The Ben Eoin Shuffle

Four businessmen, a doctor and a physiotherapist walk into a bar…

Just kidding! Actually, they walk into a small community in Cape Breton and buy up a number of recreational properties that, together, have been on the receiving end of hundreds of thousands of dollars in public money.

Under the catchy name 3312636 Nova Scotia Limited, Mike Kenny, Troy Wilson, Rodney Colbourne, Steve MacDougall, Siva Thanamayooran and Glen Brann recently bought the land on which the Ben Eoin Yacht Club is situated for $150,000.

They have also purchased the Aerie Estates subdivision in Ben Eoin for $445,000 and The Birches at Ben Eoin Country Inn for $675,000 (The Birches originally went on the market in 2013 for $1.7 million but as of 2015, the price had been dropped to $1 million and the CBC was reporting there were no takers.)

Colbourne told the CBC the group also owns shares in The Lakes Golf Club and that their aim is basically to realize Enterprise Cape Breton Corporation’s (ECBC) original dream of turning Ben Eoin into a “Four Seasons” resort area.

 

The Four Seasons

Back in 2013, then-ECBC CEO (now Port of Sydney CEO) Marlene Usher, defending her organization’s decision to invest $4 million in the Ben Eoin Marina, outlined that dream for the CBC this way:

…Usher said the Ben Eoin Marina is part of a much bigger development that includes a nearby ski hill and golf course and has the potential to bring millions of dollars in tourism and new jobs to the island.

…Usher said the development at Ben Eoin includes new housing subdivisions with room for a hilltop hotel. She said the development has the potential to generate tens of millions of dollars in new investment and hundreds of new jobs.

There are almost too many dodgy ideas in that excerpt to list.

Oh, what the heck, let’s single out one dodgy idea: the notion that putting $4 million into the Ben Eoin Marina would help create “hundreds” of jobs when the actual business plan for the Ben Eoin Marina said it intended to “hire one full time, seasonal staff person to run the facility from May through the end of October” as well as one summer student from July 1 to August 31, to cover whose salary it would “apply for a student grant.”

But the strangest thing of all, I think, is the mix of public and private investment and for-profit and non-profit entities involved. It’s a really tangled web, but worth trying to untangle, I think, so you’ll know when public money is going to fund a community-minded, non-profit organization and when it’s going to fund a private sector, for-profit business.

So let’s start with the people buying up Ben Eoin. Brann and Kenny are both involved in other Ben Eoin organizations (for- and not-for profit), as you can see for youself thanks to the new annotation feature I’m experimenting with. Click on any of the names below to see any connections the owners of 3312636 Nova Scotia Limited have to other Ben Eoin entities:

Mike Kenny, Troy Wilson, Rodney Colbourne, Steve MacDougall, Siva Thanamayooran and Glen Brann.

 

Pictures

Now, for the development itself or rather, the developments. (And once again, I will use the annotation feature, so if you want further information about a highlighted company, just click on it. Note that the information comes from the NS Registry of Joint Stocks website and was up to date as of 17 September 2018.)

In discussing the Ben Eoin development, Usher referenced the marina, the ski hill, the golf course and the residential subdivision (Aerie Estates) but I want to start with another entity entirely — Ben Eoin Recreation Incorporated, a Nova Scotia limited by guarantee company incorporated and registered in May 2014, according to the NS Registry of Joint Stocks. (A limited by guarantee company is one of the forms a not-for-profit can take in Nova Scotia.)

According this 2013 Cape Breton Post story, Ben Eoin Recreation Inc is an “umbrella group involving Ski Ben Eoin, the Lakes golf course and Ben Eoin Marina.”

The subject of the story is Aerie Estates, the Ben Eoin subdivision ECBC created at the same time it was funding the Ben Eoin Marina, clearing 16 building lots on a hill next to the ski slope and building a $1.1 million access road (now owned by the CBRM). The point of the article was that ECBC was about to begin selling those initial lots but if “additional subdivision development” were to take place it “would fall not under ECBC but Ben Eoin Recreation.”

