TORONTO – Ontario’s prized MaRS innovation hub and technology accelerator is on the verge of defaulting on a $234-million provincial government loan, according to leaked cabinet documents.
MaRS (short for medical and related sciences) is surrounded by downtown academic hospitals and the University of Toronto, and first opened in 2005. According to the MaRS website, the first phase is fully occupied. With a government loan of $224 million, it started work on an additional high-rise tower in 2011 but has been unable to find tenants.
To prevent a default, the provincial government is now prepared to swallow that loan, while spending another $65-million to buy the building outright, plus millions more to turn most of its barren concrete interior into government offices, the documents suggest.
“Failure to act will likely result in a MaRS event of default, foreclosure and fiscal writedowns,” says a cabinet briefing prepared by the ministries of infrastructure, and research and innovation at the end April.
That briefing, along with a longer report prepared for the Treasury Board, were leaked to outgoing Conservative MPP Frank Klees. Mr. Klees in turn released the documents to the media.
News of the proposed bailout comes during the Ontario provincial election, much to the embarrassment of the ruling Liberal Party and its Premier, Kathleen Wynne.
The PCs have styled the proposal a “$317-million bailout,” while Premier Kathleen Wynne called it “a real estate deal” that would allow the government to consolidate its offices in Toronto and help MaRS “move to phase two” of its development.
According to government documents, just 27% of the building – which stretches to 20 floors – is currently in use. From a side staircase, floor after floor of undeveloped concrete was visible through the windows. Above the sixth story, the building seemed almost deserted, barring the occasional construction worker.
By the time work on the tower finished in early 2014, though, few tenants had been secured. Of those that had, the two largest, Public Health Ontario and The Ontario Institute for Cancer Research, were both, like the building itself, fully funded by the province.
By this spring, with little rental revenue coming in, MaRS was unable make its payments on the government loan, according to the documents. To prevent a messy and publicly embarrassing default, the government entered negotiations to buy the building from MaRS and Alexandria Real Estate, the American company responsible for the building – and to this point marketing – of the tower.
Should the deal go through – a closing date in July is cited in the documents, though Wynne insists nothing has been signed – the tower would retain the MaRS brand. But the large majority of its offices would be occupied, not by private sector innovators, but provincial government employees.