Mondo Condo Makeover a Looming Nightmare for

UFCW
Are Pension Gurus Backing Job Destruction Scheme?

If you had a $32 million investment in a hotel and learned that the owners planned to turn
it into ...something other than a hotel, you'd want to know what was going on - right?
Similarly, if you came to work one day and saw a sign announcing that your workplace
was soon going to be ...something other than your workplace, you'd want to know about
that too - wouldn't you?

Workers at the Travelodge Hotel at Keele Street and Highway 401 in Toronto's west end
have been living with uncertainty on both fronts for a long time now. Earlier this year, a
large banner draped across the roof of one of the hotel's two 10 storey towers announced
that the hotel will soon be converted to condominiums. Since then a presentation center,
sales office and model suites have been opened to promote the Westmount Condos. Ads
are running in local newspapers and a recent story in the Toronto Star stated the building
was sold earlier this year to Joe Ieradi, a local builder. According to the story, Ieradi has
come a long way since those days. He now runs a construction company called Dacapa
Construction and intends to convert the hotel into 247 condo units ranging in price from
$98,000 to $440,000.

The obvious impact of this kind of conversion on the hotel workers, who are represented
by United Food and Commercial Workers Union, is the certain loss of their jobs. But
there is another dimension to the relationship between these workers (and about 180,000
of their UFCW sisters and brothers), and the current owners of the Travelodge. As
members of the UFCW's Canadian Commercial Workers Industry Pension Plan
(CCWIPP), they have a substantial investment in this and other hotels - at least $30
million dollars from what we can tell.

Despite their status as employees and investors, it seems that so far nobody's told them
what's going on. Their employer has been silent on the subject and so has their union.

MfD Goes in For a Look

Knowledge is power and there's nothing we like more than bringing knowledge to
working people. Here we go again. We've done some digging and want to share some
information that we've unearthed with the workers at the Travelodge, members of
CCWIPP and interested members of the community of workers.

We've had an interest in the goings-on at this hotel for a long time now. It's twin towers
have loomed large in the investment strategies of the UFCW's pension fund and in its
relationship with a man who built a real estate empire with the retirement money of
thousands of service industry workers. He's in this story as well.
For more than a decade after it was built in the 1970's "The Triumph" as the hotel was
originally called, was a busy bustling kind of place. In the early 80's it was a favourite
hang out for labour relations people. The scene of countless bargaining sessions and
arbitration hearings, its off-ramp location and dark decor made it an ideal spot for
backroom meetings. Corporate wheeler-dealers and their union partners would meet,
wheel and deal and go on their way. Apart from labour-management couples, the hotel
attracted a wide range of clients - business functions, vacationing families and even a
mafioso or two (a local mobster was reported to have hung out there just prior to turning
up in the trunk of his car - some MfD contributors have posted the media reports in our
forum).

So it was with much enthusiasm that MfD visited the Travelodge recently - to condo-shop
and have a look around. At the 10th floor presentation center we checked out three cozy
but stylish model suites and chatted for a while with a sales representative.

We were told that the entire building was to undergo a major renovation. A complete
retrofit of electrical, mechanical, plumbing, heating and air conditioning systems was
planned. The interior of the building would be gutted two floors at a time starting with
the 9th and 10th floors and working down to the main floor. The exterior of the building
would be refaced with stucco to give it the appearance of a "Tuscan Villa". The location
of the entrance way and the driveway from Keele Street would be moved to make it more
convenient for the new residents. The existing swimming pool would be removed and a
new pool installed in a different location. The ground floor would be converted to retail
space and a large - 40,000 square foot fitness facility ("a Bally's or something like a
Bally's") would be added.

The above ground parking garage, a separate structure located behind the hotel, would be
enclosed and stucco'ed and a tunnel connecting it to the main building would be opened.
A parking space could be had for an additional $15,000.

It was anticipated that some units would be ready for occupancy by January 2005 and
that all units would be ready by May 2005. The builder needed to sell about 150 units
before the conversion project could begin. We were told 90 units had been sold and
another 65 or so needed to sell before the project would start.

"And what about the hotel?" we asked. How long would it continue to operate? We were
told that the hotel would continue to operate during the renovation. Existing floors would
be closed two at a time as the renovation worked its way down from the top. The hotel
would close once the condominium construction reached the first and second floors.

