June 11, 1998

  To:Corporate Services Committee

 From:Commissioner of Corporate Services

 Subject:Sale of Property Houses

(Multiple Wards - Former City of Toronto)

  Purpose:

 To secure City Council authority to declare the Aproperty houses@ in the former City of Toronto on attached Appendix I (save and except for those five properties currently leased to community based housing providers and also identified on attached Appendix I) as surplus to the City=s requirements and authorize the sale of these properties on the open market.

 The issue of allocation of funds will be addressed in a separate joint report from the Commissioner of Corporate Services and the Commissioner of Community Services recommending policies on the use of property assets to meet social objectives.

 Financial Implications:

 The total of the current value assessment for the 55 property houses recommended to be declared surplus in this report is $10,955,845.00.

 Pending sale of the properties, a loss in rental revenue will be incurred in the amount of approximately $10,000 per month as at July 1, 1998.

 Recommendations:

 It is recommended that:

 (1)subject to the Board of Cityhome passing a resolution to do so, the existing leases between Cityhome and the Corporation of the City of Toronto, for the property houses be terminated in the manner described in this report;

 (2)City Council, by By-Law, declare that, upon the leases having been terminated, the 55 houses owned by the City of Toronto, as set out on the attached Appendix I are surplus;

 (3)notice to the public of the proposed disposition of the lands declared surplus be given;

 (4)prior to offering the properties for sale on the open market, the first right to purchase be given to the previous owners and/or current tenants, on the terms set out in the body of this report;

 (5)the Commissioner, Corporate Services, be authorized to market those properties which the previous owners and/or tenants do not wish to purchase through a real estate broker for a listing price to be determined in consultation with the listing broker;

 (6)the funds from the sale of the houses subject to the 25 year lease be deposited into an account to be used to satisfy the mortgage at maturity;

 (7)the City Surveyor, in consultation with the Director, Development and Support, Parks and Recreation, be directed to prepare a survey of the north portion of 144 Balsam Avenue and that this portion of the property be retained by the City, in fee simple or by way of an easement, and placed under the jurisdiction of the Parks and Recreation Division for parks purposes;

 (8)City Council endorse the tenant relocation plan as outlined in this report;

 (9)the five properties currently being leased to community based housing providers, as identified within this report on Appendix I, be retained by the City to allow the current use of these properties to continue and the Commissioners of Corporate Services and Community and Neighbourhood Services determine the appropriate leasing arrangement for these five properties and report back thereon to the Corporate Services Committee;

 (10)the Commissioner of Community and Neighbourhood Services advise social housing providers and the non-profit housing sector of the City=s intention to dispose of the 55 properties set out in Appendix I and to report back if any of these groups are interested in acquiring any of these properties at market rates;

 (11)the Commissioner of Community and Neighbourhood Services, review any particular needy or hardship situations and report, in consultation with the Commissioner of Corporate Services, on these situations;

 (12)the Commissioner of Community and Neighbourhood Services and the Commissioner of Corporate Services submit a joint report recommending policies governing the use of property assets to meet social objectives; and

 (13)the appropriate Civic Officials be authorized to take the necessary action to give effect to the foregoing.

 Background:

 At a Budget Committee meeting held on March 9, 1998, the Community and Neighbourhood Services 1998 Operating Budget was considered. One of the recommendations put forward at this meeting was that:

  the Commissioner of Corporate Services and the Interim Lead for Real Estate report to the Budget Committee for its meeting scheduled to be held on March 31, 1998 submitting recommendations respecting the disposition of the Aproperty houses@ after confirming with the Parks Department that these properties are not required for Parks purposes.

 The Aproperty house@ portfolio consists of 60 properties, comprising 105 units, which were acquired/expropriated between 1930 and 1974 for parks purposes. These properties have never been used for park purposes and, in 1975, an informal arrangement was entered into with Cityhome for the management of the portfolio. In 1992, City Council adopted a business plan which leased these properties to Cityhome. Twenty-two of the properties were leased for a term of 49 years and 38 of the properties were leased for a term of 25 years. The business plan included a $2.5 million rehabilitation program which was funded by a mortgage on the properties leased for 49 years. This business plan also included a process to rationalize the rent structure for these properties and to bring the rents up to low end of market levels by the end of 1997. Provisions were also made to provide rent assistance to eligible households which would otherwise face economic eviction (total of 10 eligible households). The 60 properties, together with a summary of relevant information, are set out on Appendix I.

