October 5, 1998

To:Corporate Services Committee

From:Commissioner of Corporate Services

Subject:Corporate Leasing Requirements and Strategy

Purpose:

To provide an update on leasing requirements and strategy.

Source of Funds:

Not applicable - annual savings of $1.485 million in costs for leased space have already been initiated.

Recommendations:

It is recommended that:

(1)the Commissioner of Corporate Services be requested to include in the report to be submitted by the end of November on office space rationalization, the detailed leasing strategy to implement the plan;

(2)the Commissioner of Corporate Services be requested to report, in consultation with the Commissioners responsible for locally delivered programs, on the future needs for leased space and opportunities for reduction of such needs and relocation to City owned space; and

(3)this report be referred to the Budget Committee for information.

Council Reference/Background/History:

In considering the report from the Commissioner of Corporate Services on locating the Learning Enrichment Centre in the York Civic Centre (Clause 30 of Report 7 of the Corporate Services Committee), City Council decided that " the Chief Administrative Officer be requested to submit a report to Council through the Corporate Services Committee and the Budget Committee, on corporate leasing requirements and a corporate leasing strategy, no later than the first week of September, 1998."

City Council, at its meeting of July 31, 1998, adopted the report of the Commissioner dated May 11, 1998, "Expediting the Disposal of Property and the Reduction of Leased Space" (Clause No. 2 of Report No. 11 of the Corporate Services Committee", which included Appendix B setting out the list of existing leases, advised of the approach used to date to reduce leased space and the savings generated.

Comments and/or Discussion and/or Justification:

Currently, the City leases 223 properties at a cost of approximately $21.4 million annually, including leasing and operating costs. The seven former municipalities leased properties for three main purposes:

a) to provide space in a specific area to meet service delivery needs, such as welfare offices, libraries, ambulance stations, local offices for public heath and building inspections;

b) to provide additional general office space above that available in City owned property; and

c) to provide needed open space for parks, parking or roads purposes.

There are also some leases for special purpose functions, such as the Ferry Docks.

Of the 223 leases, about 90 are for nominal rent or no market rent, and are primarily for open space type uses and for utility easements. Approximately 60 leases are for office uses and the remainder are for local service delivery type functions and special purpose functions. The office space leases are set out on attached Appendix A.

Progress is being made in the short term on the collapsing and renegotiation of current leases to reduce costs, as discussed below.

Development of plans for longer term reductions and rationalization is underway. The departments are currently developing their new organizations, reviewing service delivery options, and downsizing. A number of current city wide studies (for office and civic space consolidation, the study on the new Fire and Ambulance organization, the yards study) will provide the necessary information to establish requirements for leased space. A report on the detailed requirements for leased space and the plan for needed leased space cannot, therefore, be submitted at this time. Given that work required, such reporting will be made in the context of the conclusions of these studies.

This report sets out principles for the reduction of lease costs and, for general office space and service delivery space, strategies to minimize the need for leased space. In addition, the report outlines the work to date in these areas and provides examples where it is anticipated substantial savings can be achieved through the Office and Civic Space Consolidation Study.

(1)Principles for the reduction of lease costs:

Staff of the Facilities & Real Estate Division have begun to reduce costs based on the following principles:

a)Relocation of as many City functions as possible and as soon as possible from leased space into owned space;

b) Leasing space only where area based service delivery requirements cannot be met in City owned space;

c) Central management of the lease portfolio and space planning in the Facilities & Real Estate Division for coordination and maximization of opportunities; and

d) Financial evaluation of lease costs versus costs of accommodation in owned space, including consideration of purchase of property where costs will be offset by the reduction in lease payments.

With respect to d. it is important to note that the total costs for leased space may be, in effect, lower than that for owned space, and decisions about leasing or relocation of a function may need to take this into consideration.

(2)Strategy for the general office space portfolio and progress to date:

Strategy

1. Review space needs for the new organization and its operations, and as a result of downsizing.

2. Relocate to owned space as soon as possible, given financial considerations, and the space plan that is being developed through the Office and Civic Space Consolidation Study.

3. Explore options for subleasing where the functions can be consolidated in City owned space in the near future but the terms of the lease are longer.

One office consolidation move has been completed - the relocation of the former North York Transportation group to the North York Civic Centre, the lease costs for which were $250,624 a year.

Two major leases for general office space contribute $2.12 million to the total lease costs. It is anticipated that these space requirements will be able to be met within owned space as part of the Office and Civic Space Consolidation Study now underway and to be reported to the Council in December.

