LVEC plan doesn't 'stand up'
Engineer says conclusions are misleading without studies, surveys and samplingA professional engineer who says he has decades of experience with multimillion-dollar projects says a draft business plan for a Kingston entertainment centre contains "overly optimistic" financial projections.
John Paul Fraresso was hired by citizens who live in the Leeuwarden condominium, next to the arena site, to review the draft business plan for the so-called Large Venue Entertainment Centre.
Some of the condominium owners are very opposed to the arena plan.
The draft business plan, submitted by city official Don Gedge, concludes that building the complex on riverfront land on Anglin Bay in Kingston, at a cost of $37.3 million, is a "financially viable project."
Last night, Gedge questioned whether Fraresso, an engineer who worked in the transportation industry for Bombardier, has the qualifications to do a so-called peer review in the sports and entertainment venue industry.
"I don't see anything in the review that suggests he's qualified to do a peer review of a sports and entertainment centre," he said.
Gedge said he was hired as the arena project manager in Kingston to provide a sound business plan based on his experience helping other cities, such as London and Sarnia, build new complexes, both of which are reporting financial success.
Gedge also drew on the experiences of successful arena firms such as Global Spectrum in London, the Toronto Maple Leafs and Ottawa Senators for numbers to plan an entertainment centre.
"There's no evidence to suggest there has been a failing grade on other [sport and entertainment] projects and there's no reason in my mind to believe that's going to be the case here," he said. "The business plan capital cost can be justified based upon what was spent building other facilities."
But Fraresso concludes, in his 19-page review, that there isn't enough hard evidence in the business plan to support the financial projections.
"If I submitted this business plan to [Bombardier bosses] I would be in big trouble," he said. "I would have been told to bring this back after I did my homework. I would be out of a job in the private sector."
Fraresso said the plan lacks details.
"There is no assessment of risk, no homework, they haven't cited references and haven't done any market surveys. This just doesn't stand up to private-sector standards."
Fraresso is a member of the Professional Engineers Association of Ontario, the body that governs licensed engineers in the province.
He has 21 years of experience preparing multimillion-dollar business plans as a professional engineer for Bombardier Inc. He said he no longer works for Bombardier as the company laid off workers.
Recommendations on the business plan could be forwarded to city council for a May 3 decision by politicians.
Fraresso submitted his review to the board of the Frontenac Condominium Corporation #59 (Leeuwarden).
He acknowledged that he worked in the transportation sector but said the same key steps must be taken to prepare for any large project.
Fraresso said he helped prepare cost estimates of two major Bombardier projects in the United States; the new $1-billion airport people mover project at JFK Airport in New York City and the $600- million Las Vegas monorail.
No market study was done by Kingston to gauge a variety of trends in business, demographics and spending habits of city residents, he noted.
To arrive at conclusions, the business plan relies on comparisons of other communities that built, or plan to build, downtown arenas. Without hard Kingston numbers, Fraresso said city managers can't possibly know whether the city needs, or can support, a new sports complex.
"The business plan is not specific enough in its analysis to make a case for the LVEC since no marketing studies or surveys of the Kingston applicability have been performed," he says in his report. "In fact, without surveys and mathematical sampling, the conclusions contained in the report are misleading if not false."
Fraresso said the business plan errs in its most basic assumptions because Kingston is unlike the markets that provided comparison figures.
Using London and Toronto to draw financial comparisons is ill advised, he said, because Kingston is unique.
"Any statement that the LVEC will draw high-calibre events without sampling and market survey is a significant assumption for an isolated market like Kingston," Fraresso said.
He offers a detailed critique of various elements of the business plan including site and cost, financing and risk assessment.
Fraresso said "there is no factual justification for the selected site."
The mayor's task force suggestion to build on Anglin Bay "has no supporting references such as engineering analysis, cost comparisons or any other elements of an analysis usually used when comparing and selecting sites," he says in his report. "The only reference in the task force report for the preferred location is 'that it is the most exciting site.' This ignores items such as traffic and transportation, social and economic environments, cultural, natural environment and cost criteria."
Fraresso's report attacks the estimated $37.3-million cost in Gedge's business plan.
In the plan, Gedge said the city can build a 5,000-seat arena by borrowing $16 million which will be paid down annually by net operating revenues of $830,000 if the facility is privately managed.
Remaining capital costs, Gedge said, would be covered by $3 million from downtown merchants, $8 million in senior grants, $2 million in fundraising, $3 million in development charges and $3.3 million from reserves.
The cash needed to buy the site would be pulled from city reserves, Gedge said in his business plan.
Fraresso said the city shouldn't rely on the financing model because projections are "overly optimistic, do not have any supporting documentation associated with them, are best-case assumptions without any description on the contingencies."
"Costs are not supported and risks have not been properly evaluated," he said.
Fraresso wondered why the draft business plan didn't include "opinions from investment banks and lenders."
He said Gedge's report was missing "a rigorous risk analysis."
In an interview last night, Gedge said he welcomed any review of his business plan and assured Kingston taxpayers his numbers stand up.
Gedge said he didn't ask for a detailed market study of Kingston because the city didn't need one.
"Since 1996, you have new LVECs built in Barrie, Sarnia, Brampton, Mississauga, London, Guelph and now beginning construction in Oshawa and Sault Ste. Marie this summer," he said.
"In each of those cases, marketing studies weren't done because people don't fully understand the nature of the building going in, it's a brand-new state-of-the art building and you can't ask a simple question. You can bias your question," he said.
A new large venue entertainment centre isn't a Memorial Centre, he said, because it will be built for more uses than hockey and concerts, such as conventions, banquets and large events.
"That's not the basis for doing an objective marketing assessment. What we can do is look at other facilities built in the last 10 years and understand what the attendance has been and what can be expected," he said.
The key is to use real numbers that have already been reported by arena firms across Ontario rather than what would be generated by a marketing study, he said.
Gedge took issue with Fraresso's claim that his business plan numbers are too optimistic.
He said he deferred to the expertise of city financial staff such as interim chief administrative officer Denis Leger and finance manager Gerard Hunt.
With their help, Gedge said, the financing projections were crafted with a very conservative view in mind.
And, contrary to the peer review claims that too little study has been given to the Anglin Bay site, Gedge said all aspects are being fully explored.
"He can say we haven't done our homework, but we have. We've done [geology] work, site-servicing plan, phase one and phase two of environmental [study], phase one of [the] archaeological study, the first phase of the traffic study. The concept plan and a solar study is being done. We'll be doing a wind study," he said. "These were used as a basis for putting together the capital cost."
Except for the first phase of the traffic study, Gedge acknowledged none of the other studies have been released.
"Those studies, by and large, will be coming out as rezoning and Official Plan amendments over the next week."
Gedge rejected Fraresso's claim that he fumbled the business plan by not including more risk analysis.
"In terms of risk, we've tried to mitigate that by having the capital costs based upon actuals from other facilities," he said.
"That's our hedge against risk, dealing with actual experience. "
Last updated May 19 2005