[->] Linda Gyulai - A century-old former biscuit factory in St. Henri got a new lease on life last year when it was refurbished into office space with public and private money and then took in the Southwest borough office as its principal tenant.
But the project to transform 780 Brewster Ave. into cool, eco-friendly offices has not been the sweet deal it was supposed to be for the city, a Gazette investigation reveals. The Gazette has learned:

• The city-owned real-estate corporation that spearheaded the project, the Société de développement de Montréal, poured millions of public dollars into transforming the building into offices with a private partner, only to abruptly – and quietly– sell its stake in the building for less than it invested.
• The Southwest borough is paying $1.1 million a year to rent spacious digs in the building, 50 per cent more than the $753,000 it paid when its offices were scattered across five buildings. Other building owners had offered lower rent.
• The borough's landlord – a numbered company called 9169-6260 Quebec Inc. – owes the city $422,669 in unpaid 2008 property taxes, including interest, according to city records.
As a result of The Gazette's inquiries, Montreal's executive committee has asked city manager Claude Léger to examine the project.
The $15-million Brewster project was supposed to be a win-win public-private partnership, giving the city a stake in a valuable property while upgrading an old industrial neighbourhood. But, through a series of byzantine transactions, the promised benefits to taxpayers have been apparently reduced to crumbs.
How did it happen? And what did city councillors know?

The story begins in 2005. In March of that year, the SDM presented a $3.25-million offer to buy the five-floor factory from Harry Baker, a textile importer-exporter. They eventually settled on $3 million.
The SDM's mandate was to spur development in city neighbourhoods with targeted investments.
Its 11 board members included two city councillors who were there to represent city hall's interests. In 2005, they were the city executive committee chairperson at the time, Frank Zampino, and a then-member of the executive committee, Georges Bossé, who would retire from politics in the fall of 2005.
Baker, who died last year, was thinking of developing or selling the property, according to his son, Paul. Baker even obtained a change to the local urban plan in October 2004 to allow condo development to make the building, which occupies most of the block between Brewster and Bel-Air St., and St. Jacques and St. Antoine W. Sts., more attractive to potential buyers.
The SDM made its offer before the property was put up for sale, Paul Baker says.
The SDM's plans for the Brewster building, detailed in two reports sent to the city executive committee in June 2005 and March 2006, called for the SDM to partner with a well-known St. Henri-based architecture firm, Lemay et associés, to redevelop the property into offices.
The first report said the architectural firm had "expressed an interest" in working with the SDM to redevelop the building and then occupy part of it since it had outgrown its offices.
In fact, the SDM and the firm were already working on feasibility studies to turn the building into rental office space, the report said.
According to the SDM report, the project was a win-win deal for the city:
• The project would bring commercial office space to a strategic location just 250 metres from Lionel Groulx métro station.
• The building would be 95 per cent rented within 36 months.
• And redevelopment would raise the building's municipal valuation from $729,000 to $10 million by the time the project was to be completed in 2007. The report predicted – accurately, as it turned out – that the city's property tax revenue from the building would soar from $28,000 to $400,000 a year on the higher valuation.
The second report said the SDM was supposed to sell the building for $3.25 million to a company to be created by the SDM and Lemay, each of which would own half. The partners would split the $15 million cost of the project.
In all, the SDM would invest $7.5 million: $3 million in cash and $4.5 million in long-term financing.
The reports provided no timeline for the SDM's involvement in the building, but said the organization would pocket "over $1 million net over 10 years" after interest on financing and other costs were deducted from rent.
Two "prestigious tenants" were already confirmed to lease a combined 60 per cent of the building, the threshold needed to ensure the project was viable, the second report assured the executive committee.
The tenants were the Lemay firm, which would occupy a quarter of the building's 133,500 square-feet of rentable space, and the Southwest borough, which would rent 35 per cent.
The borough had said it needed about 50 per cent more space to accommodate its growing personnel.
Still, the Brewster building asked the highest rent of all the places it looked at.
The executive committee approved the SDM and Lemay's partnership in May 2006, and a 10-year lease for the Southwest borough to rent office space in Brewster was approved by city council that month.
It's at that point that a series of complicated business transactions began.
About a week after getting the executive committee's approval, the two partners – SDM and Lemay – set up a numbered company called 9169-6260 Quebec Inc. to buy the Brewster building from the SDM, as planned. Let's call 9169-6260 Quebec Inc. Company A.
In one of its reports to the city's executive committee, the SDM had identified its business partner as Services intégrés Lemay et associés Inc. The report said it was wholly owned by Groupe Lemay, run by Georges Lemay, Louis Lemay and other directors, and had been active in architecture, interior design and project management since 1957.
But Services intégrés Lemay et associés Inc. was not the company that would renovate and co-own the building, Quebec business registry records show.
Rather, a separate company with almost identical name, Services intégrés Lemay et associés, was created to team up with the city. That was the operating name of a second numbered company, 9167-5207 Quebec Inc. Let's call it Company B.
Company B registered Louis Lemay as its president and sole shareholder.
The city executive committee was never told of the decision to partner with Company B instead of Services intégrés Lemay et associés Inc.
Adding to the mystery surrounding the venture, the SDM sold the building to Company A for "good and valuable consideration paid," the June 28, 2006, sales deed reads.