I can’t explain how a company incorporated in May of 2014 came to be referenced, as though it already existed, in a Post story from March of 2013, but the point is that this not-for-profit entity was created as an umbrella for a number of other entities — and what is striking is how many of those other entities are for-profit companies.

Before I “use my words” to try to explain it, I’d like to share with you this (very rudimentary) diagram of my own devising. “For profit” Ben Eoin entities are green, “not-for-profit” Ben Eoin entities are pink (you’ll want to click to enlarge it):

 

 

From what I have read, it is acceptable for an incorporated non-profit to engage “in an income-generating activity that is carried out in a taxable, wholly-owned corporation” which “pays dividends out of its after-tax profits to the organization to enable the organization to carry out its not-for-profit activities.” A nonprofit doing so will not lose its tax-exempt status.

That looks like the case for the marina and the ski hill.

But what about the golf club? How does a straight-up, for-profit entity fit into this scenario? The Lakes Golf Club is not a “for-profit” subsidiary of a nonprofit company — it’s a for-profit subsidiary of a for-profit company that has some unclear relationship with a not-for-profit company, Ben Eoin Recreation Inc.

This sounds like a tax attorney’s nightmare. (Or dream job. You can never tell with tax attorneys).

 

Non-profit umbrella

As the Spectator has noted before, this mix of for- and not-for profit entities has not gone unremarked:  in 2015, when then-Ben Eoin Recreation Inc. President Sandy Macneill went to the CBRM with a request for $350,000 from the municipality’s Sustainability Fund:

Dist. 4 Coun. Claire Detheridge expressed some reservations about supporting the golf component of the project, although she fully supports the ski hill.

“This is a new golf course and we’re getting into paving and putting greens and driving ranges and cart paths … what’s to stop all the other golf course to start coming in, looking for money for upgrades?” she said.

Macneill said some of the improvements that will be done to the golf course will also be enjoyed by the ski hill.

Ben Eoin Recreation did, in fact, receive $175,000 in 2015 from the Sustainability Fund which specifically requires that recipients be “registered Canadian Charit[ies] or non-profit societ[ies] registered with the Nova Scotia Registry of Joint Stocks.”

So you can see the value in having a not-for-profit umbrella over your for-profit company.

(Frank magazine did, pointing out Ben Eoin’s profit/not-for-profit difficulty as soon as it read that Post article.)

 

MIA COO

One final note on Ben Eoin Recreation Inc: the organization hired a Chief Operating Officer in May of 2015 — Jim Gilbert, a former Atlantic Lotto managing director. The CBC interviewed him in October of 2015, when he was hoping “to grow the operation while making it more inclusive and accessible to locals.”

But he seems to have left without so much as a goodbye — his LinkedIn profile shows him back in Moncton where he is a “Managing Partner at Rising Tide Group.”

More interestingly, his CV makes no mention of his time with Ben Eoin Recreation:

Jim Gilbert LinkedIn CV

Source: LinkedIn

That doesn’t indicate a happy work experience. I wonder what went wrong?

 

Words

Here’s the rundown on those various Ben Eoin entities in words, annotated for your enlightenment:

 

Ski Hill

The Ben Eoin ski hill was established in 1968 by The Cape Breton Ski Club (a not-for-profit society) with assistance from the Cape Breton Development Corporation (Devco), which had been formed just a year earlier.

In 2010, The Cape Breton Ski Club (which, you’ll note, had survived since 1968 as a strictly not-for-profit entity) registered the for-profit Ski Ben Eoin, which lists “Alpine skiing, snowboarding, cross-country and showshoeing” as the nature of its business.

 

Marina

In 1998, the not-for-profit 3024152 Nova Scotia Limited was established, changing its name in 2006 to Ben Eoin Golf Ltd before changing it again in 2009 to Ben Eoin Marina Ltd. It remains a not-for-profit, limited by guarantee company.

In 2013, Ben Eoin Marina Ltd registered the for-profit Ben Eoin Yacht Club, which lists “Marina/Recreation Facility” as the nature of its business.

