• authored by Members for Democracy
  • published Mon, Jun 28, 2004

Mondo Condo Makeover P.03 - When Two Tribes Go To War

More than 4,200 people - twice as many as were expected - descended on a revamped hotel in North York yesterday to apply for 150 jobs paying between $8 and $15 an hour.

The job-seekers, some of them with bundled babies in tow, starting lining up before dawn at the Howard Johnson Plaza-Hotel at Highway 401 and Keele St. By 10 a.m., when the first application forms were handed out, about 1,500 were there, shivering in the cold.

As quickly as the applicants filed in for interviews, they were replaced by other hopefuls, despite pouring rain that turned into sleet and then hail. By late afternoon, the total had risen past the planned-for 2,000.

To keep up spirits during the drawn-out procedure, management supplied hot coffee and fresh pastries. Mimes, clowns and a man dressed like Charlie Chaplin were also brought in to make the time pass faster, and many applicants left not only with high hopes but balloon animals fabricated by the entertainers. (Desperate thousands wait in cold for 150 jobs, Toronto Star, November 7, 1992).

That was the scene at the hotel that is the focus of our Mondo Condo feature on a cold day in November 1992. If you find the idea of clowns, mimes and a guy dressed up as the little tramp performing for a line up of desperate job seekers somewhat disconcerting, you're not alone. Lining up for hours in November weather in Toronto for a low wage job and having nothing to show for your efforts but a balloon animal is a bit demoralizing - dehumanizing some might say. But recent events at the hotel are no less troubling - for the 150 or so workers who are now employed there.

Twelve years later, they are witnessing performances of a less amusing kind by a different group of clowns, mimes and guys dressed up as ... things that they are not. The performers are their employer, their union, their union's pension fund and a mysterious man who claims to have bought the building months ago, but never did. Their performances are not funny. They're confusing and disrespectful to the men and women whose dedication has kept the place in business for over a decade.

In our earlier segments, we brought to light the conversion of the suburban Toronto hotel, now known as the Travelodge Toronto Yorkdale, to a condominium. The move will surely cost the workers their jobs and that's a disturbing thing, especially when we consider that their union's pension fund has tens of millions of dollars invested in mortgages with its two owners, Royal Host REIT and Chimo Hotels of Canada.

The workers, who are represented by UFCW Canada, have been living with uncertainty for a couple of years now. An earlier conversion scheme, called the Hotel Residences, was to see the hotel converted to a combination hotel and condominium by the fall of 2003. That balloon, called The Hotel Residences, never got off the ground, but within a few months Plan B - called the Westmount Condos - was announced.

What's very disturbing is that, in the months that have passed since the conversion was announced, the workers have been told nothing of any substance about what the future holds for them. How much longer will they be employed? What exactly will the hotel be converted into? Why is a mysterious local builder named Joe Ieradi claiming to own the building when in fact he does not?

What they have heard has been vague and sometimes contradictory. MfD has learned that workers were summoned to a meeting with representatives of Royal Host and and the mysterious Joe Ieradi on June 12th, just days after our first Mondo Condo story appeared. The meeting did nothing to dispel their confusion. Sources indicate that the workers were given two contradictory versions of the nature of the conversion - with Royal Host reps alluding to a combination hotel-condo (like the abandoned Hotel Residences project) and Ieradi claiming that a full condo conversion had always been the plan.

That the owners of the hotel and the builder who has been selling condo units out of their establishment for several months now would have such different views about what exactly is going to be built, did not give the workers a warm feeling. To some, it seemed as though the two sides were meeting each other for the first time that day, and were definitely not comfortable being in the same room and at the same table together.

The workers asked questions. Among other things they wanted to know about Ieradi's purported ownership of the building and how condo sales were going. Ieradi is said to have become quite defensive - bordering on hostile - claiming at one point that it was possible to own a building without being identified as the owner. "Are you calling me a liar?" he angrily challenged one of the workers who had the nerve to want to know what was going on.

So what's the story?