In response to our questions about the builder, the sales rep told us that Joe Ieradi and/or
his company, Dacapa Construction, owned the hotel. Ieradi worked on the original
construction of the building back in the 1970's the sales rep said, repeating the "feel
good" story from the Toronto Star. We picked up some promotional materials including a
glossy brochure showing an artist's depiction of the renovated property.
It all sounded really good - and ambitious. The scale of the renovations was really big.
Could it be ready by Jan. 05? Time for a little due diligence (something anyone who is
considering buying a property of whatever kind should do). Here's what we learned:

Let the Record Show

• According to records at the Toronto Land Registry Office, Joe Ieradi did not buy
the hotel earlier this year or at any other time. Ieradi is not the owner of the hotel.
The current owners are Royal Host REIT (a a real estate investment trust and
Chimo Hotels of Canada who have owned the property since 1998.
• Over a half million dollars in liens have been registered against the property and
its co-owner Chimo Hotels (a company controlled by the former Father Ron
Kelly) since 2002, by federal and provincial agencies with respect to unpaid taxes.
Six liens totaling $365,024 were registered on September 9, 2002 by the Ontario
Minister of Finance and three more liens totaling $138,207.85 were registered
April 21, 2004 and May 12, 2004 by the Minister of National Revenue. As we
understand it, the ownership of the hotel can't be transferred (i.e., the hotel can't
be sold) until these liens are settled.
• Records at the Land Registry Office also showed the considerable investment that
the UFCW's pension fund has in this property: A total of $32 million - $10 million
to Chimo Hotels and $22 million to Royal Host (which also has another mortgage
- for $30 million through another lender, BCMP Mortgage Investments).
Mortgage documents indicate that Royal Host took out the $52 million mortgages
to buy two of Father Ron's hotels (the Westin in London, Ontario, and the Chimo
in Ottawa) and a 50% interest in the Travelodge in Toronto (known as the Howard
Johnson Plaza at that time).

The scale of the renovations struck us as pretty large. An entire retrofit of electrical,
plumbing, heating and air conditioning in two 10 storey towers. Refacing of the exterior
of the building. The addition of a swimming pool and huge fitness center, a new entrance
way, a complete reno of the parking garage including enclosing the structure. All of this
is pretty extensive work. An occupancy date of January 2005 might be possible but it
sounded somehow optimistic. Had the proposed changes been approved by the City? Had
building permits been applied for? Was a zoning change necessary? How long did it
normally take for the various approvals and permits that might be necessary?

We checked in at Toronto Urban Development Services (North York Office) where we

learned that while no zoning change was required for the conversion, to date, no
application had been made for a Draft Plan of Condominium (the first step for people
who want to create a condo), no site plan had been submitted for approval and no
building permits had been applied for. The time required for the various approvals varies
depending on the project, however, site plan approval (which comes before building
permits can be issued) can take about four months. Occupancy in early 2005 was not
impossible but it was ambitious.
Of course, when researching anything your best friend is the Internet. It's a source of all
kinds of information that you wouldn't otherwise be able to get your hands on.
Performing a simple Google search on terms like "Westmount Condominiums", "Joe
Ieradi" and "Dacapa Construction" we learned that a similar conversion scheme for the
hotel was in the works a couple of years earlier. This one called for the building to be
converted into a combination hotel and condo called The Hotel Residences. These were
supposed to be ready for occupancy in the fall of 2003 and were being promoted by
Baker Real Estate - the same firm that is currently promoting the Westmount Condos.
The Hotel Residences did not get off the ground although the web site promoting the
project is still online. The Residences appear to be pretty much the same as the
Westmount Condos except that the Residences were a combination condo and hotel.

What's the Story?

What's going on? If we were potential buyers, we might have a few questions - about
things like the occupancy date, the builders' schedule for seeking the necessary approvals,
what would happen if the 150 units are not sold by a certain date, how you retrofit things
like plumbing two floors at a time, why the parking garage doesn't appear in the sales
brochure (the building where it is situated is called "future residential") and stuff along
these lines . As worker/investors we'd have a few more questions:

• When will the hotel be closing? Who will be affected and when?
• How does the hotel's management intend to provide services to guests as the
number of floors that are open for business shrinks from ten to two?
• What health and safety issues will workers face it they are working in a building
where a significant renovation is underway? Who will be looking after this
important aspect of their employment?
• Why is Joe Ieradi calling himself the owner of the property when Land Registry
Office records indicate that he is not?
• Why are there a half million dollars worth of liens on the property? Who is going
to pay off these liens if/when the building is actually sold to Ieradi?
• How big a role is Chimo Hotels playing in the conversion scheme? Why hasn't
Chimo Hotels been paying its taxes?
• Why did the earlier project, the Hotel Residences - which looks almost identical
to the current one - go nowhere?
• How will the conversion project affect the workers' multi-million dollar
investment in the hotel?
• Who's putting up the money for the massive renovation?
• What will happen if the conversion scheme falls flat? How much business has the
hotel lost since the "condos coming soon" sign went up? How will the owners
recoup that business? Who will pay for the renovations that the hotel so badly
needs if it is to compete with other Toronto hotels?