 The Budget Committee, in considering a report dated March 27, 1998 from the Commissioner of Community and Neighbourhood Services, in consultation with the Commissioner of Corporate Services, requested the following:

 (a)the Chief Administrative Officer submit a report to the Budget Committee and Corporate Services Committee in May, 1998 regarding:

 (i)the disposition of property houses, determining which ones can be sold and how tenants who cannot afford to move can be accommodated; and

 (ii)whether monies generated from the potential sales of such properties should be reserved to realize important social objectives; and,

 (b)the Chief Administrative Officer and Commissioner of Community and Neighbourhood Services submit a confidential report to the Budget Committee on the following matters:

 (i)a list of the City-owned properties that could be sold;

(ii)the names of the tenants;

(iii)the rent paid for such properties;

(iv)the 1996 assessed value of these properties;

(v)whether the properties are lakefront properties; and,

(vi)the disposition of funds from the sale of such properties.

 This information is provided in Appendix I, with the exception of item (ii) the names of tenants which, under Freedom of Information legislation, cannot be released and item (vi) the disposition of funds from the sale of such properties, which will be the subject of a separate joint report from the Commissioner of Community and Neighbourhood Services and the Commissioner of Corporate Services recommending policies on the use of property assets to meet social objectives.

Comments:

 The Interim Lead for Real Estate has sought input into the disposal of the property houses from Parks and Recreation, City Legal, Cityhome and Housing Division staff. Comments have been provided as follows:

 Parks and Recreation

 The Director, Development and Support, Parks and Recreation has advised that these properties were acquired to expand City parks adjacent to or abutting the subject sites, however, it has not been the policy of Parks and Recreation to endorse conversion to parks from housing. With the exception of the request set out below, Parks and Recreation is not opposed to the disposition of these properties at this time on the understanding that the properties will continue to be used for the current purposes. Should they be retained and consideration of future uses be contemplated, parks purposes should be considered as the primary alternative land use for the sites.

 The north edge of the property at 144 Balsam Avenue currently accommodates a public path to Glen Stewart Ravine, as set out on Appendix II. Parks and Recreation has constructed a set of stairs to enable the public to access the ravine via this path and stairs. In order to permit the continued existence of this path and provide continued access to the stairs, the City should sever and retain ownership of sufficient space along the north boundary of this property for this to occur.

     Legal Implications

 City Legal staff have provided advice respecting the disposal of the property houses as set out on Appendix III. They have indicated that the City of Toronto and Cityhome are free to negotiate a surrender of the 25 year lease.

 The City of Toronto and Cityhome could also negotiate a surrender of the 49 year lease, however, due to the mortgage, this surrender is significantly more complicated. The mortgage matures on December 1, 1998. It is a closed mortgaged for a principle sum of $2.5M at an interest rate of 8.5%. The mortgagor is Cityhome and the City of Toronto is the guarantor. If Cityhome surrenders the 49 year lease in order to allow the disposal of the 22 properties held as security, the mortgagee may demand repayment of the full principal balance outstanding and can look to Cityhome and the City for repayment. This is likely since the termination of the lease would destroy the security of the mortgage. As an alternative, approval of the sale of the properties by the mortgagee could be sought and the mortgage could be paid down as the properties were sold. It is, however, highly unlikely that the mortgagee would agree to this arrangement without levying a penalty for early payment. The City would be incurring this additional cost. Accordingly, it would be prudent to market these properties with closing dates after the December 1, 1998 maturity date.

 Thirteen of the property houses were acquired by the City through expropriation. Consideration was paid prior to the enactment of the current Expropriations Act in 1968. Therefore, in terms of the requirements of the Expropriations Act, the City would be free to sell any of these properties that were expropriated.

 The request from the Director, Development and Support, Parks and Recreation to sever and retain the north portion of 144 Balsam Avenue, may not be legally possible due to the impact that this could have on the remainder of the parcel of land. If this is the case, and the City cannot retain the fee, it is possible to achieve continued access to the ravine by means of an easement over the portion of land required.

 Social Objectives

 As noted above, the Budget Committee requested staff to report on Awhether monies generated from the potential sales of such properties should be reserved to realize important social objectives.@

 The joint Board of Directors of Cityhome and the Metro Toronto Housing Company also considered this matter at their meeting of May 25th and will be forwarding recommendations directly to the Corporate Services Committee. The Board will be asking the Committee to defer this report and to ask staff to report on alternative methods to retain all of the properties for social housing purposes

    The Commissioner of Community and Neighbourhood Services has proposed that five of the 60 properties be retained by the City and be made available to community-based housing providers. Four of the properties are currently leased to community housing providers and one is in the process of being leased. The leases are at market, or slightly below market rates.

