Mondo Condo Makeover P.08
UFCW Pension Gurus Just Can't Get Enough
When I'm with you baby, I go out of my head
And I just can't get enough, I just can't get enough
All the things you do to me and everything you said
And I just can't get enough, I just can't get enough
That's a famous Depeche Mode tune from the 1980's. We're dedicating it to the trustees of the UFCW's famous pension plan, CCWIPP (pronounced "quip"), because they just can't seem to get enough of throwing their members' money into a certain Toronto hotel even if it costs other members their jobs.
On April 5, 2005 the Toronto Travelodge Yorkdale, the west end Toronto hotel that is the subject of our Mondo Condo series, closed its doors.
The 150 or so UFCW members who worked there knew the end was coming for a while. A plan to convert the hotel into a condominium had been hatched a couple of years earlier by their employer, Royal Host REIT and the UFCW's famous CCWIPP which is a co-owner of the property. A unknown local builder named Joe Ieradi became the front man for the plan. Joe was peddling condo units out of the hotel since the spring of 2004.
That their jobs were going to disappear was clear. What wasn't clear was why their union (through its pension plan) was supporting the scheme and why it seemed completely oblivious to their interests.
Knowing full well that layoffs were looming for its members, the UFCW didn't bother to negotiate severance entitlements into the hotel workers' collective agreement in its most recent round of collective bargaining. As the end drew near, the members became painfully aware that they would receive only the minimal termination notice and severance pay entitlements provided by the Ontario Employment Standards Act. Since many worked irregular hours and were working fewer hours as the business wound down, confusion reigned about the calculation of their meager severance pay. Neither their employer nor their union seemed to know exactly what they were entitled to or how it was to be calculated.
Their final paychecks and Records of Employment were to be picked up on April 12th at a different hotel - one located in an industrial area in Toronto's north side. Signs announcing the date and location were posted in the hotel - after most of the workers had been laid off. Worse still, the signs directed workers to the wrong subway station.
Many workers were shocked when they saw their severance pay. It wasn't what they were expecting. No breakdown or explanation was provided as to why their meager severance was so meager. Others discovered odd discrepancies on their Records of Employment which will make collecting Employment Insurance that much more difficult.
One worker who finally managed, after much effort, to get a breakdown of his severance pay was sanctimoniously advised by a Royal Host official, "As you are aware you are a bargaining unit employee represented by the UFCW Local 333. Accordingly, any issues you wish to raise should be addressed by your union representative".
Oh yes, don't talk to us, take your issues up through your union. No doubt the Royal Host managers would much rather deal with the UFCW than the workers. In the months leading up to the layoffs, the UFCW had been conspicuous mostly by its absence at the hotel. Sightings of union reps were rare. Answers to workers' questions about the future were hard to come by. It was as if their employer and their union couldn't get them out the door quickly enough - or quietly enough.
As the clock ticked down, it became clear that they were on their own. When their phone calls to the union office became too much for their representatives to bear, the UFCW brought in a lawyer to tell the them that they were shit-outta-luck. They were entitled to whatever the Employment Standards Act gave them and there was nothing more that their union could do for them.
The UFCW did, however, do a lot for Mr. Ieradi.
We slip and slide as we fall in love
And I just can't seem to get enough
It's been a while since we last checked in with Joe. From all appearances, Joe's been a busy guy these past few months. He's been busy buying the hotel and peddling his condos. The billboard outside of this condo project proclaims that the project is 88% SOLD. The building that the hotel once occuppied is now empty. One tower stands windowless and stark. Mounds of old carpeting and bathroom fixtures are piled up outside - sort of like the heaping pile of festering questions that we are going to lay at the UFCW's door about its involvement in this job destruction scheme.
Joe reminded us of just how long it's been since we last looked in on him a few days ago when he phoned us. Yeah, Joe actually called MfD. Well, to be accurate, the architects working on his condo phoned us on Joe's behalf. What the hell were Joe's architects calling us for? No idea. Maybe they heard we have a "site" and they wanted to submit a bid. Maybe Joe was just shy about speaking to us and had them call to break the ice. A day later, Joe himself called. We missed him and he never called back.
We did learn however, that Joe also called labour journalist and friend-of-MfD Hugh Finnamore. Apparently, Joe really gave Finnamore a piece-a-his-mind. He complained bitterly about the Mondo Condo articles (which Finnamore didn't write) and the Joe Unplugged Interview (which he knew he was giving) and possibly, although it was hard to tell, the Joe ReMix (which was the work of a Toronto emcee). Joe told Finnamore that he was going to lawyer-up and "have some fun". As their discussion was winding down, Joe invited Finnamore to check out his recent filings at the Toronto Land Titles office - presumably to demonstrate that there was absolutely nothing about his business that anyone could find interesting.
