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City of Toronto Council and Committees |
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All Council and Committee documents are available from the City of Toronto Clerk's office. Please e-mail clerk@city.toronto.on.ca.
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February 2, 1998
To: Corporate Services Committee
From: Acting Executive Commissioner of Corporate Services
Subject: 410 Queens Quay West and Permanent Office Accommodation for Harbourfront Corporation (1990) in an addition to York Quay Centre (Ward 24 - Downtown)
Purpose:
To secure City Council approval to exchange the revenue from the sale of 410 Queens Quay West for renovations and construction to York Quay Centre, to provide for Permanent Office accommodation for Harbourfront Corporation (1990) not previously contemplated, and to secure a firm deadline date for the payment of $3.0 million due the City from Queens Quay West Land Corporation and which is allocated for parks development.
Funding Implications:
No funding required. Guaranteed deadline date established for the payment of $3.0 million due the City upon future sale of QQWLC property at BQ7.
Recommendations:
It is recommended that:
(1) the proposal submitted by Queens Quay West Land Corporation involving an exchange of the site at 410 Queens Quay West for office space constructed on top of the York Quay Centre as discussed in this report be approved subject to the details of the arrangements being satisfactory to the Acting Executive Commissioner of Corporate Services;
(2) the City Solicitor be authorized to make the necessary changes to the Implementation Agreement to incorporate the required provisions of the proposal detailed in this report;
(3) City staff report upon the completion of the Queens Quay West Land Corporation limited proposal call on the results of the proposal call process; and
(4) the appropriate City officials be authorized and directed to take the necessary action to give effect to the foregoing.
Background:
The property at 410 Queens Quay West, also known as MLQ4 (see attached Appendix 1), has been the subject of various Agreements which have addressed the future disposition of the property and which have been affected by the fact that Harbourfront Corporation (1990) has its main offices in this building.
An October 6, 1992 Letter Agreement between Queens Quay West Land Corporation, the City and the Queen in Right of Canada addressed this property. There are no parks interests identified with respect to this parcel in the agreement. The Agreement contemplated that the site, excluding the TTC loop lands and substation, will be developed by Rampart. The TTC interests would be conveyed to Metro, subject to any necessary easements.
Provision is also made to convey the western side of the parcel for dedication as a public road.
A Letter Amending Agreement, dated June 8, 1994, amended the October 6, 1992 Letter Agreement and had the effect of providing the City with a level of control over 410 Queens Quay West in order to replace the arrangements in place with Rampart in conjunction with Parcel SQ2 for which the City was to receive substantial capital funds for the improvements of parklands in Harbourfront. It generally provided for the sale and conveyance of MLQ4 (other than the loop lands transferred to Metro) at the City =s direction by QQWLC to a third party subject to a series of conditions. The net proceeds of the sale, less commissions, legal/proposal call fees, demolition or mothballing, shall be paid to the City upon receipt by QQWLC from the purchaser. It is noted the foregoing letter agreements are part of the Harbourfront Implementation Agreement and are referenced as such in the recommendations in this report.
As the June 8, 1994 Letter Amending Agreement was not sufficiently detailed and as a result of City Council adopting the Monaghan Report on July 2, 1996, it was agreed that the arrangements relative to 410 Queens Quay West should be further amended. Accordingly, City Council, at its meeting held on April 14, 1997, Executive Committee Report No.13, Clause 26, approved a series of refinements to the agreement between the City of Toronto and QQWLC with respect to the disposition of this property. The agreement implementing the revised agreement has been prepared and executed by the City and QQWLC. The main components of this agreement are as follows:
The property is to remain in the ownership of the Federal Government and QQWLC will administer property management facilities.
The City has the right at any time on or before December 31, 2000 to require QQWLC to sell the property and the net proceeds go to the City.
A detailed procedure is in place for the sale of the property which provides the City with rights to review and agree to the sale.
If Harbourfront Corporation (1990) vacates prior to March 31, 2001, then the sale process is automatically implemented.
QQWLC is to fund, without interest, the operating cash flow deficiency, from April 1, 1996 to the date the property is sold, including Harbourfront Corporation =s share of operating costs, from April 1, 1997.
QQWLC is to pay the realty tax from its own financial sources until March 31, 1999 and the realty taxes are to be included in the cash flow deficiency from April 1, 1999.
Upon sale, the accumulated amount of the cash flow deficiency and costs for administering the sale are to be deducted from the sale price and the net proceeds go to the City.