Considering the history of this and other CCWIPP investments in the hotel industry we -
and any concerned worker/investor can be forgiven our nosiness and lack of trust.
In Ron We Trust

It was at this hotel in the early 1990's that UFCW Canada's CCWIPP began its
investments in the hotel industry. We've discussed those investments in a good deal of
detail in our Full Disclosure Series. The Keele Street hotel and the intriguing web of
union officials, pension fund trustees and accommodation industry opportunists was
featured prominently in our popular article Haunted Houses of Labour.

It was CCWIPP's investment in this property that helped the disgraced former Catholic
priest Ron Kelly build a real estate empire and launched a hotel management firm called
AFM Hospitality Corporation (another business that Kelly had a hand in starting and in
which CCWIPP has significant investments).

Kelly's company, Kelloryn, purchased the hotel out of bankruptcy in 1992 for $9 million.
Through two of its "I.F. Propco" investment corporations, CCWIPP loaned Kelloryn $15
million towards the purchase ($7 million through Propco 14 and $8 million through
Propco 16).

• Why did the union's pension fund loan Kelly $6 million more than the hotel was
worth?
• Why were these loans never registered against the property at the Land Titles
office? (It's typical for lenders to register mortgages and other loans that are
secured by property against that property at the Land Registry Office. That way,
other lenders can tell what kind of encumbrances are on the property if the
borrower subsequently tries to borrow more money and put the property up as
collateral.)

Those are just two more questions to add to the long list. There would in fact be no public
record of the $15 million loans at all were it not for a 1996 decision of the Ontario
Labour Relations Board which examined in some detail the transactions between
Kelloryn and CCWIPP in connection with the purchase of the hotel four years earlier.

Over the next few years, CCWIPP's investments in the hotel would escalate by another
$8 million. CCWIPP's financial statements for 1997 show a total investment of $22.7
million - $10.9 million through Propco 14 and $11.8 million through Propco 16.
According to the financial statements, the total of $22.7 million represented the "fair
value" of the property, but that can hardly be the case since a year later, in 1998, Kelly
sold the hotel to Royal Host and Chimo Hotels for $11 million.

Royal Tease

A Royal Host media release from September 1998, described the sale:

Calgary, September 15, 1998 - Royal Host Real Estate Investment Trust (Royal Host)
announced today that it has agreed to acquire a $52 million package of three hotels
containing 940 rooms. The properties include the Chimo in Ottawa, the Westin in
London, and a 50% interest in the Triumph Howard Johnson Plaza Hotel in Toronto.

"We are extremely pleased with the acquisition of these hotels," said CEO R.B. Royer.
"These are profitable, high quality properties which will make an immediate positive
impact on our earnings and cash flow. We will increase margins and reduce risk by
implementing our operating strategy, which is to lower fixed costs, de-emphasize food
and beverage operations, and focus on room sales. We are also pleased to have obtained
the favourable financing required to complete this deal."

The media release went on to say that:

The acquisitions will be financed in part through a $22 million private placement of
convertible debentures. The 5 year, 8% debentures may be converted into Royal Host
units at exercise prices of $10 and $11 per unit, or retired by Royal Host through the
issuance of units.

What this means is that CCWIPP investment corporation can convert the $22 million loan
into Royal Host shares and Royal Host has the option of paying back the loan in shares
rather than in cash. The mortgage agreement also states that the company also has the
option of paying the interest on the loan in shares. Sweet deal.

Things That Just Don't Add Up

CCWIPP's financial records tell a somewhat different story about how much was loaned
and to whom. CCWIPP's audited financial statement for 1998 shows:

• A loan of $17 million to Royal Host REIT through Propco 14 (and not $22
million as stated in the mortgage documents); and
• A loan of $8 million to Kelloryn Hotels Inc. through Propco 16 (and not $10
million as stated in the mortgage documents)

These add up to $25 million and not $32 million as stated in the Land Registry Office
records.

CCWIPP's 1998 financial statement also shows that another $10 million was loaned to
Chimo and Royal Host ($5 million each) in connection with the Chimo Hotel in Ottawa
through another CCWIPP investment corporation - I.F. Propco 33. The $5 million loaned
to Chimo appeared only in the 1998 financials. The $5 mil loaned to Royal Host is still
on the books.