 

Golf Club

In 1999, The Cape Breton Ski Club purchased the land on which the golf course and marina are located with financial assistance (in the form of two, $300,000 forgivable loans) from ECBC and the Province of Nova Scotia.

In 2006, the for-profit 3146392 (an NS limited company) was established and in 2007 changed its name to Ben Eoin Golf Club Ltd (also an NS limited company). In 2007, it registered the for-profit The Lakes Golf Club.

Also in 2006, a second golf-related company was registered: 3146391 Nova Scotia Limited which changed its name later that year to Ben Eoin Golf Holdings Ltd. It is a for-profit company but has no related registrations, so I am not sure how it fits into the overall scheme of things.

 

Aerie Estates

At the same time it was building the Ben Eoin Marina, ECBC built the road and cleared the land for the Aerie Estates subdivision. When ECBC was absorbed into ACOA in 2014, any of its properties declared “surplus” went to Public Services and Procurement Canada (PSPC) to be sold off.

Earlier this year, the businessmen, doctor and physiotherapist we’re discussing bought all 15 remaining lots for $445,000. For the record, the properties were originally expected to sell for prices between $70,000 and $100,000. As mentioned earlier, one sold, the rest ended up on the block for $525,000 for the complete set of 15.

In the end, however, they didn’t even fetch the discounted $525,000 price, which was supposed to allow the feds to recoup some of the $1.1 poured into the access road. The final purchase price was $445,000, or roughly 40% of the road construction costs.

(The group, as noted elsewhere, is behind the numbered company 3312636 Nova Scotia Limited which has also registered Ben Eoin Development Group.)

 

The Birches

In 2003, ECBC put out a call for proposals for the land (9.75 acres) on which The Birches at Ben Eoin Country Inn now stands and the winning bidders got the land at a nominal price and received loans worth $530,000 and non-repayable contributions worth an additional $112,220 from the development agency.

In 2013, the couple who owned the Inn — which at that point, had never turned a profit — put it on the market for $1.7 million. By 2015, the CBC was reporting that the price had dropped to $1 million but still nobody was biting.

Earlier this year, as noted above, the businessmen, doctor and physiotherapist bought it for $675,000. It is now listed in the NS Registry of Joint Stocks as The Birches at Ben Eoin Country Inn Limited.

 

Sub-marina

The strangest deal in this recent flurry of business activity in Ben Eoin has to be the sale of the land on which the Ben Eoin Marina is situated.

As mentioned, the land in question was part of a parcel purchased by The Cape Breton Ski Club in 1999 and it was the Ben Eoin Marina board’s only contribution (valued at $800,000) to the $4.8 million marina project — ECBC contributed the remaining $4 million, in the process breaking its own rule against providing more than 75% of a project’s funding.

Having made such an outsized investment in the marina, the feds announced they intended to protect it,  as Gerard Shaw, then-ECBC director general of property development, told the Post in a 2012 story headlined “Ben Eoin Marina will belong to ECBC” which I think is worth quoting at some length:

Taxpayer money spent on a Ben Eoin marina is protected through the ownership arrangement with the project proponent, says an Enterprise Cape Breton Corp. Official.

Gerard Shaw, ECBC director general of property development, said the Crown corporation will own the facility and lease it to a community group.

Under the funding arrangement, ECBC takes ownership of the marina and leases it back to Ben Eoin Marina Ltd. on a long-term basis. If the group is unable to operate the facility, ECBC would take control of it…

ECBC determined that taking ownership of the marina and leasing it to the group would provide the best security for its investment, [Sydney lawyer and Ben Eoin Marina Ltd. director Robert] Sampson said.

‘They were quite conscious of the size of the investment they were making, there’s been tonnes and tonnes of investments made in things with similar ratios and lots of them are here and gone now, but from ECBC’s point of view, a lot of those investments they’re making in some kind of private business,’ he said.

‘It’s a community initiative so to make sure that it doesn’t get sold or that it doesn’t get mortgaged up to the point where a bank can come in and foreclose, that was the best way for them to make the investment and at the same time from their point of view provide a level of protection.’

In 2013, the Post was still reporting that, “ECBC took ownership of the marina and is leasing it to Ben Eoin Marina Ltd.”