QQWLC through its agent, Canada Lands CLC Corporation, submitted in late 1997 a proposal to accelerate the disposal of 410 Queens Quay West which would also result in a long term solution to the office needs of Harbourfront Corporation (1990). The proposal incorporates an exchange of the site at 410 Queens Quay West for office space constructed on top of the York Quay Centre now owned by the City and leased to Harbourfront for office and programming purposes. This proposal was submitted to City Council on December 8, 1997, and they instructed that appropriate staff continue to review the proposal in terms of potential benefits to the City and, due to the urgency of this matter, report further to the new City Council in January, 1998 on such analysis and next steps.
Discussion:
The Proposal:
The main components of the current QQWLC proposal are:
that QQWLC, subject to the City being satisfied with the terms and conditions, make arrangements to transfer 410 Queens Quay West to a third party in exchange for the third party delivering on a turnkey basis an addition on the second floor of the York Quay Terminal Building. A proposal for the relocation of Harbourfront =s offices to a 2nd floor addition at York Quay Centre had been previously developed. The prior and current proposal both comply with the existing zoning for the York Quay Centre and the prior proposal indicated that Harbourfront=s office needs could be accommodated in 24,000 square feet of new space plus 2,800 square feet of existing offices (total is 26,800 square feet) over the York Quay Centre. They currently occupy a total of 31,169 square feet in existing offices in 410 Queens Quay West and 2,800 square feet of office space in York Quay Centre. The design from the prior proposal needs to be updated to ensure that it accommodates Harbourfront=s office requirements.
QQWLC will write off the accumulated operating cash flow deficiency for Harbourfront =s use of 410 Queens Quay West as at December 31, 1997 in the approximate amount of $300,000.
Harbourfront Corporation (1990) will become responsible for the operating cash flow deficiency for 410 Queens Quay West effective January 1, 1998 and QQWLC will pay to Harbourfront $200,000 to offset the 1998 operating cash flow deficiency.
QQWLC will pay to the Harbourfront Foundation $100,000 upon amendment of the current Agreement, such funds to be used towards the cost of moving Harbourfront Corporation (1990) into their new space.
QQWLC to pay up to $50,000.00 towards engineering and architectural studies.
QQWLC to agree to a deadline date for a payment to the City detailed later in this report.
Planning Considerations:
Planning staff have advised that, in their view, the relocation of Harbourfront =s offices to the York Quay Centre is consistent with the zoning for the site. In addition, the development of 410 Queens Quay West for predominately residential purposes will meet the objectives of the Harbourfront Plan for this site. Planning staff have indicated that they feel the site originally contemplated for the development and shown as Block A (including the park area) on attached Appendix 2 has the ability to accommodate up to the as of right density of 19 000 m5 within the height limit. They have also indicated there may be opportunities to improve previous development schemes for this site including the amelioration of noise concerns for both the site and surrounding area and the creation of a superior built form and overall development by incorporating Blocks B and C and the City-owned TTC loop and hydro substation area shown cross-hatched on Appendix 2. Planning staff would be pleased to meet with prospective purchasers to discuss development opportunities for this site.
Process:
QQWLC proposes to issue a Request for Expression of Interest to solicit interested developers who are capable of this type of transaction. Once interest is established, a limited Proposal Call will be issued which shall include financial qualifiers. The REI and RFP would provide developers with an opportunity to propose a development on only Block A or to incorporate all of the lands in MLQ4 subject to all necessary TTC and hydro rights.
Guaranteed Payments
As part of this transaction, QQWLC has also agreed to amend the Harbourfront Implementation Agreement to guarantee a deadline date for a payment owed by QQWLC to the City.
The Implementation Agreement currently requires QQWLC to make a payment of $3,000,000 to the City upon the sale of BQ7 and a payment of $10,500,000 upon the sale of YQ4. QQWLC, as part of this transaction, has agreed to amend the Agreement to require the $3,000,000 payment to be made on the earlier of the sale of BQ7 or within 12 months of the date of transfer of 410 Queens Quay West to a third party. QQWLC has also advised it will use its best efforts to enter a sale transaction by June 1999 for YQ4.
Financial Analysis of Proposal
The financial aspects of this proposal can be viewed from two perspectives:
The first is to compare the respective value that a third party developer would be receiving versus the cost to that developer or in other words the market value of 410 Queens Quay West as compared to the construction costs of the office construction/renovation on the 2nd floor of the York Quay Centre. The appraisal services of Bosley, Farr Associates Limited were retained and the current market value for development purposes of 410 Queens Quay West is estimated to be in the range of $4.3 to $4.7 million on an as is basis.
