A relatively new and low-profile entity in the elaborate structure of the WE organization has spent $4.1 million on three real estate purchases in the two and a half years since it was created, but what is much less clear is the actual extent of its charitable activities.
In its first year of operation, the ME to WE Foundation of Canada — a registered charity — spent 130 times more on real estate than on expenses for carrying out charitable programs, according to its 2018 filing with the Canada Revenue Agency CRA.
In a statement, WE Charity says that the foundation’s real estate acquisitions were in fact carried out as part of the foundation’s charitable mission to build a “Campus for Good.”
An examination of financial records made public and filings with the federal government show that like some other WE entities, the non-real-estate activities of the ME to WE Foundation can be difficult to decipher. The foundation is separate from ME to WE Social Enterprises Inc., WE’s privately held for-profit arm, but has many connections to it. It is also separate from the ME to WE Foundation in the U.S., which predated it by nearly a decade.
The ME to WE Foundation of Canada was incorporated in late January 2018, the same day as WE incorporated the WEllbeing Foundation and the WE Charity Foundation; the latter is the real-estate-holding charity that was the actual entity the federal government contracted to run the $912 million Canada Student Service Grant program, until they agreed to part ways back in July.
On its site, WE describes these three foundations as “distinct and legally independent charitable organizations” and also as “smaller” affiliates of the main WE Charity.
“These affiliated charities were created through various reasons including the wishes of a founding donor and at the advice of legal counsel,” WE says.
Property acquisition and “redevelopment plans”
The CRA formally granted the ME to WE Foundation tax-exempt status in April 2019, although the federal agency backdated the approval so March 2018 would become its effective date of registration.
The ME to WE Foundation did not use the term “Campus for Good” in its application to the CRA. The main “purpose of the corporation” was described as educational in nature and focused on providing financial support to young people to attend programs run by the for-profit side of WE.
These activities are described at length in the application. An additional goal of providing a facility to offer space to other charities at below-market rents is listed later on, in a pair of short paragraphs. The full document can be read at bottom.
The first real estate purchase by the foundation was in the middle of March 2018. It acquired part of a residential property for just over $1 million, about a block from the WE Global Learning Centre in east-end Toronto. Six months later, it spent $500,000 to acquire a nearby loft unit. Property records show that WE, through either its for-profit or charitable entities, owns 10 properties within a block of its headquarters, in a Toronto neighbourhood with a mix of new condo developments, as well as many residents in poverty and struggling with addiction.
In its filing with the CRA, the ME to WE Foundation listed expenses of $11,951 for charitable programs in the year 2018. Salaries for five part-time employees totalled $13,480. Management and administration costs were $53,594. The CRA says the foundation’s 2019 information is “currently unavailable,” as the filing deadline for all charities has been extended to December 31 of this year, due to COVID.
Real estate transactions by charities are not necessarily a bad thing, says Mark Blumberg, a founding partner at Blumberg Segal LLP in Toronto, whose practise focuses on advising non-profit organizations.
“There is nothing wrong with a charity owning property. It is a question of reasonableness and proportionality,” he says.
As well, he warns that the focus on real estate could harm the organization’s overall finances if there were a drop in the Toronto market.
“A charity is supposed to invest using the ‘prudent investor’ rule, which includes a number of requirements, including having a diversified portfolio. If your charity has, say, $10 million, you generally would not invest all or most of your 10 million in real estate in Toronto. What if there is a dip or lack of liquidity in the Toronto real estate market and you need the funds?” the charity lawyer asks.
WE says the foundation’s property acquisitions along a stretch of Queen Street East were carried out as part of “future redevelopment plans” to build its “Campus for Good,” which was to “provide free space to youth-led social enterprises and not-for-profits,” inspired by similar initiatives in Toronto’s medical and tech sectors.
In its application for charitable status, the ME to WE Foundation said that in addition to providing space to other groups, they planned to offer “expertise on planning, structuring, and improving charitable programs,” as well as access to services such as accounting, human resources, and legal.
In a statement to Canadaland, WE Charity says some of the purchases were carried out through the ME to WE Foundation because of a provision in Ontario’s Planning Act that could lead to adjacent properties presumptively merging in title.
If a larger redevelopment project does not go forward, “this makes it difficult to sell the individual units,” WE says. “As per the advice of counsel, the ME to WE Foundation was used to avoid this outcome. This decision proved to be advantageous, as unfortunately, due to COVID-19 and recent events, this ‘Campus for Good’ program is not taking place, and individual properties may need to be sold.”
“WE SEC video” from WE on Vimeo, promoting opportunities to invest in what was then called the WE Social Entrepreneurship Centre
Gifts and loans from unnamed entities
The third real estate purchase by the ME to WE Foundation occurred in January 2019, when it purchased a two-storey building at 329 Queen Street East for $2.6 million. A real estate broker’s website describes a rental apartment at the site as a renovated and spacious two-bedroom unit.
“Great opportunity for residential or work/live,” the website says.