Should the Committee decide to proceed with the disposal of the remaining 55 property houses, Housing staff will determine the suitability of each property for use by community housing providers and, should any of the properties be deemed suitable, a report on the acquisition for this purpose will be submitted to the Corporate Services Committee.

 As requested by the Budget Committee, The Corporate Services Committee will need to consider how the proceeds of sale will be allocated. There are a number of social objectives that could be met using the proceeds. The properties were originally purchased for parks purposes but have been used for many years to achieve housing objectives. A number of social priorities are also emerging in 1998, including the need to respond to homelessness and to children=s issues. The issue of allocation of funds will be addressed in a separate joint report from the Commissioner of Corporate Services and the Commissioner of Community Services recommending policies on the use of property assets, including revenues from the sale of the property houses, to meet social objectives.

 Proposed Tenant Relocation Program

 The process which will be followed in the disposition of the properties will be similar to the process which was approved by the Council of the former Municipality of Metropolitan Toronto relative to the disposition of the Spadina Corridor properties and also includes the steps requested by the Commissioner of Community and Neighbourhood Services.

 (1)should the original owner of any of the properties within the portfolio presently be a tenant in one of the property house, then this original owner shall have the first right

to purchase the property, at the appraised market value, which they originally owned, notification of intention to exercise said right to be given to the City within 30 days, purchase to be concluded 60 days after notification by the original owner

 (2)subject to (1), above, the existing tenant in any of the property houses, shall have the first right to purchase their property which they occupy at the appraised market value, notification of intention to exercise the said right to be given to the City within 30 days, purchase to be concluded 60 days after notification by the tenant of intention to purchase;

 (3)in the event that the property in question is a multi-family dwelling (i.e., the duplexes on Hubbard Blvd.) and both tenants are interested in purchasing, the first right will

be granted to the tenant with the longest tenure. If the right is not exercised the right

  will be then be granted to the tenant with the second longest tenure and so on. A tenant, if any, that desires to purchase and is unable as a result of length of tenure, will be offered another vacant unit from the portfolio.

 (4)in the event that the tenants elect not to acquire the property, then the property would be offered for sale through a real estate broker in accordance with the broker selection process also before your Committee today;

 (5)in cases where existing tenants would not have the economic means to purchase the property, the General Manager of the Toronto Housing Company will be requested to assist those tenants in finding alternate housing, either market housing or assisted housing, depending on the specific requirements of the households and the eligibility criteria which applies to households seeking RGI assistance.

 (6)those tenants which moved into the houses after 1992 are already paying a Alow end of market rent@ but they would not be eligible for RGI assistance. The General Manager of the Toronto Housing Company will, however, provide information to these tenants on available market units in developments managed by the Housing Company and assist these tenants in finding suitable accommodation;

 (7)in order to minimize the level of uncertainty which may be created for tenants living in these units a notice outlining the available options will be sent to all tenants, and in addition, a Tenant Relations Officer within Cityhome has been assigned to work closely with the tenants to answer their questions and to facilitate a smooth transition; and,

 (8)once the surplus properties and the time line for the disposition of the properties has been established, the General Manager of Cityhome and the Real Estate staff will work closely to co-ordinate the relocation plan for the specific units which will be affected.

 Marketing Strategy

The property houses should be marketed as they become vacant and the marketing program will be carried out in close association with the tenant relocation program. It is clearly to the City=s benefit to market the properties as they become vacant and, in order to do so, it will be necessary to incur a degree of short term rental revenue loss. These losses will be incurred during the period of time that property is vacant, pending sale and conveyance. As of July 1, 1998, this loss will be approximately $10,000 per month. If it becomes apparent that any given property will not become vacant within a reasonable time, then marketing will commence on the basis that sale will be subject to existing tenancies.

With respect to the issue of the mortgage, in order to avoid any penalty associated with prepaying the mortgage (assuming that approval could be obtained from the mortgagee) it is recommended that the properties under the 25 year lease be marketed immediately with the proceeds deposited into an account to be used to satisfy the mortgage at maturity. Those properties which are subject to a mortgage should be marketed later in the year with closing dates to occur after the mortgage matures. The timing of the marketing of both groups of properties will be determined by occupancy status, as set out above.

