By Giuseppe Valiante
What do you think are the factors that make LiUNA stand out?
Well, the most obvious thing is the fact that we use our financial strength to invest through our pension plan, and the way we engage with our members. Our political action is also really important. We make sure we are on top of the political game so that we can advocate on behalf of our members. It’s a big organization. We are the largest construction union in the country. We probably have about 130,000 to 140,000 construction workers, and between 20,000 and 35,000 non-construction workers, in areas such as service and hotel maintenance.
And we are growing. We are one of the fastest-growing labour organizations in the country at a time when many others are shrinking. And it has to be because of our management style and the level of transparency we have with our members. Our advocacy is very strong but our branding is also an important factor. We are out there. Many business journals have done features on our pension plan and our leadership style because they are different. We really understand the industry. We understand construction. We have leveraged the financial strength of our pension plan to raise the profile of our organization. We partner with our contractors, as opposed to adopting a confrontational or antagonistic approach. That was yesterday’s approach. We used to have to struggle for basic rights, but that era is behind us. We have great benefits. We have a great pension plan. Our pension plan is 102% funded. So, what’s next? We have to raise the profile of our organization.
The construction industry has seen strong growth across the country. How that has affected your organization and its pension plan?
Our pension plan has $8 billion in assets. It’s the largest multi-employer pension plan in the country and it’s growing. We are the fifth fastest-growing pension plan in Canada and that’s basically because construction is booming. Another thing elevating the plan is the income return from investments. We’ve generated over 10% return every year over the past seven or eight years. The returns are fantastic in the investment field but we also have so many contributions coming from the work of our members. Montreal is exploding with construction. Toronto is exploding. Newfoundland – exploding! At one time, Newfoundland used to be the have-not province, now it’s booming. We have skills shortages in most of the provinces.
Your pension plan is invested in the stock market and in four main funds. Gives us some details about them.
We have pension fund liabilities of about 6% to 7%. You need to have at least that much as a return every year in order to match your liabilities and to stay 100% funded. Most pension plans aren’t 100% funded. The fund is regulated in Ontario and the regulators want us to have some liquidity. They want us to stay a good 40% in the stock market, so we do. We use the rest of the plan to invest in four separate funds: real estate, development, infrastructure, and conversion.
In our real estate fund, we bought a beautiful portfolio that belonged to Michael DeGroote along the Queen Elizabeth Way, outside of Toronto, going towards Hamilton. We bought the whole portfolio and it’s bringing in fantastic returns. We owned real estate along that corridor before the purchase so now LiUNA is the largest commercial owner along the QEW. We put a LiUNA sign right on the very top of one of the buildings. It gives us exposure. Our members see it – anyone driving into Toronto on the QEW sees – and it gives them a sense of pride.
Our development fund is designed to build projects that we wouldn’t necessarily hold when they’re finished. At the moment, we have two twin condo towers being built right on the south side of the Gardiner Expressway going into Toronto. Right there on the waterfront. We are helping to finance the project. It creates work for our members – because they do all the work. And that money comes back into the plan while they are working. It creates all those jobs and it offers an exceptional return. That’s how we’ve been able to push the returns so high and also give workers a sense of pride. Our members are working on a project that is being largely financed by their pension plan.
With your infrastructure fund, LiUNA is engaging in public-private partnerships to realize projects. Can you explain the model?
Yes, the P3 model is used to build hospitals, for instance. We built 8 hospitals in Ontario over the past four years using that model. With the old way of doing public procurement, the government would spend tax money or borrow in order to build a hospital. Over the years, they realized there was a backlog and they procrastinated. So governments came up with a public-private partnership model, which is an opportunity for the public sector to invest and build infrastructure without much public money. The private sector would keep the buildings for a pre-determined period of time – say, 25 years – and then hand the project over to government.
We say to the government: Give us the opportunity to invest in this project for 25 years. Give us a good return. Give us a 10% to 12% return. We will leave our money here. We’re here for 25 years and after that we’ll give it back to you for a dollar. The government is getting all of these beautiful hospitals built without having to use public dollars, or at least, a very limited amount of public dollars. And those 8 hospitals in Ontario were built on time and on budget.
Finally, our conversion fund. We are turning old commercial buildings into new developments. For instance, the vacancy rates in a number of these older buildings in big cities like Montreal and Toronto are very, very high. The majority of these commercial buildings have 20% to 30% occupancy and the rest stays empty. Most of the people who own these properties don’t mind holding them half empty because, since they’re downtown, the value is going up.
So our conversion fund buys these properties and converts them into residential units: rental apartments and condos. We are gentrifying parts of cities, which is something municipalities love, and we’ve done that now on a number of different projects. So when we need to advocate for our members on another issue, it’s a little bit easier when we have that influence with the municipality.
You’ve also recently purchased the Hard Rock Hotel and Casino in Las Vegas but it’s getting a facelift and a new name. Correct?
Over a year ago, we bought the Hard Rock Hotel in Las Vegas. It wasn’t all our money, we were part of a consortium, but we are major shareholders. The rule of thumb in Las Vegas is, you pay about $1 million per hotel room door. The hotel has 1,700 rooms and we paid $570 million so … we got a good deal! We started making more than 8% returns so we decided to wait until January-February and then we’ll be shutting the whole thing down.
It’ll be a Virgin Hotel. We partnered with Richard Branson because Branson has a good brand. Virgin is very powerful and tying yourself to another powerful brand is smart. We think by the time we are done and it’s a Virgin Hotel, we’ll be making double-digit returns all the time. We plan to open again by July or August. The rooms have to be reconfigured. We will separate the bedroom from the front door with a little hallway. And every bathroom will have a makeup counter so people have a place to put their toiletries. The rest is cosmetic. Virgin’s colour is red so every door has to be painted red. It’s a great investment and we figured if we stay in and if it’s making 12% to 14% return, that’s fantastic, because our liabilities are only 6% to 7%. So, that’ll be another innovative investment for us.