The second aspect of this comparison involves determining the costs associated with the renovations to York Quay Centre. The renovations to the York Quay Centre include both the renovation/construction of office space and overall improvements to the York Quay Centre including the roof structure and new HVAC systems. Staff of Facilities Management have reviewed the feasibility study prepared in 1993 for the addition and renovation to York Quay Centre prepared by the architects, Natalie Scott Brown, in conjunction with their engineering consultants and Eastern Construction who estimated the construction costs.
Staff have also had this 1993 study reviewed by an independent architect, Paul Jurecka to:
anticipate changes that have come about since 1993
assess report considerations in terms of the value added to the building
compare 1993 construction dollars to costs today.
His preliminary report has indicated that today =s construction and renovation costs for York Quay Centre will likely be in the $4.7 million range.
b) Should the City decide not to proceed, and instructs QQWLC to sell at some future date, the following simple illustration highlights the net sale proceeds the City will hypothetically receive under this scenario.
Assumed closing date of Dec 31,1998
Assumed as is sale price: 4,500,000
Accumulated operating deficit (33 months) ( 500,000)
Brokers Commission @3% and other sale costs ( 150,000)
Net proceeds due City: $3,850,000
The net result in this situation would be the City receiving $3,850,000 cash and the office needs of Harbourfront Corporation (1990) would not be resolved.
Benefits of Proposal:
This proposal has various benefits to the City as follows:
A long term office space solution is found for Harbourfront. It should be noted that City is not required to provide this space, but may be expected to contribute towards it if needed in the future. Should this space not be required at some point in the future it could not be considered attractive office space from a private market perspective. However, the demands for community use and service space in the Harbourfront area continue to grow with each new residential development and this type of space would be suitable to accommodate those needs.
York Quay Centre, a City-owned building, will experience substantial capital improvement.
Construction of the second floor at York Quay Centre and residential development at 410 Queens Quay West will result in one time economic benefits and, in the case of 410 Queens Quay West, ongoing realty taxes will be generated once the site is redeveloped.
Harbourfront operating costs for the new space will be substantially reduced from their current operating costs due to downsizing from 33,969 sq. ft. to 26,800 sq. ft. and higher building efficiencies.
Harbourfront will achieve certain organizational efficiencies due to closer proximity to the Programming Lands and staff being located on one floor.
The ongoing level of subsidy on an operating cash flow deficiency basis and the need to do deferred repairs/replacements at 410 Queens Quay West will be eliminated.
Environmental concerns related to asbestos in 410 Queens Quay West will be eliminated.
Needed repairs to the roof of York Quay Centre and the inefficient HVAC systems will be implemented in a cost effective way.
The objectives of the Harbourfront Plan for 410 Queens Quay West will be achieved through predominately residential development of this site.
The City will secure a guaranteed payment date for the payment of the $3,000,000 due from BQ7.
There appears to be significant financial advantages to the City in this proposal.
Timing:
There is a need for urgency with respect to implementing the proposal due to the following reasons:
The construction on the York Quay Centre must be timed in order that the main Harbourfront summer season is not affected.
QQWLC has indicated it is prepared to absorb the accumulated operating cost deficit to December 31, 1997 and to provide $200,000 to Harbourfront for operating cost deficit during the construction of the space on top of the York Quay Centre.
It is necessary to secure the transaction while the residential real estate market is strong.
The environmental concerns with the building at 410 Queens Quay West should be addressed as soon as possible.
Deferring needed repairs to both York Quay Centre and 410 Queens Quay West will be costly.
Conclusion:
The review of the QQWLC proposal indicates there are many advantages to the proposal. It would appear the City is receiving fair consideration for its interest in the MLQ-4 site. There is also a benefit to the City in establishing a deadline date for the payment of the $3,000,000 owed by QQWLC relative to BQ7. It would be appropriate to approve the proposal and instruct staff to report back to City Council upon finalization of the limited Proposal Call by QQWLC and instruct the City Solicitor to make the necessary amendments to the Implementation Agreement.
Contact Name:
Greg Wallans, Telephone - 392-7135, Fax - 392-1880, E-mail - gwallans@city.toronto.on.ca (cs98007.wpd)
Acting Executive Commissioner
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