TPA nearly purchased property for millions more than market value: auditor general

The Toronto Parking Authority backed out of an agreement to purchase a North York property days ahead of a deadline to do so after the city’s auditor general determined that the agreed price was more than $2.5 million over market value, a previously confidential report reveals.

In March 2016, city council asked the TPA to purchase a property at Finch Avenue and Arrow Road so it could be used for a parking lot and bike sharing stations that would be built to serve riders of the Finch Avenue LRT.

By August of that year, the TPA had agreed to purchase the property for $12.1 million but board member and city councillor John Filion soon grew concerned with the purchase price and wrote Auditor General Beverly Romeo-Beehler to advise her that “nothing in the file appeared to justify the purchase.”

Romeo-Beehler then conducted an investigation in which she determined that the actual market value of the property was approximately $9.5 million.

The discrepancy was largely due to the TPA’s inability to properly estimate the value of a digital sign on the property, Romeo-Beehler wrote.

The TPA valued the sign at $4.5 million but Romeo-Beehler found that it was actually only worth $1.55 million.

Though her report eventually led to the TPA backing out of the deal to purchase the property during a 60-day due –diligence window, she said that it is her “considered view” that the city agency would have overpaid by millions had Filion not brought her attention to the matter.

“Overall, we are concerned about TPA's approach to the purchase of this land when TPA was already aware that the vendor's bottom line was $12 million,” she wrote.

TPA failed to use independent appraiser

In her previously confidential report made public on Tuesday, Romeo-Beehler says that the TPA’s actions “created unnecessary potential risk” for both the agency and the city.

She said that rather than engaging an “independent business valuator” to determine the value of the sign and therefore the property, the TPA instead asked a sign consultant it had dealt with in the past who was “more of a broker or a sales person.”

That consultant in turn gave the TPA an estimated value for the sign of $2.5 million. Romeo-Beehler says that the vice-president of the TPA then asked the consultant how to “maximize the sign value.” It was at that point that the consultant suggested that a second sign could be added to the property, bringing the total value of the signage to $4.5 million.

There was one problem with that, however.

The consultant was basing that potential revenue on the assumption that an ongoing review by the Ministry of Transportation would eventually allow the city to install a sign that would face Highway 400, something that is not currently allowed.

“According to the VP, based on discussions with their sign consultant they believed there was a 25% chance that a second sign would be permitted by the Ministry of Transportation (MOT)given the public consultation underway by the MOT,” the report states.

Consultant thought information was 'small part' of analysis

In an interview with the auditor general, the consultant said he was under the impression that the information he provided was only a “small part” of the TPA’s decision making and not a primary factor in the assessment of the value of the property, as it turned out to be.

“If they said to me ‘So you’ve assessed the value to be $4 million and we don’t get $4 million you have to pay the difference, I would not be writing you a cheque for that difference,” the consultant said. “It's a small piece of what I do; I didn't think it would morph into what it has.”

Sign consultant may have had conflict of interest

Romeo-Beehler says the TPA used an independent appraiser to determine the value of the land ($7.5 million) but failed to take similar due diligence in determining the value of the sign.

She said that the TPA informed her that they “did not want to incur unnecessary costs for the appraisals unless there was more certainty that the deal was proceeding” but she rejected that argument, noting that the cost of a proper sign appraisal would have been $2,000 to $3,000.

Aggravating matters further was the fact that the sign consultant that was used by the TPA worked with a lobbyist who also represented the owner of the property.

That lobbyist had represented the sign consultant on 200 occasions since 2011.

“Given the importance of this project to the lobbyist, past and current working relationship with the sign consultant and the extent of knowledge that the lobbyist has about this transaction, overall the totality of the interactions create a conflict or the perception of a conflict of interest,” Romeo-Beehler wrote. “There appears to have been at a minimum, a lack of judgement in involving the lobbyist to the degree that TPA did.”

Report being debated by audit committee

Romeo-Beehler’s report is being debated by members of the audit committee today.

Speaking with reporters earlier in the day, Mayor Tory said he is hopeful that the committee will make recommendations aimed at ensuring the situation is not repeated.

“It is not the kind of way in which we should be doing business in the city,” he said.

While Tory said that he was alarmed to learn of Romeo-Beehler’s finding this morning, he stressed that the fact that the agreement to purchase the property was scrapped is proof that the city has the necessary checks and balances in place.

“The city is working in the way that it is meant to work,” he said.