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Liquor and Lotteries Headquarters – A $74 Million Bet

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30Sep

Sharelines

  • With NDP's track record of massive cost overruns in construction, the new Liquor and Lotteries HQ could be yet another white elephant
  • MB Crown Corporations Need to Stay out of Risky Real Estate Deals
  • How do you feel about government's track record of expensive construction projects in Winnipeg?

Greg Selinger’s Liquor and Lotteries monopoly have announced plans to spend $74 million of your money to buy, renovate and expand the Medical Arts Building for Liquor and Lotteries’ headquarters and administrative offices.

In touting the reason for this decision the Premier said at a press conference: “More people, more activity, more vibrancy, more excitement, with a redefined purpose as the Sports and Hospitality District — that’s exactly what we want, and I think this facility and this investment will be a part of that story.”

Manitoba Forward believes that it is not MLL’s job to “revitalize downtown”. MLL’s mandate is to manage and regulate the sales of liquor and the operation of gaming, not to bolster downtown growth. Furthermore, portions of the profits generated from these efforts should go toward addictions treatment and pay dividends to the Province to be spent on debt reduction and spending on services like healthcare, education and roads.

While MLF may be able to make a case for borrowing money or investing some profits for the extension of its casinos or the upgrading VLTs for hotels, the Jet’s Shark Room and Assiniboine  Downs, unnecessary spending on Liquor and Lotteries headquarters and administrative offices is another matter.

Let’s examine the business case of the NDP’s redevelopment plans for the Medical Arts Building to relocate MLL’s headquarters:

  •   Manitoba Liquor and Lotteries own and lease the offices they operate in across Winnipeg. While not an ideal situation, they’ve been functional since the merger 3 years ago
  • The owners of Manitoba Liquor and Lotteries – Manitoba taxpayers – will paying an initially projected cost of $74 million to purchase, refurbish and expand the Medical Arts Building in downtown Winnipeg
  • Both the City of Winnipeg and The Province of Manitoba have a long track record of gross mismanagement in real estate development, including Investors Group Field, the Manitoba Hydro Headquarters and the Winnipeg Police Headquarters. Each of these projects have had overruns of $20 million or more. The initial forecast for Hydro’s new headquarters was $75 million; it actually came in at $283 million.
  • According to sources in the development community familiar with the Medical Arts Building – the property currently generates approximately $900,000 in annual net operating income, based on an average rental rate of approximately $11 per square foot. Assuming very conservative overruns of only $5 million and under the very unlikely assumption that the redeveloped site has 0% vacancy; it would take MLL almost 90 years to break even on this venture

The merger of the MLCC and Lotteries announced was supposed to be a cost saving measure for Manitoba taxpayers. And yet here we are spending $74 million – likely much if the province’s track record of real estate mismanagement is any indication – on an unnecessary capital expenditure with no return on investment in sight.

In a soft office real estate market in Winnipeg, this is a very risky bet by the Premier at a time when the Province’s liquidity is poor. And with the NDP’s extensive track record of massive cost overruns in construction, taxpayers should have our fingers crossed that we don’t lose the farm from Selinger’s $74 million gamble on the new Liquor and Lotteries Headquarters.

Dave Shorr
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