VANCOUVER, British Columbia (Reuters) - The city of Vancouver on Wednesday bought out the lender to the company building the village that will house many of the athletes for 2010 Winter Olympics, a move officials said should ensure its completion on time.
Vancouver paid C$319 million ($253 million) to Fortress Investment Group, which cut off funding to the project’s builder last year, forcing the city to rescue a project that was supposed to have been privately funded.
The city still has to work out long-term financing for the remaining construction costs, but has received temporary financing of C$400 million from the Bank of Montreal while it works out the details.
Buying out Fortress for the amount of money it has already paid will slash interest costs and ease the financial uncertainty surrounding the project, City Manager Penny Ballem said at a special meeting of Vancouver’s city council.
Fortress, a U.S.-based hedge fund, had offered to refinance the original C$700 million loan late last year, but at an interest rate of 11.5 percent, city officials said.
BMO’s line of credit carries a 3.25 percent rate, and the buyout negotiations resulted in Fortress dropping its penalty for early repayment to C$4 million from C$56 million, according to Ballem.
The waterfront project near downtown Vancouver was originally valued at C$1.2 billion, including land. The plan is to pay for the project by selling most of the units as expensive condominiums once the Olympics were over.
Fortress cut off funding as construction costs rose and the real estate market slowed, and the city found itself on the financial hook because of completion guarantees it made to Olympic organizers and the lender.
Games organizers do not oversee the building of the facility, which they will rent during the Olympics, and have tried to distance themselves from the controversy by saying the village is not officially an Olympic project.
The city has already advanced C$133 million to the builder, Millennium Development, to keep work going, and more crews have recently been added to speed up construction.
Millennium will have to negotiate terms of its new loan with the city, but officials said buying out Fortress will ease the pressure to sell the units immediately after the Games when Vancouver’s real estate market may remain soft.
Fortress will continue to have an indirect involvement with the Winter Games as owner of Intrawest resort in Whistler, British Columbia, where many of the Alpine ski events will be held.
The Olympics will also have an athletes village in Whistler. That project is largely publicly funded and has not had financing difficulties.
Reporting by Allan Dowd; Editing by Frank McGurty