• 939 Eglinton Avenue East: 32,657 sq. ft. used by Licensing, which costs a total of $1.08 million annually. This lease ends in March of 1999 and Facilities & Real Estate staff are working on relocation to appropriate City owned space.

• 20 York Mills: 28,871 sq.ft. used by the former Metro Toronto Housing Company, which costs a total of $1.04 million annually. This lease expires in 2002, and options are being reviewed for reducing this expenditure through sub leasing because the costs to terminate the lease are high. The space needs for the new Housing Company, which also include the former Cityhome, are to be approximately 35,000 sq.ft., down 16,570 from 51,570 sq.ft. that the two groups now occupy. The space reduction will result in savings, with the amount to be determined in the Office and Civic Space Consolidation study.

In addition there are two other major leases that will be reviewed to determine the appropriate disposition.

• 300 Consilium: 32,783 sq.ft. used by former Scarborough Departments, at a total cost of $878,644 annually. This lease will expire in 2003, but includes 9 months free rent from August 1999. The future of this space will be determined in the context of the Office and Civic Space Consolidation Study.

• 112 Elizabeth Street: 20,000 sq.ft .used by the Finance Division of the former City of Toronto at a total cost of $834,305.00 annually. The lease expires in 2007 and is a result of a joint initiative with a private developer, and is part of a complex agreement. The project also includes a Cityhome building.

(3)Strategy for the leased space portfolio for locally delivered functions and progress to date:

Strategy

1. Review space needs for the new organization and its operations, including new program needs from downloading, and from downsizing.

2. Relocate to owned space if available and appropriate in the service area.

3. Negotiate the most cost effective leasing costs.

4. Examine options such as space sharing and potential for purchase of buildings where costs can be recovered from rent reductions.

The majority of the costs for leasing space are for local service delivery functions and therefore relocation to owned space will not always be possible. However, given the development of the new organization, the review of service delivery and the downsizing initiatives underway, the overall need for space will certainly be reduced, although the amount is not known in detail at this time. But, there also will be additional space needs from the functions yet to be downloaded from the Province, including the enforcement of certain Provincial Offences Act regulations such as for the Building Code Act. (It should be noted that downloading has already increased lease costs for the new City as the costs for certain programs were previously paid by the Province. The lease portfolio, referred to in this report, reflects such costs.)

Leases have and are being collapsed and functions relocated, and other leases are being renegotiated for better terms, with an overall savings of $1.485 million annually. These leases are highlighted on the Appendix A listing and are summarized on page 4 of Appendix A.

It should be noted that the study now underway to determine the organization and operations required for fire and ambulance services will also include a review of space needs. Some of the ambulance sites are leased and these may be no longer required.

Where leases cannot be collapsed, due to current lack of suitable space or the high cost of relocation, short term renewals are being and will continue to be negotiated. In each case, the terms of the leases have been and will be reviewed and improved upon where possible. Where appropriate, early termination dates are included to provide for possible future relocation to owned space.

Given the range of properties involved and the variations of lease situations and opportunities, the Commissioner of Corporate Services should be requested to report in consultation with the Commissioners responsible for the local service delivery functions, on specific strategies for meeting space needs and requirements for the different functions and neighbourhoods they serve.

Conclusion:

Work has been ongoing to reduce lease costs according to the principles and strategies outlined in this report - collapsing of leases in the short term where alternative space is available, and planning for longer term reductions, as a result of more comprehensive space planning for both general office needs and studies to determine needs for area based delivery.

The next steps for lease rationalization will be determined based on the space rationalization studies now underway, which consider the reductions for space needs due to amalgamation, restructuring, service rationalization and downsizing. The report on the Office and Civic Space Consolidation Study, to be submitted to Council in December, will include more detailed plans for the reductions of leased general office space. Reports on space needs for fire and ambulance functions and for yards are also underway. More detailed studies are required on the space needs for other services that must be delivered locally.

Contact Names:

(1)Mark Davies, Project Team Lead, Office and Civic Space Consolidation, Facilities & Real Estate Division: Phone 397-0805, Fax 3970805, email mark_davies @metrodesk.metrotor.on.ca

(2)Tony Pittiglio, Project Team Lead, Lease Rationalization, Faciltites & Real Estate Division, Phone 392-8155, fax 392-4828, email anthony_pittiglio@metrodesk.metrotor.on.ca

Margaret Rodrigues

Commissioner of Corporate Services