We've learned a lot of things over the past few weeks as we've been digging around - mostly in public documents. We know that the hotel was purchased in 1998 by Royal Host and Chimo Hotels on a 50/50 basis from another company controlled by the principal of Chimo Hotels - Ron Kelly (along with two other hotels that Royal Host bought outright from Kelly's various companies). We know that UFCW Canada's troubled pension fund, CCWIPP (which had poured millions into the hotel since 1992) provided financing on very generous terms to Royal Host and to Chimo in connection with the 1998 purchase of the hotel. We know that Royal Host had the option of buying out Chimo Hotel's 50% ownership in May 2003 and of paying off a $22 million loan from CCWIPP by issuing both parties some shares. We know that not long after the purchase in 1998, a scheme to convert the hotel to a hotel-condo combo was hatched. We know that this scheme didn't take off and another one - a full conversion to a condo - evolved. We know that the May 2003 due date on the CCWIPP loan as well as the Chimo buy-out option were extended into 2005 pending the finalization of whatever development plan is on the drawing board. We know that, contrary to what Joe Ieradi told the Toronto Star earlier this year, he did not buy the hotel. We know that tax liens totally more than $500,000 registered against the hotel (for unpaid taxes by Chimo Hotels) will hold up any transfer of ownership. We know that, as of last month anyway, none of the municipal approvals required to start a condo project had been applied for or obtained.

That's what we know. Not quite enough to tell anyone what's going on - but enough to allow us to do some inductive reasoning (coming to conclusions based on observations). Based on what we know, here's what we think is going on.

Theory X Revisited

Royal Host's purchase of a 50% interest (only) in the hotel in 1998 occurred because, for whatever reason, Ron Kelly wanted to keep a controlling interest in the place. It doesn't make much sense to us that Royal Host would buy two hotels outright from Kelly but only buy half of another one. Why not buy all three? Or only buy two if you're not sure you want the third one? The fact that Kelly basically sold his 50% back to himself (the previous owner Kelloryn Hotels was controlled by Kelly and so is Chimo Hotels) at a time when he was hiving off most of his Canadian holdings, suggests rather strongly that Kelly wanted to remain a player in this property. A 50% interest would allow him retain control of the business. The generous terms of the financing that was provided to Royal Host and to Kelly's Chimo hotels by CCWIPP, further suggests to us that CCWIPP wanted Kelly to keep his mitts in the place also.

Royal Host's intentions, we believe, were to continue to run a hotel on the premises. Their media release following the sale certainly sounds like they intended to run this and the other two hotels as hotels.

"We are extremely pleased with the acquisition of these hotels," said CEO R.B. Royer. "These are profitable, high quality properties which will make an immediate positive impact on our earnings and cash flow. We will increase margins and reduce risk by implementing our operating strategy, which is to lower fixed costs, de-emphasize food and beverage operations, and focus on room sales. We are also pleased to have obtained the favourable financing required to complete this deal."

In 2001, the name of the hotel changed from Howard Johnson to Travelodge. Royal Host is the Canadian franchisor for the Travelodge chain so it would make sense that it would want the Travelodge banner on the Keele Street property. But this move is not likely to have sat well with the crowd at Chimo. It would mean saying good-bye to AFM Hospitality Corporation which held the Canadian franchise rights for the Howard Johnson chain. AFM had been involved with the hotel since its re-opening in 1992. Ron Kelly had a hand in creating the hotel management company back 1992. CCWIPP has pumped millions of dollars into it since then, on terms that are very flexible indeed. It would seem that the change in franchise - and the relationship issues that it might create - would hardly be worth the effort if there was not the expectation that the property would continue to operate as as hotel for the foreseeable future.

And Royal Host could have run the place as a hotel - on its own terms - within short two years of the change from Howard Johnson to Travelodge. At the time that it bought its 50% interest in 1998, Royal Host had the option of buying out Chimo and showing Ron Kelly the door in May 2003 at which time it could also settle its financial obligations to CCWIPP. The looming May 2003 deadline may explain why so little was invested in the hotel after the 1998 sale. Much-needed renovations may have been put off pending the day when Royal Host would own the place outright and could do as it pleased or perhaps because the Royal Host and Chimo clans could not agree on how money was to be invested in the hotel.

