Amid 865 trees coming down, Province releases 95-year lease with Therme

Under cover of darkness, Infrastructure Ontario began the removal of 865 trees at Ontario Place on the evening of Wednesday, October 2, 2024. Within a single day, workers had cut down the vast majority of those trees.

The work—which includes the removal of every single tree on the western portion of the waterfront site adjacent downtown Toronto—is part of the approximately $200-million in site preparations that taxpayers are funding to prepare the land for Therme, an Austrian spa company, to develop a stadium-sized indoor waterpark on the site.

The next day, October 3, the Province released the details of its 95-year lease with Therme, which journalists and grassroots organizations have been seeking for years to obtain through Freedom of Information requests.

The timing, critics say, aimed to distract from the tree removal in progress. It also likely anticipates the expected release later this year of an Auditor General’s report about the lease, which would make public many details about the arrangement between the Province and Therme. (Agencies like Infrastructure Ontario are given early access to Auditor General’s reports in order to provide official responses.)

Hours after the razing of the site began, Ontario Place Protectors filed an emergency injunction asking for the tree removal to stop, pending the hearing of the appeal of its case that questions the Province’s ability to assume sweeping powers over the site, including ignoring its own environmental and heritage laws in redeveloping it. However, the speed at which the work is being done may mean that there is little left to save, even if the injunction is granted and the appeal is successful.

The lease details that Therme has the right to rent the property for 75-years, with the option for a 20-year renewal for a total term of 95 years. While Therme can terminate the agreement with minimal penalties—$250,000, and back-rent to a maximum of $5 million—the Province doesn’t have an easy way to back out.

If the Province ended the agreement today, they would have to pay Therme $30 million. But the window to exercise this option is closing quickly: it only exists until the “first applicable building permit (excavation permit) for initial construction of any aspect of the Project by the Tenant” has been issued. A fact sheet issued to journalists by Infrastructure Ontario indicates that this milestone will be reached around 2025.

After that, the Province can only cancel the contract after the facility has been operational for 10 years. They can then end the arrangement with 5 years’ notice—but taxpayers would be on the hook to pay for Therme’s buildings to be demolished, and for the facility to be rebuilt at an alternate site provided by the Province. This kind of clause has been described as a “poison pill.”

Therme’s rental cost for the prime waterfront site is well below market rates for Toronto. The arrangement stipulates a “minimum rent” of 3.5% of the assessed land value, indexed to inflation, as well as, beginning in year six, a “performance rent” of 2.45% of Therme’s gross revenues. However, there is also a ceiling to this arrangement, with rent limited to 8% of the land value.

The current assessed land value, as stated in the lease, is $3.5 million per acre—a number that Infrastructure Ontario says is on the low side because it relates to the existing land-use and zoning rules for Ontario Place. The rent calculation uses the “core area” of the development, comprising the 8.4-acre footprint of the building. If Therme was to start paying its full rent today, the revenue to Ontario would be a paltry $1-2.4 million dollars per year.

RIP Ontario Place forest. See link to browse a 3D scan of the before and after effects (July 24 -> Oct 24+). https://t.co/eEypROFzNr @ONPlace4All pic.twitter.com/0YZW7iR4MV

— jonclement (@jonclement) October 3, 2024

To reach the higher end of this rent payment, $2.4 million, Therme would need to make $98 million annually in today’s dollars—meaning having an average of 3,000 visitors daily for 365 days of the year, and charging each of them an after-tax average of $100.

The Province states that over the duration of the lease, the rent will amount to $1.1 billion dollars—but this figure depends on using the almost century-long term of the lease, and applying inflation to the rent over that term.

It adds that Therme will pay property tax and utilities. But since this is provincial land, at current rates in 2024, property tax would amount to only $10,500 a year.

Therme will also be responsible to contribute to ongoing site maintenance, which the government says will amount to $855 million over the term of the lease—but again because of the long lease, this will mean a yearly payment, in present dollars, of perhaps $1.8 million per year.

To receive this $3.8-5.2 million per year in rent and park maintenance, the Province has committed to spending over half a billion dollars in public dollars now.

In order to prepare the site, the Province is contributing some $25 million to flood mitigation, shoreline repair measures, and extending a public trail across the West Island. As Infrastructure Ontario stated in 2022, they are also spending approximately $200 million preparing the site for Therme, and are obligated under the terms of the lease to build and operate a parking garage with 1,600 spaces reserved for Therme customers.

A preliminary estimate for this garage pegged a 2,000-space underground parkade at $307 million. The current plan is to construct a 2,700-space parkade intended to also service the Live Nation concert venue and other visitors to the site. Assuming a straight-line extrapolation, this means the garage will cost some $411 million, bringing the tally of public investment on site preparations and parking to at least $636 million.

The Province states that Therme will spend some $700 million of private dollars on construction, including $500 million for constructing its 8.4-acre waterpark facility, and $200 million on lake infill, shoreline works, and creating 16 acres of public parkland  intended to compensate for the parkland that is being razed for the development.

However, while access to that parkland will be open to the public, the lease grants Therme the exclusive right to “conduct commercial activity and programming” on up to 30 percent of that park space. This potentially allows for a high density of commercial activity—comparable to the CNE fairgrounds—with food concessions, midway games, toy and souvenir sellers, personal care services, equipment rentals, cabanas, and other amenities that fit under the broad description in the lease of “year-round, inclusive and diverse, family-oriented, indoor and outdoor aquatic facilities focused on fun, health, wellness and relaxation.”

Ultimately, Therme may not even be the one operating those concessions, or even the facility as a whole. The lease allows Therme to sublet 25% of the project and surrounding lands without seeking the consent of the Province, and allows the licensing of the operation of up to 40% of the project and surrounding lands without seeking its consent.

The entire lease can also be assigned, but in this case, Therme would need to seek the Province’s written consent, and would share a portion of the revenue from such a lease assignment with the Province. In this scenario, Therme would retain a 25% internal rate of return and 70% of the net proceeds above that amount, with the Province receiving the remaining 30%.

While the lease cannot be assigned to a person involved in an illegal business, these clauses would effectively allow Therme to contract out large parts of its operation, on favourable terms, to parties that it selects without outside vetting or public oversight.

The post Amid 865 trees coming down, Province releases 95-year lease with Therme appeared first on Canadian Architect.