Of course Finnamore can't just go to the Toronto Land Titles Office, even if he wanted to, because it's a really long commute. But hearing about Joe's suggestions, Toronto MfD'ers thought it was a great idea. So off we went.
It's always fun to search public records for information about the UFCW and its associates. You get a prize every time. Here's what we got.
If you've been thinking that the UFCW pension plan's decision to shut down the hotel was part of a scheme to bail out of a bad investment, you'll be disappointed. These guys can't seem to get enough of a bad thing. Even as they're busy telling their newly unemployed members there's nothing they can do to ease their pain, they're still in the game and forking over millions of dollars to the new owner - Joe.
Before we bring you the latest, it's worth revisiting the UFCW's history of shelling out to aspiring tycoons at this location. Follow the money:
We walk together, we're walking down the street
And I just can't get enough, I just can't get enough
Every time I think of you I know we have to meet
And I just can't get enough, I just can't get enough
It all began in 1992 when Ron Kelly, a pedophile with no business experience and dreams of tycoondom in his head, bought the bankrupt Triumph Hotel at 2737 Keele Street for $9.1 million.
To finance his purchase, Kelly got a mortgage of $7 million from CCWIPP (through its I.F. Propco 14 investment corporation) on October 7, 1992. On that same day, he also got a mortgage of $7 million from the CIBC. That's $14 million in total. On December 2, 1992 Kelly bought the hotel for $9.1 million.
A few months later, on May 23, 1993, Kelly paid off the $7,000,000 CIBC mortgage and got another mortgage from CCWIPP. This time he borrowed $8,000,000 through CCWIPP's Propco 16 investment corporation. That brought the total of his mortgages from CCWIPP at this hotel to $15 million.
Over the next two years, Kelly would borrow approximately $15 million more from CCWIPP through still another investment corporation called IP Holdings (1) Ltd. By 1995, over $30 million worth of CCWIPP mortgages were registered against the hotel, which Kelly purchased three years earlier for $9 million. Assuming the hotel was worth a little more now that it was a going concern (a business that was operating), that's still about $20 million more than it was worth.
It's getting hotter, it's our burning love
And I just can't seem to get enough
And this wasn't the full extent of Kelly's troughing with CCWIPP. During this period, CCWIPP was lending Kelly many more millions to purchase other hotels and beginning to invest heavily in a hotel management company (AFM Hospitality Corporation) that was formed to manage his hotels. But that's a whole other story.
In 1998 Kelly sold the Keele Street hotel - half to Royal Host REIT and the other half to another one of his companies, Chimo Hotels, for a total of $11 million.
Land Titles Office records show that all the earlier mortgages to CCWIPP were discharged at this time. CCWIPP Investment Committee member Howard Preston signed the discharge documents. But if CCWIPP recovered the $30 or so million that it had invested in the property, it quickly turned around and loaned $32 million to the new owners: $22 million to Royal Host and $10 million to Kelly's Chimo Hotels.
Royal Host's purchase of 50% of the Keele Street hotel was part of a package of hotels that it bought from Kelly at this time. The package consisted of one hotel in Ottawa, one hotel in London (Ontario) and one-half of the Keele Street hotel. The total cost of the package was $52 million. CCWIPP's Propco 14 loaned Royal Host $22 million towards this purchase. A Vancouver-based firm called BCMP Mortgage Investments loaned Royal Host another $30 million.
In addition, CCWIPP's Propco 16 loaned Kelly's Chimo Hotels $10 million towards its purchase of half of the hotel from Kelly's other company, Kelloryn Hotels - bringing CCWIPP's total investment in the hotel to $32 million - pretty much what it had been before Kelly sold the place to Royal Host and himself.
Now you may be saying - but some of that money went towards Royal Host's purchase of the two other hotels. So that would explain the high price tag. Well, you might think so but here's what's really interesting about that:
Royal Host appears to have overpaid for the 2.5 hotels that it purchased from Kelly by about...$20 million. The total cost of their package of two and one-half hotels was $52 million. Was that a realistic market price? Let's see:
The total sale price of the Keele Street hotel in 1998 was $11 million. That would make Royal Host's 50% stake worth $5.5 million.
The Ottawa hotel had been purchased a year or so earlier by Kelly for $16 million.
The London hotel had been purchased by Kelly a year or so earlier for $9 million.
Assuming these hotels didn't appreciate in value significantly over that brief period, that would bring the total value of this package closer to $30 million (5.5 + 16 + 9) than $52 million. $30 million - like the amount that Royal Host borrowed from BCMP. Why did it pay about $20 million more and borrow $22 million from CCWIPP? We're just wondering.
