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WhatDoYouDo.html June 23, 2004

What Do You Do?

Introduction

Keanu Reeves said to his partner over and over again in the film, Speed, “What do you do? What do you do?” The situations that Keanu described were increasingly difficult to solve.

Keanu Reeves in Speed

Someone takes your partner hostage, “What do you do?” Reeves asked. He answered that one—you shoot the hostage, which he promptly did. He received a police medal for it. Only in the movies, one would think.

A company I am involved with, let’s call it NNJ (not its real name), owns three parcels of land six minutes from the Corel Centre in Ottawa. These lands are zoned for Golf Driving Range (23 acres), Motel/Hotel and Fast Food (9 acres) and FEC (Family Entertainment Centre—32 acres).

The lands are on a major highway (Highway 417, aka the Queensway) and at a major interchange we did not have to build and pay for ourselves (unlike the Corel Centre interchange which we did have to build and pay for ourselves at a cost of $30m+).

If you think about it, Ottawa has some world class attractions (like the Museum of Civilization, the Parliamentary Precinct, the Rideau Canal) but frankly not much for kids to do in the summertime.

There is Mont Cascades Water Park that Rick Hunter of ProSlide started in Québec and there are some neat things to do on the Ontario side if you are willing to drive up to Beachburg and go white water rafting with a company like Wilderness Tours on the Ottawa River. That’s a trip time of one and a half hours though.

But suppose you are the owner of these lands instead of NNJ. The lands have been sitting there since Rip Van Winkle went to sleep and aren’t doing much for you except costing you money for property taxes and interest on mortgages you incurred to buy the properties in the first place. So what do you do to get things moving?

How do you get real estate moving? What are some of the things one can do to gather momentum in the absence of unlimited capital?

What would a speculator do? What would a small developer do? What could a landowner do? He or she might:

a) add signage to the property announcing something;

b) put the property up for sale;

c) put the property up for lease for a permanent or temporary use;

d) try to recruit a partner with expertise to develop one of the uses;

e) move earth around;

f) dig a pond;

g) cut the grass;

h) add a French fry truck and ping pong table;

i) call a neighbor;

j) try to add a billboard;

k) start something yourself;

l) change the zoning;

m) direct market the lands;

n) buy out your partners;

o) try to put the lands into a state where they can be held for five years without sinking the ship;

p) wait and hope.

What if you tried all of these things and nothing worked. What would you do?

Background

I became involved with the project when Tim (not his real name) approached me to assist him in developing a Water Park on 30 acres of land he owned in West Carleton, a western suburb of Ottawa.

Tim was an accomplished home builder and building and owning a first class water park was a dream of his and his spouse, Mary. They had purchased 30 acres of land, rezoned it (a heroic achievement in NIMBY afflicted Ottawa) and prepared a fantastic plan for the development of the Park.

He wanted to own most of the equity interest in the project but he also wanted partners to help defray some of the costs and risks. He also wanted to buy the front lands from MTO (the Ministry of Transportation Ontario) that had expropriated the lands from the original owners to expand the Highway and to put in the full interchange.

64 Prime Acres?

I brought in Joanne Clifford and Joe Kowalski from Wilderness Tours (WT) and Mount Pakenham (MP) as co-investors and strategic partners. A strategic partner means that they bring more than money to the table. They bring credibility and connections and synergy.

The idea was that WT and MP and the new Water Park would form a west end Ottawa triangle of entertainment assets and would co-market and co-promote and co-manage their assets for mutual benefit.

Joanne and Joe had made the biggest disadvantage of MP into its largest selling point in a brilliant marketing move—they made the fact that MP ash the tiniest amount of vertical into a huge selling feature. They made it the number 1 learning centre for snow boarding and skiing in Eastern Ontario.

It was a marriage made in heaven or so I thought.

They successfully acquired the front piece from MTO and rezoned it as well. The financing was the next challenge and it was terribly difficult. A competitor, Dan Milks, a retired school teacher had convinced the NCC to lease on a long term basis 30 acres to him on Carling Avenue for a water park and we knew he was in the market for financing too.

He had the advantage of being closer in to town and he had a fine plan too.