WE tells Canadaland that the building is an office and that the “small loft” has variously served as office space, storage, and temporary accommodations for staff.
As first reported by the National Post and confirmed by a search of property records, the building was sold to the foundation by the parents of WE co-founders Craig and Marc Kielburger, at the same price they had paid for it. WE told the newspaper that the parents made the transaction because the “organization did not have sufficient funds at the time.” The auditor’s report on the 2018 financial statement for the ME to WE Foundation [pdf] states that it was receiving significant support from other organizations, although the names of them are not disclosed.
A capital contribution of $1.1 million came “from a foundation in the U.S. that shares the same mission and values as the foundation, for the purchase of a real property in Toronto, Ontario,” says the report. It is not clear if this refers to the ME to WE Foundation’s American counterpart.
The report also states that the foundation received a “cash contribution” in 2018 of $500,000 from a “charitable organization,” as well as program and administrative support at cost. The ME to WE Foundation had a balance owing to the unidentified organization of just over $58,000 at the end of 2018.
Under the heading “Subsequent Events,” the report details an early 2019 transaction related to the purchase of the 329 Queen East property. It states that the purchase was financed by a $2 million unsecured, due-on-demand, non-interest-bearing loan from a U.S. foundation “that shares the same mission and values.”
WE did not respond to requests by Canadaland to clarify whether the groups providing gifts and loans to the foundation were other organizations in the larger WE network of entities. In its CRA application, the foundation ticked off “no” in response to a question about whether it planned to enter into real estate or other transactions with “any person/organization” related to its officials, founders, members, or employees.
In the foundation’s 2018 application to the CRA, two of the three directors listed were the chief financial officer and the executive director of WE Charity. The third was a person the Toronto Star has identified as a relative of the Kielburgers. They were later replaced on the board, which still has three members.
Subsidizing participation in programs run by WE’s for-profit arm
While the foundation was set up in part to facilitate WE’s “Campus for Good,” its primary purpose, as stated in its incorporation documents and application for charitable status, was to provide financial assistance to young people to attend programs overseen by ME to WE Social Enterprises, the private company controlled by the Kielburgers. These included international trips to developing countries, summer camps, and leadership-training sessions run by the organization.
ME to WE Social Enterprises officially exists to subsidize WE Charity, donating at least half of its profits in cash and in-kind contributions.
WE Charity, in turn, would help advertise and allocate the financial assistance offered by the foundation for participation in the social enterprise’s programs, according to the foundation’s application for charitable status.
A section of the application that was partly redacted by the CRA when provided to Canadaland states that there will be “no private benefit” to the organization running these programs. As well, WE Charity or the ME to WE Foundation will be provided with cash or in-kind benefits at fair market value for any payments the programs’ operator receives.
The foundation shares an address with the social enterprise, from which it gets “free office space,” according to WE.
By the end of its first 12 months of operation, the foundation stated that it hoped to provide assistance to as many as 25 young people to go on the trips, 40 to attend the camps, and up to 120 individuals for the leadership programs — at a total cost of $375,000.
WE did not directly respond to questions asking how many people have so far received this support but explained how such subsidies would serve a broader charitable good.
“The ME to WE Foundation believes that providing bursaries for students to participate in international travel, summer camps, and leadership opportunities provides important opportunities, especially for youth from low socio-economic backgrounds,” WE says. “Similar to Rotary International, Tim Horton Children’s Foundation, or university study-abroad programs, summer camps and international cultural experiences are an important personal growth opportunity for young people.”
There could be more clarity in how this process was designed to take place, given that it also involves a for-profit entity, notes Blumberg. “There needs to be enough separation that a member of the public, CRA, and internal staff would not be confused,” he says.
The by-laws that set out the governance of the three foundations the ME to WE Foundation of Canada, the WEllbeing Foundation, and the WE Charity Foundation establish a hierarchy of membership, with greater powers given to “founding members.”
Whether someone is appointed to the board or stays on as a director is ultimately up to the founding members, and only the founding members can vote on a number of matters, including amendments to by-laws or a decision to admit additional founding members.
WE says that with each foundation, WE Charity itself is the sole or founding member, meaning that WE Charity’s board of directors is the group maintaining oversight of all of them.
“WE Charity operates with a strong, skilled, independent board of directors,” WE says.
Yet WE Charity, the organization originally known as Free The Children and founded 25 years ago by Craig and Marc Kielburger and Marc’s wife Roxanne Joyal, has similar provisions in its by-laws. There are two classes of members — voting members and founding members. The unanimous approval of founding members is required to appoint voting members, and they can be removed by the founding members without needing the consent of the board.
The directors are also required to consult with the founding members at least 30 days before making any decision that would result in a fundamental change to the organization.
Top photos of Queen Street East properties owned by the ME to WE Foundation of Canada taken by Shannon Kari.
The ME to WE Foundation’s application for charitable status, including its original articles of incorporation later amended to add “of Canada” to the name:
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The post WE Founded A New Charity To Give Grants To Students. It’s Mostly Just Bought Up Real Estate. appeared first on CANADALAND.