You can check out all these investments on this analysis we did based on numbers from
CCWIPP financial statements from 1995 - 2001. Just look for investments through
Propcos 14, 16 and 33.
Any which way we sliced it, the numbers from the CCWIPP financial statement and the
numbers from the Land Titles Office and mortgage documents don't add up. Even if they
did, the worker/investors might wonder:

• Why did CCWIPP loan Ron Kelly's Chimo Hotels $10 million so that it could buy
a half interest in the Keele Street hotel from Ron Kelly's Kelloryn Hotels if the
hotel was only worth $11 million to begin with? (By our calculations, 50%
interest in an $11 million hotel would be about $5.5 million.)
• Why did CCWIPP loan Ron Kelly's Chimo Hotels $5 million towards the Chimo
Ottawa when the place was purchased (from Ron Kelly's other company) outright
by Royal Host?
• Why did CCWIPP loan Kelly anything at this point? He just scored $52 million
from Royal Host.
• What happened to the $22.7 million that Kelloryn owed CCWIPP on the Keele
Street hotel at the time that Ron Kelly sold it to Royal Host and his other
company?

An even more puzzling question arises when we consider the prices that Kelly paid for
the Ottawa and London hotels a couple of years earlier.

• Did Royal Host pay a lot more for the package of 2.5 hotels that it purchased from
Kelly in 1998 than the properties were actually worth?

According to an article that appeared in the Toronto Sun in July 1997 ("Expansion's The
Name Of The Game" By Alan Cairns And Robert Benzie, July 20, 1997), Kelly bought
the Ottawa Chimo for $16 million just two years earlier and the London Westin for $9
million around the same time. When we add $16 million (for the Ottawa hotel) + $9
million + $5 million (the half interest in the Keele St. Hotel) we get $30 million. Royal
Host, however, paid $52 million for the package of hotels. Sounds rich. In our view, there
are three possible theories that would explain this:

1. 1. The market values of the 2 hotels in Ottawa and London almost doubled in a
period of a couple of years (we know that the Keele St. hotel didn't - because
Kelly bought it in 1992 for $9 million and sold it in 1996 for $11 million).
2. 2. Ron Kelly, real estate tycoon, somehow persuaded the savvy real estate
whizzes at Royal Host to pay significantly more than the market value for his
hotels for reasons known only to Royal Host.

X. Theory X may seem initially like the most far-fetched of the three (although it really
isn't any more far-fetched than Theory 2) but the numbers actually do add up. Theory X
goes like this: Royal Host paid Ron Kelly $52 million for the 2.5 properties. $30 million
of that (the amount of their mortgage from BCMP Mortgage Investments) was roughly
what Kelly had paid for them when he bought them. $22 million (the amount of their
mortgage from CCWIPP) was what Kelly owed CCWIPP. CCWIPP's Propco 16, in turn
loaned Royal Host $22 million on very favourable terms. (The convertible debentures
will essentially allow Royal Host to turn its debt into equity. CCWIPP has agreed to these
"debt conversion" schemes in the past with AFM Hospitality and the beleaguered hotel
operations that RHK Holdings (another one of Ron Kelly's companies) left behind in the
Bahamas.)

Theory X would make perfect sense if Ron Kelly found just wanted to unload the hotels
and his $22 million debt to CCWIPP. Royal Host would come out of the deal no worse
for wear - possibly even better off if we understand the concept of debt-to-equity
conversion as something helpful to a company that owes money. The CCWIPP trustees
would call it just another fine investment in the hotel industry and who would ever be the
wiser?

The worker-investors should ask their pension fund trustees about theory X. What's the
big deal even if it's true you might be asking? Didn't CCWIPP just take the $22 million
that Ron Kelly owed and move it over the Royal Host? That's one way of looking at it but
here's another way: Is it prudent for a pension fund to loan money to a borrower to help
another borrower settle his debts with the pension fund?

For many years now, CCWIPP, while struggling with a huge solvency deficiency, has
shown a remarkable willingness to help corporations through flexible financing schemes
that its members could never dream of getting from a lending institution. As if this isn't
bad enough, it now appears that it is willing to extend to Royal Host and Chimo a further
degree of flexibility - one which, if everything goes according to plan, will result in the
layoff of most if not all of the workers at the Keele Street Travelodge.

Biding Their Time on Your Dime

Corporate media releases and Annual Reports can be good sources of information for
people trying to understand what's going on at work or with their pension investments.
Statements from Royal Host's Annual Reports and other more recent media releases
suggest that CCWIPP is giving Royal Host a lengthy extension on its repayment
obligation (shares or cash) so that the condo conversion scheme can fall into place.
Repayment of the $22 mil was originally due on September 30, 2003 but the due date
was extended to May 31, 2004 and a further extension to September 30, 2005 is in the
works. It seems that the boys at CCWIPP are waiting patiently for something. Here's
what it is.