Whatever may the deal may have been in 1998, it's quite possible that the Chimo crowd did not wish to part with the property. It had a half interest in a valuable piece of land in Canada's largest city, in a healthy real estate market. As a hotel, the place would require large infusions of cash. As a site for commercial development, it could bring in piles of cash. While a bunch of Royal Host shares (what Chimo would get for its 50% in 2003) would be worth something, a commercial/residential development might bring in a lot more. Hence the plan to convert the place to condominiums. Our sense is that the hotel-condo combo called the Hotel Residences was the product of a compromise between the Royal Host and Chimo clans; a trial balloon intended to test the local market to see if it might fly and to prime the Royal Host crowd for Plan B - a full condo conversion - if it didn't.

We think that Joe Ieradi was brought in by the Chimo side of the house to faciliate the conversion: To sell enough units to persaude the Royal Host side that the venture was viable. At the June staff meeting, Ieradi is reported to have have said that he's sold 90 units so far (the same number we were given a month earlier) and needs to sell another 182 in order to start the project. He estimated that this could some time - possibly another 18 months.

Eighteen months? That's a long time. Much longer than the anticipated occupancy dates of January to May 2005 that we were given on our visit to the sales center last month. Will Royal Host be willing to wait patiently while their hotel slips in to an increasing less competitive position in a market where hotel chains regularly upgrade and renovate their properties to make them more appealing? The place needs a facelife (at least), it needs a marketing campaign, it needs a lot of stuff that requires money. But what's the point of sinking money into a hotel that's going to be ripped apart and converted into private residences?

Damned If They Do & Damned If They Don't

In our humble opinion, the Royal Host guys are caught between a rock and a hard place. They went along with Ron Kelly's scheme and are now finding out the hard way what getting too cozy with the former Father Kelly will get you. They own 50% of a hotel that could be a profitable operation given the right business strategy and a not too modest renovation. But they can't go there because they've committed to a conversion scheme that might not come to fruition for many months - if it happens at all (assuming that Ieradi sells another 100 or so units). The opportunity to buy out Chimo in May 2003 has gone by or been extended out into 2005 to coincide - we think - with the completion of the conversion. They're stuck. Even if they wanted to bail out completely, they can't sell their 50% interest. Why not? Because of the liens that have been registered against Chimo and which Chimo appears in no hurry to pay off (some of the earlier ones were registered in September 2002.) Clever, clever Ron Kelly. Although he only controls 50% of the hotel, right now he's running the show.

That's what we think. We invite representatives of both Royal Host and Chimo Hotels to tell us how close to (or far from) the mark we are. Better yet, tell your employees.

From our vantage point, workers at the hotel who have been sensing that the right hand doesn't know what the left hand is doing at their workplace are not far off the mark. From what we can tell, what's happening is that the right hand and the left hand have different interests and want to do different things. Right now, one has the other in a vice grip. In a situation like this, it's not uncommon for there to be tension and disagreement between two sides and for them to say different things. We suspect that, behind the scenes, the Royal Host guys and the Chimo Hotels crew are not a mutual admiration society.

So where does that leave the workers? Is their only option to sit quietly on the sidelines as the business they have put so much into is sold off in little pieces and wound down? Not a chance. In the rarefied atmosphere at 2737 Keele Street where two tribes of businessmen are not exactly seeing eye-to-eye, they - the workers - have an enormous source of leverage: Their union's pension fund has a huge investment in this place. In the business world, money is power. At the Travelodge Toronto Yorkdate, the UFCW's pension fund has a lot of power - about $32 million worth of power. The UFCW - if it wanted to - could play a major role in deciding what the future holds for these 150 dues paying members. So far union reps have been as silent as mimes.

We think it's time the workers to demand that they stop prancing about and pretending they don't know what's up. UFCW Canada officials need to acknowledge that these workers deserve better than to be kept in the dark and fed a lot of...stuff. As the single largest group of investors in this property, UFCW members across the country have a stake in the future of this business. Bring them to the table. If the leaders won't do it, then CCWIPP members should join with workers at the Travelodge and demand it.

Our investigative feature continues next week.

Mondo Condo Part 1

Mondo Condo Part 2

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