City losing millions on Union Station commercial space, audit warns

Union Station is losing money and the city needs to take immediate action to avoid losing millions more in the future, Toronto's auditor general warns in a new report.

Over the last five years, the city made some $59 million from leasing out commercial space in the massive commuter hub, but operating that space cost $62 million. The audit also found that even when Union's new commercial space is fully operational, the city could wind up absorbing up to $2.5 million every year to run it.

• Pearson airport wants its very own version of Union Station

The station's $800 million renovation won't be finished until early 2018, but the auditor's findings are already causing concern at city hall.

"Why is it that the taxpayer is now going to be on the hook for this gap?" said Coun. Stephen Holyday, who chairs the audit committee.

Holyday said he's worried that the gap could balloon if city management can't find other ways to make money at Union.

He is, however, "optimistic" that the city will be able to recoup some $9.4 million in rent that the auditor general's report found wasn't collected during a five-year span. (Who owes the city money remains confidential at this time.)

"But I want to hear from management why this has occurred," he said.

City staff already working on fixing problems

Auditor General Beverly Romeo-Beehler issued 22 recommendations to better manage the station in her report. Deborah Blackstone, spokesperson for the city's Real Estate Services Division, said in an email to CBC Toronto that the city takes the matter "extremely seriously" and is working with the auditor general on solutions.

Blackstone added that city staff have already started working on a number of key areas and plan to implement all of Romeo-Beehler's recommendations by the third quarter of 2018, including reviewing the station's financial model.

"This information will become more accurate as construction is completed and as leases are finalized," she said.

Once complete, the renovated station will feature 165,000 square feet of commercial space featuring, according to the station's website, "an eclectic mix of the most noteworthy and unique independent retailers, restaurants, art, music and cultural events."

For now, less than three per cent of that new commercial space has opened.

Romeo-Beehler's report urges the city to be ready for the launch.

"Once the focus on Union Station leasing has been restored, attention should quickly be turned towards ensuring future success of leasing in the revitalized Station," the report states.

"Management should implement a strong framework to proactively and effectively monitor commercial operations."

'Validate assumptions' about Union Station revenues, staff told

The long list of recommendations mainly revolve around keeping a better handle on how business is done at Union Station, including monitoring deals with other major users like Via Rail and Metrolinx and monitoring what the city is spending at Union and what it can expect to get back in revenue.

The report found "lease administration functions" have not been performed for several years.

Romeo-Beehler is also calling for records surrounding leases to be kept in a central location and reviewed every year.

The report also calls for city staff to "validate assumptions" underlying the estimates of how much money Union Station will generate, and to provide city council with an updated financial forecast.

The recommendations are set to be debated at next week's meeting of the audit committee.