Sat | Aug 19, 2017

Real sweetheart deal! - Auditor General slams UDC for questionable decisions in Oceana Hotel sale

Published:Sunday | March 12, 2017 | 3:00 AMErica Virtue
The old Oceana Hotel building being refurbished by its new owners.

Almost one year after Finance Minister Audley Shaw dubbed it a "sweetheart deal", Auditor General Pamela Monroe Ellis has slammed the Urban Development Corporation (UDC) for its handling of the 2014 sale of the downtown Kingston building which once housed the Oceana Hotel, and the lease of the Jamaica Conference Centre multi-storey car park as part of the deal.

In a special report tabled in the House of Representatives last Thursday, Monroe Ellis outlined a slew of questionable decisions in the $385-million sale of the property and the 25-year lease of the car park for a meagre $15 million over the first 10 years.

The divestment of the property and the subsequent decision by the then Portia Simpson Miller administration to spend $400 million to renovate a section of the building to house the Accountant General's Department was dubbed a "sweetheart deal" by Shaw last year, and the auditor general's findings could provide more ammunition for critics of the deal.

"The inclusion of the lease arrangements for the car park subsequent to the deadline for the submission of bids would have denied existing and prospective bidders the opportunity to reflect the value of the packaged opportunity," said the auditor general in the special report.

"Consequently, the process lacked transparency, and UDC may have denied itself the benefit of obtaining better offers.

"Though the request for the use of the car park was made by the successful bidder based on the assessed feasibility of the proposed hotel and the need for parking space, UDC should have engaged a competitive tender process in keeping with its own Estate Management Policy and Guidelines," added the auditor general.

The report noted that the UDC will be paid $1.5 million per year over the first 10 years of the lease for the car park, while the entity which has leased it from the state agency will charge $7.5 million a year to another entity which has subleased a portion of the facility.

In the divestment process, the auditor general noted that the UDC used a valuation dated August 2011 as a basis to assess offers in September 2013.

The state agency's Estate Management Policy and Guidelines stipulates that it should obtain two market valuations before the sale/lease of any asset, and that these valuations should be no older than 12 months at the date of advertisement and/or sale.

"The latest valuation UDC had in its possession was two years old," the auditor general noted in the report.

UDC defends decision

But the UDC has defended its decision, arguing that a valuation at that stage in 2013 would not be feasible as there was further deterioration, including compromised air quality and mould growing throughout the building.

"To obtain valuation in light of further and clear depreciation would not be feasible as this was not sought after or prime real estate," argued the UDC in a response to the auditor general, which was authorised by the then general manager and approved by the board of directors.

That did not satisfy the auditor general, who reported that her office is unable to determine how the UDC satisfied itself as to the market price at the time of the divestment.

The auditor general also found that the UDC breached the terms of divestment outlined in the Requests for Proposals (RFP) by considering bids that did not provide all the mandatory information.

According to the auditor general, this cast doubt on the objectivity of the decision-making process.

"None of the four bidders met the criteria to provide all the requested mandatory information," said Monore Ellis.

"Bidder number four, in particular, proposed a partnership arrangement - in keeping with UDC's advertisement setting out the financial contribution of the prospective investors, which would involve a mix of equity and debt financing.

"UDC deemed this bid non-responsive as the bid document did not include a specific offer price. Conversely, UDC commenced negotiations with bidder number one although the bid documents provided no evidence of the bidder's financial capacity and proposed development plans, as evidenced by the non-presentation of schematic drawings ...," the report noted.

In addition, evidence of UDC's evaluation of proposals against the criteria outlined in the RFP was not presented to the auditor general for scrutiny.

"The UDC indicated that they were unable to locate the minutes and evaluation sheet to support the analysis done by the Planning and Development Committee. Consequently, the auditor general could not assess the due diligence undertaken," said the auditor general in her report.

Sweetheart lease

Last Friday, former general manager of the UDC, Desmond Malcolm, said he was unaware that the report of the auditor general was tabled and had not yet read it.

"I left there in August last year. But let's not get confused, there are two things. There is the sale which was completed nearly two years ago. But I think what the finance minister (Shaw) was concerned about, and called a sweetheart deal, was the lease of the garage," said Malcolm.

"I think the real issue should be between the Ministry of Finance and the owners of the property because the Ministry of Finance paid for the upgrade at a very attractive rate the same time it was leased to the Accountant General's Department.

"If there was a scandal, it would be that you paid to upgrade the same time you are leasing it," added Malcolm.

The Oceana was purchased by a joint venture of Pan Jam, through its wholly owned subsidiary Jamaica Property Company, and Downing Street Realty Partners - a Toronto-based real estate developer.

erica.virtue@gleanerjm.com