Within a couple of years, Kelly bailed out of his $10 million Propco 16 mortgage leaving CCWIPP holding the bag. Kelly also went deadbeat on Chimo Hotel's taxes at this and other hotels as is evident from the$500,000 of government liens that were registered against the property in 2003 and 2004. CCWIPP was left holding the bag on those as well.
And when it rains, you're shining down for me
And I just can't get enough, I just can't get enough
Just like a rainbow you know you set me free
And I just can't get enough, I just can't get enough
Sometime around 2001 the CCWIPP boys became involved in a scheme to convert the hotel into a hybrid hotel and condo. The new venture called "The Hotel Residences" was advertised for a while but never got off the ground. A plan to convert the hotel into a full condo followed. It was then that Joe Ieradi turned up on the scene - with some cheesey hype about "rebirthing the hotel" - to make it happen. By the spring of 2004, CCWIPP had taken possession of Chimo Hotel's 50% interest in the hotel and Joe started flogging condo units out of a sales center located in the hotel. In June 2004, the Royal Host's $22 million mortage from Propco 14 was transferred to a numbered company in Alberta and Joe was telling the local media that he'd already bought the building.
Of course, we know that Joe didn't buy the hotel in 2004. Joe never bought the place until February of this year and it was the combined helping hands of CCWIPP, Royal Host REIT and BCMP Mortgage Investments that made it happen.
In February 23, 2005 Royal Host and CCWIPP's Propco 16 each sold their 50% interest to Joe Ieradi's company, Westmount-Keele Limited. Joe paid Royal Host $10,650,000 for its half of the hotel and Propco 16 got $7,300,000 for its half. If you noticed that this isn't exactly a 50/50 split you're right. The $500,000 worth of liens were also cleared up. All tolled, Joe paid about $18 million dollars which, again, seems like over-the-top buck.
That same day, Joe's company got a mortgage of $19,000,000 from the Vancouver-based company BCMP Mortgage Investments
- Plus a $3,800,000 mortgage from Royal Host REIT
- Plus another $2,000,000 mortgage from Royal Host REIT
- Plus a $4,300,000 mortgage from CCWIPP's Propco 16
Obviously the former owners really want Joe to succeed, especially the boys from CCWIPP. They've given Joe some really sweet terms:
Interest on the $4.3 mil is 10%. Payments are annual starting in February 2006 and are interest only.
Then there are the "Additional Provisions". (To make this easier to follow, we've taken the legalese terms "Charge", "Chargee" and "Chargor" and changed them to "Mortgage", "CCWIPP boys" and "Joe". We've added some emphasis to parts that got our attention.)
1) Provided that [Joe], when not in default hereunder, shall have the privilege of prepaying the whole or any part of the principal sum hereby secured at any time or times without notice, bonus or penalty.
2) The annual payments due hereunder shall be on account of interest only.
3) Subordination and priority agreement. This [mortgage] and the rights of the [CCWIPP boys] hereunder shall be subject to the terms of the subordination and priority agreement between the [CCWIPP boys], [Joe] and others dated February 21, 2005, and the terms of any restated agreement entered into pursuant to such agreement (hereinafter collectively referred to as the "SPA") as contemplated therein. The [CCWIPP boys] shall subordinate and postpone the [mortgage] from time to time as required pursuant to the SPA. The [CCWIPP boys] shall consent to the registration of a condominium plan as requested under the SPA and shall give partial discharges of individual condominium units as provided in the SPA.
4) The [CCWIPP boys] covenant with [Joe] that until the Priority Debt defined in the SPA is paid in full, the [CCWIPP boys], upon written request of [Joe], will provide a partial discharge of the this [mortgage] for each condominium unit sold to individual purchasers, at no charge or payment (with the exception of reasonable solicitor's fees for such partial discharges).
5) [Joe] covenants and agrees with the [CCWIPP boys] that all net proceeds from the sale of individual condominium units after payment of real estate commissions, legal fees and other reasonable closing costs, shall be paid towards repayment of the Priority Debt defined in the SPA until such Priority Debt is paid in full.
6) The following section of the Standard Charge Terms No. 200033 shall not apply to this Charge: Sections 3, 14, 17, 18 and 24.
7) The [CCWIPP boys] may, whenever [they] deem necessary, by its agent enter upon and inspect the property.
What this means is that the CCWIPP boys have given Joe a deal that you and I could only dream of getting from a lending institution:
A $4.3 million mortgage. Interest only payable once a year. The first payment isn't due until February 2006. The mortgage payments to be deferred (put off) under the terms of a special agreement (the "SPA") that sets out who gets paid back first and in what order - BCMP, Royal Host and CCWIPP - get to pick over Joe's bones if he goes belly up.
What's in the SPA? We don't know and neither do CCWIPP members. It wasn't registered at the Land Titles Office.