The deed specifies no selling price. It says only that for the purposes of calculating the land transfer duties to be paid, the seller and buyer valued the building at $3.25 million.
And the SDM did not stick around long enough to cash in on its $7.5 million investment.
On Jan. 1, 2007, the SDM was privatized and merged with another municipal real-estate corporation, the Société d'habitation et de développement de Montréal. The board of the now-private, non-profit entity no longer included city councillors.
Quebec business registry records filed on March 29, 2007, show the SDM/SHDM ceased to be a shareholder of Company A, which owns the Brewster building.
The SHDM sold its stake in the building to the Lemay firm for $2 million, executive committee spokesperson Bernard Larin said this week in response to questions from The Gazette.
That was much less than the $7.5 million the SDM said it was investing in the project.
And it is far less than what an independent appraiser told the SHDM the building was worth nine months before it sold its shares in the building.
The 2008-2010 strategic plan of the SHDM, prepared by the accounting firm Raymond Chabot Grant Thornton, listed the Brewster property at an appraised value of $8.2 million as of Dec. 31, 2006. That was even before the building's renovation was completed.
The building's current municipal valuation for tax purposes is $11.75 million.
Meanwhile, the reason the real-estate agency withdrew its stake is a mystery.
The executive committee never authorized the sale of the SDM/SHDM's stake in the Brewster building, Larin confirmed.
The SDM and SHDM have always been required to seek executive committee permission before disposing of or mortgaging real-estate.
In response to The Gazette's questions, Claude Dauphin, the chairperson of the executive committee, and committee member Alan DeSousa, immediately asked Léger, the city manager, to examine the transactions.
The Lemay firm offered to buy the SDM's shares in late 2006, while it was still a municipal body, under the terms of a co-ownership agreement the two had signed, Larin said, explaining what city hall has learned of the transaction.
However, the executive committee never even authorized the co-ownership agreement, Larin said.
It's not clear whether Mayor Gérald Tremblay and the rest of the executive committee were ever aware of the SHDM/SDM's moves. The minutes to executive committee meetings only include resolutions that its members voted to approve, and not what they discussed or voted against.
Lemay did not return calls from The Gazette for this article. "He's not interested," his assistant said.
Today, his firm occupies the top floor of the Brewster building, while the borough has space on the ground floor, first floor and second floor. Two private businesses also occupy part of the second floor, while the third floor appears to be vacant.
The SHDM, which acquired the SDM's assets in the 2007 merger, said it would not answer questions about the Brewster building because the city's auditor-general is investigating its real-estate transactions since it was privatized.
Meanwhile, the SHDM's 2007 annual report makes no mention of the Brewster building sale. And the Southwest borough was never told that the SDM was no longer its landlord, according to city spokesperson François Goneau.
And what about the unpaid taxes?
On May 27 of this year, Quebec business registry records show, Fiducie Carma, a trust administered by real-estate investor Vincent Chiara, Giuseppe Chiara and Stella Vassallo, became a shareholder in Company B.
Vincent Chiara is listed as vice-president, while Lemay is president-secretary and shareholder.
While Lemay would not return calls, Chiara said in an interview that he manages the Brewster property for Lemay.
"We may have a small share (in the company that owns the building) just so that we can manage the property," he said, adding he has worked with Lemay for more than 15 years.
As property manager of the Brewster building, Chiara said he is responsible for making sure the tax bill is paid. But he said he was not aware that the 2008 taxes on the building were outstanding.
The 2008 property taxes on another building Chiara has interests in and rents to the city have not been paid either.
Chiara is one of several company directors of 9177-4380 Quebec Inc., which owes $71,107 in 2008 property taxes, including interest, on 13313 Sherbrooke St. E. in the borough of Rivière des Prairies-Pointe aux Trembles, the city's tax records show. The company controls the building through a long-term lease.
Chiara said he is unaware that tax bill was outstanding as well.
However, taxes are paid up on four other buildings that The Gazette found are owned by companies that Chiara has a stake in, and that have the city or any of the boroughs as tenants.
The municipal taxes are also paid up on 10 other buildings with different owners where the city or boroughs rent office space, The Gazette found in a search of property tax records.
The city's Goneau said the city charges daily interest on unpaid taxes and sends multiple reminders to owners before the city auctions a property with unpaid taxes in November of the following tax year.
The Brewster building's tax bill for 2008 was $477,219. A $100,000 payment was made on Sept. 30, but interest has accumulated. The 2008 bill on the Pointe aux Trembles building was $138,088, while a $30,000 payment was made on Oct. 24 and a $50,000 payment was made on Dec. 2.
Chiara, who says he owns 7 million square-feet of real-estate in Montreal, said he would look into why the taxes were not paid in full on both buildings and ensure they are paid.
The city's auditor-general, who is to complete his examination of all SHDM transactions since its privatization by March, will determine what city taxpayers gained or lost financially in the Brewster project.
City hall will wait for the auditor-general's report before commenting on the Brewster case, Larin said.
In the meantime, the Tremblay administration, which has come under fire for privatizing the SHDM, has already said it intends to turn it back into a municipal body again.
The Brewster project was supposed to be a winning deal for city taxpayers, but somebody, somewhere did not follow the plan.
lgyulai@thegazette.canwest.com