Dundee Realty and Kilmer Group closed a C$750 million ($755 million) financing for the Pan and Parapan American Games athletes village design-build- finance project in Ontario on 14 December 2011. The deal is an unusual PPP, because the sponsors bear about C$80 million, equal to their equity contribution, in real estate risk, while the province repays or guarantees all of the bank debt. The borrower is a joint venture between the two sponsors, Dundee Kilmer Developments.

The athletes village involves building accommodation for up to 10,000 athletes and officials during the PanAm and Parapan games in July and August 2015. It will be located on 80 acres in Toronto’s West Don Lands and also include a 7,618 square-metre (82,000 square feet) recreation centre. The lodging will be converted into 683 market rate and 353 affordable housing units, as well as residences for 500 George Brown College students following the games. The YMCA will use the recreation centre.

Bank of Montreal, Bank of Tokyo- Mitsubishi UFJ, CIBC, Dexia, Royal Bank of Canada, Sumitomo Mitsui Banking Corporation and TD Bank provided a C$611 million club loan for the project. It is split between a C$381 million short tranche that will be repaid with the proceeds of a C$393 million substantial completion payment from the province, and a C$230 million longer tranche. The short tranche has a tenor of 3.25 years, while the tenor of the longer tranche is 5.25 years. Pricing on the short tranche is understood to track bonds of the same tenor issued by the province of Ontario, which achieved an all-in 1.6% interest rate on its last $2 billion global issue in September 2011. Each sponsor provided C$69.5 million in equity.

The deal is unique in Canada for incorporating real estate risk. The residential facilities for the athletes during the games follows the standard DBF model, with the short debt tranche being fully repaid with proceeds of the substantial completion payment. However, the longer tranche will not be repaid until the developer has sold the majority of the planned residential units. Lenders benefit from a provincial loan guarantee backstop that will kick in if sales fall short of expectations, though the equity still bears real estate risk.

Toronto real estate is a relatively safe bet. Demand for condominiums and apartments is expected to remain steady in 2012, according to the Canada Mortgage and Housing Corporation. This is especially true for units in central parts of the city, which includes the West Don Lands. However, the agency also notes that a record level of new units will begin construction this year, and these could come onto the market at about the same time as the athletes village units. Both Dundee and Kilmer have experience with local property development and management; the former specialises in property management and the latter has investments in several construction companies.

Ontario will also make C$21 million in pre- construction and C$100 million in milestone payments to the sponsors. The former, which was made in December 2011, covered site preparation works and the latter will be made in 2013 to speed completion of all of the facilities in time for the games. If the sponsors do not deliver the village on time, they face steep financial penalties that would be deducted from the substantial completion payment.

Infrastructure Ontario, which ran the procurement for the province, released the request for qualifications in October 2010. IO and Waterfront Toronto, which is responsible for the redevelopment of the city’s waterfront, an area that includes the West Don Lands, shortlisted three consortiums and released the request for proposals in January 2011. The province shortlisted Legacy Village Partners (Lend Lease, Concert Properties and Tridel) and Village Infrastructure Partners (Fengate, the Conservatory Group and the Pemberton Group), as well as Dundee Kilmer. The shortlisted bidders submitted final bids that May and the province confirmed the winning consortium in September.

EllisDon Ledcor PAAV (a joint venture of EllisDon and Ledcor Design Build) is the engineering, procurement and construction contractor for the village. Preliminary construction activities began in December and all work is scheduled to be complete during the first quarter of 2015. Kuwabara Payne McKenna Blumberg Architects, architectsAlliance, Daoust LeStage, TEN Arquitectos and MacLennan Jaunkalns Miller Architects are architects, while Dundee Kilmer is the facility manager during the games.

Dundee Kilmer Developments
STATUS: Closed 14 December 2011
SIZE: C$750 million ($755 million)
LOCATION: Toronto, Ontario
DESCRIPTION: DBF residential facility for 10,000 athletes and officials during the 2015 Pan and Parapan American Games
GRANTOR: Province of Ontario
GRANTOR ADVISERS: Infrastructure Ontario and Waterfront Toronto
GRANTOR CONTRIBUTIONS: C$21 million pre-construction payment, C$100 million milestone payment and C$393 million substantial completion payment
SPONSORS: Dundee Realty (50%) and Kilmer Group-owned KD Infrastructure (50%)
EQUITY: C$139 million
DEBT: C$381 million short tranche and C$230 million long tranche
LENDERS: Bank of Montreal, Bank of Tokyo- Mitsubishi UFJ, CIBC, Dexia, Royal Bank of Canada, Sumitomo Mitsui Banking Corporation and TD Bank
FINANCIAL ADVISER: Brookfield Financial
LENDER LEGAL COUNSEL: Fasken Martineau
SPONSOR LEGAL COUNSEL: Goodmans
GRANTOR LEGAL COUNSEL: McCarthy Tetrault
EPC CONTRACTOR: EllisDon and Ledcor joint venture
FACILITIES MANAGER: Dundee Kilmer
PROCUREMENT FAIRNESS ADVISER: P1 Consulting