We can be sure that the "Priority Debt" (the debt that gets paid off first) isn't CCWIPP's $4.3 million. CCWIPP's agreement to defer Joe's mortgage payments indicates that the CCWIPP boys are holding the "hind tit position" in the line-up of creditors. The priority debt is probably BCMP's $19 million. Since all proceeds from the sale of condo units are to go to paying off the Priority Debt, it may be that the CCWIPP boys will be waiting a while to see their first payment. Work on the project has barely begun. Will the conversion be completed and all units sold by the February 2006 when Joe's first payment to the CCWIPP boys is due? We'll see.
That's one helluva sweet deal for Joe. He's sitting atop a total of $28 million dollars worth of financing, including $4.3 million from CCWIPP that he can take his sweet time paying off. What kind of deal is it for CCWIPP members? Not a very good one it seems to us. If Joe's project goes "poof", and there's not enough left once the the Priority Debt is paid, they're shit outta luck - again.
And what's all that crap about the [CCWIPP boys] providing a partial discharge of the [mortgage] for each condominium unit sold to individual purchasers, at no charge or payment? We haven't got a clue but we sure would like to know.
Maybe Joe can explain it to us. Hey there's an idea!
MfD's Open Invitation to the Mondo Condo Partners
Joe Ieradi, we're inviting you to MfD forum to enlighten us about what's going on at 2737 Keele Street in Toronto and what it means to CCWIPP members. You've been wanting to talk to us anyway, so let's do it. Bring your buddies the CCWIPP boys and the Royal Host crew along as well and they can explain a few other things to us.
Here are a few discussion starters:
Joe:
- How's the project coming along? Did you sort things out with the City about that road they want to build through your property? What's the completion date now? Is it before or after February 2006 when your first mortgage payment to UFCW members is due?
- How did you come to be involved in this project? Was it your idea or somebody else's? What's your relationship with Cliff Evans and the other CCWIPP trustees? Are the CCWIPP boys underwriting your mortgage from BCMP?
- Can we see the SPA agreement? It wasn't at the Land Titles Office where you said we should go to find out everything about everything. Why not send us a copy? That might clear up a lot of things. What does that language about providing a "partial discharge of the mortgage for each condominium unit sold to individual purchasers at no charge or payment" mean? Really we just want to learn.
And Joe, we're not Hugh Finnamore. He's not the guy who's writing these articles and he's not MfD. The people writing these articles are here in Toronto. Not far from your hotel. Don't make yourself look silly by getting obsessed with him - like the UFCW does.
Royal Host crew:
- Did you guys know what you were climbing in the sack with back in 1998? Did it seem like a small enough price to pay for a fast buck down the road? Telus - oops, we mean tell us.
- How is it that you got mixed up with Ron Kelly, the CCWIPP boys and our guy Joe anyways? How big a role did your hotel purchase have to do with the formation of your REIT? Who is Quim Investments, the guys you got involved with when you set up your REIT in 1997? Why did they pick that unusual name? We just had to ask.
And for the CCWIPP boys:
- Why did you take less for your half of the property than Royal Host? Why did you agree to subordinate your debt to that of "others"? Why did you agree to cut Joe some slack if he can't pay you on time? In whose interest has all this been done and for whose benefit? How is this a good deal for CCWIPP members? How is it a prudent investment of their dollars? After more than a decade of pumping millions into this property - millions more than it was worth - you're at it again - selling the members short and extending oh so generous terms to tycoon wannabe's. Didn't you learn your lesson with Ron Kelly? Or are you just covering up a multitude of sins with a few fresh ones?
- Does CCWIPP have investments in BCMP or whatever daisy chain of companies is attached to it? Come on tell us. Surely the 150 members who were let go as a result of your support for the Joe's condo project deserve to know the extent of your involvement.
- Are you guys short $20 mil from your romp with Father Ron? Is that what this is about?
- What happened to all those millions that you sunk into this property? What are CCWIPP members going to get out of this deal? Assuming Joe's sells the 247 or so units at an average price of $200,000, that should generate about $50,000,000 in revenue. Subtract his $28 million in loans and that leaves about $22 million. Who gets the $22 million? Surely not CCWIPP members. They're only entitled to $4.3 million - sometime, maybe.
And let's not forget BCMP Mortgage Investments
Come on over guys. Don't be shy. Tell us about yourselves. We already know a few things:
We know BCMP is run by a guy named Garnet Andrews. He works for Telus Corporation in the Treasury Department and is a company trustee of the Telecommunications Workers Union pension plan. We know the TWU is being courted by the Communications Workers of America which has been talking merger with - the UFCW.
We know the TWU's pension plan has investments in some famous biz unionist pension projects that are connected to... the UFCW.
You're like an angel and you give me your love
And I just can't seem to get enough
Our series will continue until the questions are answered.
The Mondo Condo Series: