May 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 "property houses" in the former City of
Toronto on attached Appendix I (save and except for those four 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.
Financial Implications:
The total of the current value assessment for the 56 property houses recommended to be
declared surplus in this report is $11,134,845.00.
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 56
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 in
accordance with S.95-5 of the Municipal Code;
(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 four 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 four
properties and report back thereon to the Corporate Services Committee; and,
(10)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 "property houses" after confirming with the
Parks Department that these properties are not required for Parks purposes.
The "property 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.
In response to the Budget Committee's request, the Commissioner, Community and
Neighbourhood Services, in consultation with the Commissioner of Corporate Services,
submitted a report dated March 27, 1998 to the Budget Committee. In this report, a number of
issues were identified for further consideration. Also contained in that report was a
recommendation that the approach taken to dispose of these properties be similar to the one
taken by Metro Toronto with respect to the sale of their Spadina corridor properties. This
report addresses the identified issues and establishes a disposal process taking into account the
process utilized by Metro Toronto respecting the disposal of the Spadina corridor properties.
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 of the following:
"In response to your memorandum dated April 23, 1998, regarding the proposed disposal of
the sites previously acquired for parks purposes, I have reviewed the subject properties and
provide the following comments for your consideration. The 60 locations listed on the
summary are related to ten different parks or ravines. A summary identifying the respective
properties and the related park or ravine is attached for your information.
The March 27, 1998 report from the Commissioner, Community and Neighbourhood Services
notes that these properties were acquired to expand City parks adjacent to or abutting the
subject sites. The conversion of a number of these sites to parks use would be beneficial to the
respective parks, unfortunately, this conversion would be at the expense of the available
housing stock. It has not been the position of Parks and Recreation to endorse this type of
conversion in previous discussions regarding these properties. This approach remains
consistent at this time.
In this regard, with the exception of the request set out below, I advise that I am 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, I would request that parks purposes 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. 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, I request that the City 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
The Commissioner of Community and Neighbourhood Services has identified four of the 60
properties which should be retained by the City. These four properties are currently being
leased to community based housing providers. These leases are at market, or slightly below
market rates.
As the balance of the property houses are offered for sale, Housing Division staff will
determine the suitability of each property for use by identified community groups and, should
any of the properties be deemed suitable, a report on the acquisition for this purpose will be
submitted to Corporate Services Committee.
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 "low 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 such as the one in Appendix VI to this report, 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. 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 four 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
Emailbduncan.www.city.toronto.on.ca (cs98072)
Margaret Rodrigues
Commissioner, Corporate Services
APPENDIX III
The following comments have been received from City Legal staff.
"I 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.
- 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."