We came close to having a completed financing plan in 1997 but it was expensive. A fund in New Jersey was looking at providing the financing but the face rate on the funds was 12% and there were a lot of fees that could easily have raised the COF (Cost of Funds) to complete junk status—16 or even 18%.

Tim and Mary were scared of these types of numbers and justifiably so. If you don’t make your numbers (the new Water Park had to attract 220,000 visitors to make the numbers), you can get into financial difficulty in a hurry.

The idea behind high leverage and high price financing is to replace it one or two years out with less expensive financing after proving the concept and putting in a year or two of solid results on your FS (Financial Statements). The problem with this approach is that problems usually occur in the first year or two or five years of a project; so your FS may not look all that grand as you learn how to run the biz and how to market it—what works and what doesn’t often can only be discovered by doing it.

The key to successful marketing is to find the combination of things that drives customers to you without you having to knock yourself out too hard to find them. This is mostly experimental work.

Anyway, Tim and Mary were spooked and wanted out. As good partners we supported the change in direction and agree when Tim said he wanted to put the lands up for sale.

However, when he decided he wanted to realize the quick sale value (QSV), we felt that he was selling himself and his partners short. He put the lands up for sale at 1/4^th of the Appraised Value. Joe and Joanne went along because by this point they were prepared to realize whatever they could and write off the difference. We did not.

We suggested that Tim reconsider but in the event that he would not, our representative on his Board of Directors would resign and we would consider a bid for the lands. We bid for the lands and bought out Tim, Mary, Joe and Joanne.

Tim paid off his debts and went back to homebuilding; Joe and Joanne went back to their ‘knitting’.

We looked at Tim’s plan and decided to rework it a bit. Instead of 64 acres for a water park, why not try to diversify?

So we did—the result was a plan that looked like this:

NOW Park, Circa 1998

We felt that an FEC (Family Entertainment Centre) might work better—the season is a bit longer and a bit less weather dependent. It still has water rides but it would also have Go Karts and other things like that that would be the type of things people would do even if the weather was less than perfect, a frequent occurrence in a cold, northern shelf city like Ottawa.

So an FEC together with a Golf Driving Range and Motel/Hotel site with Fast Food might work well together. Also, there is a brand new Petrol station across the street with a large c-store attached to it so we could have the makings of a pretty good ‘travel centre’ on a major interchange on the Trans Canada Highway as you approach Canada’s Capital City.

Imagine cruising down the Trans Canada and one of those blue TODS (Tourism Oriented Destination Signage) says next exit: Fuel, Food, Lodging, Water Park/FEC, c-store and Golf Driving Range. A pretty good combination of uses to entice people to get off the Highway and stop and ‘buy, buy, buy more now’ (from George Lucas’ first film THX1138).

In 2004, on June 1^st to be precise, the neighboring Carp airport was taken over by a group—West Capital Developments. Their exciting plan is to build a fly-in residential community of 750 homes with 150 of them linking to the taxiways.

You can read their executive summary which will give you a better idea of what they have in mind.

They were involved with the Spruce Creek Fly-in Residential Community in FLA.

Spruce Creek Fly-In Residential Community

They intend to bring water and sewer to their site from Carp Village and develop the project in phases beginning in two years. So this is good news for the lands next door.

Problems, Problems

But Ottawa now has a bit of a bad rep for entertainment assets at this moment in time—last year (2003) the Corel Centre, the Palladium Corp., the Ottawa Senators Hockey Club and their parent company, Terrace Corp., all went into bankruptcy, so financing these types of assets here is problematical to say the least.

So would Rick Hunter (Owner of Pro Slide and Mont Cascades) take a look at it or how about new owner of the Sens, Eugene Melnyk? Probably not. I would think Mr. Melnyk has enough on his plate with the Sens, the NHL/NHLPA situation and his pharma company and Mr. Hunter runs one of the world’s most successful water slide manufacturers already.

So what do you do?

Nothing. Wait for the land to mature. Wait for WCD to get underway?
Try to get something going yourself with all the risks involved?
If yes, what goes first? Golfland? NOW Park? Motel? Fast Food?
Bootstrap it? Mega finance it?
Try to sell it?
Try to lease it?
Change the zoning again?
Something else?

Confidential and Proprietary. Dr. Bruce M. Firestone, Ottawa, Canada. June 2004.