But it turns out this was not true: ECBC didn’t take ownership of the marina, it took ownership of the land on which the marina sat.

 

Liability?

I spoke to Shaw on Monday and he said that ECBC never intended to take ownership of the marina facility — that it had always intended to retain ownership of the land only. I had sent him the 2012 Post story and somehow, he read it as saying just that, although I don’t see how you can interpret, “the Crown corporation will own the facility and lease it to a community group,” as “the Crown corporation will own the land underneath the facility and lease it to a community group.”

At any rate, ECBC retained ownership of the land which it rented to the marina board for $1 a year on a 50-year lease  (with an option to renew for 50 years or to buy at the 20-year mark). When ECBC was dissolved, ownership of the land passed to PSPC which determined it was “not a requirement for the ongoing government of Canada business,” said Shaw “therefore it was declared surplus” and, earlier this year, sold to our group of enterprising businessmen and medical types for $150,000.

Shaw told the media at the time that the market value of the land was actually $12,000 (due to the $1 a year lease) and that the $150,000 offer represented the best deal they could get for “Canadians.” (The winning bidders beat out the owners of the actual marina facility.)

But I asked Shaw why, if the government had retained ownership of the land to protect its $4 million investment, it had now decided to sell it off? Did it no longer feel the need to protect the investment?

Shaw replied that the terms of the sales contract continue to protect the government investment because if the owners of the marina facility were to end up defaulting (say, they failed to pay all their bills, not just their $1 a year rent) and the building were to revert to the land owners (which, apparently, it would), said land owners could only sell the marina for market value (based on a new appraisal) and would have to give 50% of whatever they earned to the federal government.

But Shaw also offered another explanation as to why the federal government might have been anxious to “get out from under” the Ben Eoin property:

If you look, we’re on the Bras d’Or Lakes, it’s a marina, there’s gas, there’s all kinds of things, so the federal government owning that, it could be drawn into a liability in the event anything were to happen.

Which is interesting, considering one of the (many) criticisms of the marina was that it was constructed with what the CBC termed “minimal environmental approvals.”

I suggested this should have been just as much a concern when the federal government first decided to make such a significant investment in a marina on the Bras d’Or Lakes. Shaw agreed, but said:

I can’t predict what would have happened [with ECBC] but my guess is at some point in the future they would have sold [the land] because there was a buyout clause after 20 years in the lease anyway.

But it strikes me that the Ben Eoin Marina board stressed its status as a “community” organization throughout its discussions with the government on the project and even if you don’t buy that status (and frankly, I don’t) it seems strange to opt to sell the land under a supposed “community” asset to a for-profit company,

And what is the point of owning the land under the Ben Eoin Marina, if the marina has a 50-year lease at $1 a year on the property and an option to buy at the 20-year mark (or extend another 50 years)? The only advantage I can see is if the facility owners default and you end up owning a marina (unlikely, surely) or if the sale price is higher than $150,000 you paid – so the question is, how will the sale price be determined?

I asked PSPC that earlier and was told, by senior communications adviser Aaron Bower, that:

[W]hen the option to purchase the land arrives in 2031, its price would have to be an amount agreed to by the Marina owners and the land owner, determined through a negotiation.

I would like to be a fly on the wall for those negotiations…

 

Follow the (public) money

So, what is the point of all this?

Believe me, after my 500th visit to the Registry of Joint Stocks website, I was asking myself the same question. But I think the answer is that millions of dollars in public money have been spent in Ben Eoin on the promise of “tens of millions of dollars in new investment and hundreds of new jobs,” none of which has materialized.

Instead, the most likely scenario now seems to be that the millions spent in Ben Eoin may benefit six private investors who are buying up pieces of the “development” at fire sale prices.

Perhaps they will put “tens of millions” into it and create “hundreds of new jobs.” More power to them.

What I will be watching is to see if they come back to the  public looking for further support — whether as a for-profit business or hiding behind the skirts of the not-for-profit Ben Eoin Recreation — because honestly, I think we’ve done our part.

 

 

 

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