clients' money.
Howard Preston signed the paperwork discharging the loans in his capacity of Secretary Treasurer of Propco's 14, 16 and IP Holdings (1) Ltd. That's another oddity. When we contacted Howard a while back, he seemed not to know much about CCWIPP.
Howard Preston is billed on CCWIPP's web site as a representative of unnamed "smaller employers". Along with Cliff Evans and Eugene Fraser he is a member of the CCWIPP Investment Committee and Director of numerous Propco Investment Corporations. We found an address for Preston on the Internet a few months ago: Knox United Church Cemetery and the Knox United Church Cemetery Board (in Agincourt, a suburb of Toronto) and contacted him for comment. Preston stated that he did not know much about CCWIPP and referred the journalist who contacted him to Bernard Christophe (another UFCW representative on the Board of Trustees). He could not shed any light on who the "smaller employers" that he is said to represent might be and stated that he became involved with CCWIPP after the Dominion Stores (hardly a smaller employer) pension plan was transferred to CCWIPP. "Mr. Preston seemed to me to have little knowledge about the investments that he is associated with. He seems closer to Bernard Christophe than he is to Clifford Evans who seems to make the investment decisions". From our Full Disclosure series.
Mr. Preston's stated lack of knowledge about CCWIPP doesn't seem quite plausible for a man who has the authority to arrange and to discharge millions of dollars of loans on behalf of a CCWIPP investment corporation.
Time Is Running Out
There is a lot about this whole murky situation that doesn't add up. >From the numbers to the motives to the results. To us, the whole thing looks like a few business players jacking a lot of workers' dollars. And the CCWIPP trustees are helping them line their pockets or, in the least, providing them with a bottomless pit of easy money for their ventures - whatever the risk.
There's still time for the CCWIPP trustees to come out and tell the members what's going on with their investments. There's still time for UFCW Canada leaders to use the enormous leverage that their pension fund's multi-million dollar investment gives them with the hotel owners, to preserve these workers' jobs. Will they have the guts to do either? We invited them online more than a year ago, to shed some light and set the record straight. The invitation is still open, but time is running short.
Stay tuned. We'll keep you posted as we dig up more information in our ongoing efforts to unravel the tangled web spun by self-serving businessmen and business unionists at this placid hotel where, behind the scenes, there has always been so much mystery.