The convertible debentures of $22,000,000 bear interest at 8% per annum and are payable
monthly, at Royal Host's option, in either cash or Royal Host units of an equivalent value.
In addition, upon maturity in 2003, Royal Host has the option to repay the debentures in
either cash or in equivalent units of Royal Host on the basis that one unit has a value
equal to the weighted average trading price of a unit on the Toronto Stock Exchange
("TSE") for the twenty (20) trading days immediately preceding the maturity date.

With respect to these debentures which matured on September 30, 2003, an amending
agreement has been obtained that extends the maturity date of the debenture to May 31,
2004, with no changes to the interest rate, settlement options or any other condition of the
initial debentures. This amending agreement anticipates a further extension of the
maturity date to September 30, 2005, pending finalization of a development agreement at
the Yorkdale Travelodge hotel. Accordingly, the convertible debentures have continued to
be recorded as an equity instrument based on the aforementioned intended terms of
extension. 2003 Consolidated Financial Statement, Page 15

Those dates coincide with the anticipated completion date of the Hotel Residences
(September 2003) and a more realistic occupancy date of the Westmount Condos
(September 2005).

There is one really big question that should be a the very top of the long list of questions:

• Why is the UFCW pension fund giving Royal Host REIT an extension on its
obligation to repay its loans so that it can bring to fruition a scheme that will cost
these hotel workers - all of them UFCW members - their jobs?

Investment Destiny

The initial $15 million that CCWIPP sunk into this hotel in 1992 was supposed to be all
about creating jobs - good union jobs. That's what UFCW Director Tom Kukovica said in
1992 when he gushed enthusiastically about the UFCW's investment in the Keele Street
hotel.

Besides putting money directly back into the pockets of the membership, the joint
Trusteeship of pension plans between the UFCW and its various employers has permitted
the union to control the investment destiny of millions of dollars. "With the pension funds
we've been mainly concentrating in real estate, such as affordable housing projects," says
Kukovica. This month the UFCW, with an equity stake of over 50 per cent, helped to re-
open the Triumph Hotel in suburban Toronto, "It was in receivership. Now the hotel will
be unionized, so we've created (union) jobs at the same time.

We've been harshly critical of union pension investment strategies that are supposed to
create jobs for working people but in reality help to create wealth for corporate wheeler
dealers at workers' expense. If indeed the UFCW's pension fund is supporting a scheme
that will cause the layoff of over 100 of its members, with the money of thousands more
of its members, that is the most stinging indictment yet of the biz unionists and their half-
baked job creationist spend-a-thons.

It's sad to think that the investment destiny of many more millions of workers' dollars is
now going into a project that will destroy union jobs. Maybe current UFCW Canada
Director, Mike Fraser and the other UFCW financial wizards on the CCWIPP Board of
Trustees could explain the mental gymnastics involved in rationalizing their involvement
in this project as something that will benefit the members. While they're at it maybe they
can explain why they continue to support Ron Kelly when the "investment destiny" of a
lot of the dollars they've loaned to his various enterprises over the years seems to have
been the toilet.
Demand Your Place at the Table

UFCW members, you have a right to know what's happening to your jobs and your
pension money. CCWIPP has helped the hotel's owners purchase this and other
properties. These are your investments and it's time you get a little respect from the guys
who are getting the benefit of your money. We suggest that, as a most significant group of
investors, you deserve a voice in any future plans for your workplace. Demand it.

You have a right to information about your pension fund. Your trustees are required by
law to invest your money for your benefit - not Ron Kelly's, not Royal Host REIT's - but
your's and your's alone. What will happen if Royal Host and Chimo Hotels bail out of this
investment? Will CCWIPP members get left holding the bag--as they have so many times
before?"

Contact CCWIPP's administrative offices and the Board of Trustees and demand full
disclosure of information related to transactions involving the Travelodge and the two
other hotels. If you're in a mood to ask questions, contact the Financial Services
Commission of Ontario (Pensions Branch) and ask how their review of CCWIPP is
coming along. Tell them you've got some concerns you'd like them to take into account.
(Call 416-226-7821 or toll free 1-800-668-0128).

Your employer may not want to answer your questions but if you keep asking, it will get
more and more difficult to ignore you. What's going to happen if the condo conversion
scheme doesn't work out and the hotel is left to continue on as a hotel? In an industry
where properties must be renovated every few years, it's long overdue for a major fix up.
Who's going to pay for that? What about the business that has almost surely migrated to
the competition since the "coming soon" sign was hoisted a few months ago? Who's
going to bring that back? If it's going to be on your dime, you should be calling the shots.