 In addition, consideration should be given to the possibility that the City may flood the market on any particular street. For instance, 16 of the properties are located on Crawford Street. Placing all of these properties on the market at the same time will result in lowering the selling price that may be achieved. It would not serve the City=s interest to offer all of these properties at one time.

 Bearing these factors in mind, it is recommended that the following steps be taken relative to the disposal of the property houses:

 (1)surrender of the 25 year lease by Cityhome to the City, together with a commitment from Cityhome that it will also surrender the 49 year lease upon discharge of the

mortgage and, that Cityhome will continue to assume day to day management of the property house portfolio until such time as each property is sold;

 (2)retention of an outside appraisal firm to provide appraisals of the market value of properties as required as a component of the disposal process, as well as for establishing listing price and/or sale price with the original owners and/or tenants who may elect to purchase, with the cost of the appraisals being charged against the proceeds of sale;

 (3)implementation of the Tenant Relocation Program as outlined in this report;

 (4)retention of real estate brokers to market the properties and assist in the development of a marketing plan which takes into consideration the timing requirements vis a vis the properties which secure the mortgage, as well as ways that will ensure that the City does not flood the market on any particular street;

 (5)an appropriate portion of the proceeds from sale be placed in an account designated to satisfy the mortgage financing;

 (6)discharge mortgage on maturity; and,

 (7)surrender of the 49 year lease.

 Conclusions:

 The property houses were purchased for the purpose of expanding existing parks. They have been in the City=s ownership for a number of years and will not be used for their intended purpose. As such, with the exception of five of the properties which are currently leased to community housing providers at market rates, these properties should be declared surplus and sold on the open market.

The marketing strategy should take into account the occupancy status of each property and will be carried out in close association with the tenant relocation program as set out in this report.

 Contact Name:

 Bonnie G. Duncan

Tel:416-392-1861

Fax:416-392-1880

Email: bduncan.www.city.toronto.on.ca (cs98094.wpd)

 Commissioner, Corporate Services

     APPENDIX III

 The following comments have been received from City Legal staff.

 AI am replying to your memo of April 23, 1998 in which you requested my reply to the questions therein by April 29.

 The legal implications associated with the sale of the property houses have been addressed as they apply to the mortgaged and the unmortgaged properties, respectively. The following comments/opinions are rendered based on the assumption that the properties would be sold by the City unencumbered by the Cityhome leases since the properties are presumably unmarketable when encumbered by these non-revenue producing leases.

 The property houses may be divided into two groups; those held by Cityhome under 25 year leases from the City and unencumbered by mortgaging and those held under 49 year leases from the City and subject to a mortgage with a maturity date of December, 1998.

1. a)Unmortgaged properties - The City and Cityhome are free to reach an understanding for the surrender by Cityhome of its 25 year lease to the City. The City would then be free to sell the unmortgaged

portfolio. However, the purchasers of this portfolio would be acquiring the properties subject to existing residential leases and the terms therein. Residential tenants are legally entitled to security of tenure.

 Furthermore, such purchasers may be subject to greater restrictions in dealing with residential tenants (eg. rent increases) than Cityhome or the City. The program which has been implemented to raise the rents to market levels is something that non-governmental landlords may be prohibited from continuing, if rent increases exceed those permitted to private sector landlords.

 B) Mortgaged Properties - The above comments relating to the surrender of the 25 year unmortgaged leases apply as well to the surrender of the 49 year mortgaged leases. However, there are additional, more serious, legal and financial factors restricting the ability of Cityhome to surrender the mortgaged lease and for the City to accept such a surrender. This is set out in point No. 2 below.

 2. The leasehold mortgage provides that the mortgagee may, at its option, demand repayment of the full principal balance outstanding if Cityhome surrenders the lease without the prior written consent of the mortgagee. Furthermore, the City is a guarantor of the mortgage loan. If the mortgage becomes due and payable, the mortgagee will likely look to the City as well as to Cityhome for payment. Even if the mortgagee permitted the sale of the property, the City=s guarantee would remain in effect, a situation which would be unfeasible from both a financial and legal point of view. The legal difficulty arises out of the fact that the City may not guarantee the financial obligation of a commercial enterprise.

 3. Thirteen of the property houses were acquired by the City through expropriation. Consideration was paid prior to the enactment of the current Expropriations Act in 1968. Therefore, in terms of the requirements of the Expropriations Act, the City would be free to sell any of these properties that were expropriated.@