219 Dufferin Street, Sale of Surplus City-Owned

Property - (Ward 20 - Trinity-Niagara)

 The Corporate Services Committee recommends the adoption of the following report (July 14, 1998) from the Commissioner of Corporate Services:

 Purpose:

 The purpose of this report is to secure City Council's approval to complete the sale of 219 Dufferin Street to Core Construction Corporation by:

(a)informing City Council of the status of this real estate transaction;

 (b)addressing the mercury and mercury vapour found in the building and the resulting impact on the proposed selling price for 219 Dufferin Street; and

 (c)requesting City Council's approval to amend the sale transaction to reduce the sale price for 219 Dufferin Street from $2,460,000.00 to $2,100,000.00, to require the purchaser to create a trust fund to ensure the building is remediated and extend the closing date to August 27, 1998.

 Financial Implications:

 The completion of this sale will provide revenue of $2,100,000.00, less the real estate commission in the amount of $89,880.00 inclusive of G.S.T.

 Recommendations:

It is recommended that City Council:

(1)approve an amendment to the Agreement of Purchase and Sale between the City of Toronto and Core Construction Corporation (Purchaser) and 1245686 Ontario Inc. (Assignee) for the sale of 219 Dufferin Street to incorporate the terms and conditions as set out in the body of this report;

 (2)authorize the City Solicitor to complete this transaction as revised, including the preparation of the required documentation in a form satisfactory to him;

 (3)request the City Solicitor to report to the Corporate Services Committee, in Camera, on what legal rights the City of Toronto has, if any, to recover the amount of the reduction in the sale price from Canadian General Electric Corporation; and

 (4)authorize the appropriate City officials to take the necessary action to give effect to the foregoing.

 Background:

 Property Description:

 219 Dufferin Street, a large industrial property, located a short distance south of King Street West at the southeast corner of Liberty Street and Dufferin Street, contains a site area of approximately 2.44 acres. This property has a frontage on the east side of Dufferin Street of 355 feet, a flankage on the south side of Liberty Street of 300 feet and secondary access from Mowat Avenue.

 The property is improved with three primary connected buildings containing an approximate building area of 179,150 square feet. In addition, there are several auxiliary buildings.

 The lands are zoned IC D3 N1.5.

 Site History:

 Canadian General Electric Corporation ("CGE") operated a manufacturing plant at this location from the turn of the century to approximately 1983, at which time it ceased operations at this location. I have been verbally advised that prior to CGE selling the property in December, 1985, CGE undertook a remediation plan for the buildings. The former City of Toronto acquired 219 Dufferin Street under the provisions of the Tax Sales Act in July 1996. As no interest was shown in the retention of this property for municipal purposes, City Council, in February 1997 declared by by-law the property surplus to the City's requirements and authorized its disposal through a public offering. Several major real estate brokers having expertise in the sale of large industrial properties were approached by the City to submit a proposal to market 219 Dufferin Street. CB Commercial Real Estate Group Canada was subsequently retained for this purpose.

Resulting from this public offering, fifteen Offers to Purchase and one Expression of Interest were received. The highest offer was rejected due to unacceptable conditions. The second highest offer from Core Construction Corporation was recommended to City Council for acceptance.

 City Council approved the sale of 219 Dufferin Street to Core Construction Corporation at a sale price of $2,460,000.00, including a deposit of $246,000.00, subject to a due diligence period.

 By an Assignment of Agreement of Purchase and Sale dated December 16, 1997, Core Construction has assigned its interest to 1245686 Ontario Inc. It has jointly and severally covenanted with 1245686 Ontario Inc. to perform all of the Purchaser's obligations.

 Environmental Issues:

 During the due diligence period, Core Construction retained the services of environmental consultants and advised the City of various environmental concerns including stored PCBs and chemicals, asbestos wrapped heating pipes and boilers, an underground storage tank in the courtyard, mercury contaminated soil and the possible presence of mercury or mercury vapour in certain areas of the buildings. After some discussion, Core Construction advised they were prepared to accept title subject to all other environmental conditions except the presence of mercury in the building. It is noted that all other offers received for this property, except for the lowest offer in the amount of $900,000.00, included a due diligence clause which afforded the prospective purchasers with the same opportunity as Core Construction to investigate the environmental integrity of the property. The indication of mercury presence in the building was discussed with staff of Public Health. Resulting from this, staff of Facilities and Real Estate met representatives of CGE to discuss the buildings and its previous manufacturing uses. Staff were advised that CGE had undertaken a remediation of the said buildings. As mercury can affect human health, an environmental consultant, Agra Earth and Environmental, was retained by the City to undertake an environmental study of the buildings. The consultant confirmed to the City the presence of mercury vapour in various areas of the buildings and identified the mercury levels in each of these areas.

 This information was provided to Core Construction Corporation, who requested their environmental consultant, Conor Pacific Environmental Technologies, to review the material and submit a remediation plan. Conor Pacific has submitted a remediation plan to the purchaser, including a cost to remediate at $479,000.00. This cost has been confirmed by Agra, the City's consultant.

Comments:

 Core Construction Corporation indicated that it would still like to complete the transaction but has requested that the sale price be reduced to take into consideration the unforeseen building mercury remediation costs. Negotiations were conducted in consultation with Agra and staff of Public Health and the Legal Services Division. Mr. Abe Gitalis, President, Core Construction Corporation, in a letter dated July 2, 1998 advised that he is agreeable to amend the Agreement of Purchase and Sale as follows:

(1)The Purchase Price to be reduced from $2,460,000.00 to $2,100,000.00;

 (2)As a guarantee that mercury remediation in the buildings will be completed by the Purchaser, on the closing of the sale, the Purchaser will deposit an additional $500,000.00 in an interest bearing trust account, to be released to the Purchaser in stages on account of mercury remediation work as such work is being carried out. Advances from the $500,000.00 trust account will be paid from time to time in proportion to the area then remediated (to a level not exceeding one microgram per cubic metre in air as determined by the appropriate NIOSH method or equivalent) calculated in relation to the total area requiring mercury remediation, as identified in the report of Agra Earth and Environmental dated January 8, 1998 and, will be backed by "progress certificates" issued by the Purchaser's environmental consultants. Existing tenanted space will be given first priority.

 In the event that the mercury remediation work is not completed by December 1, 2000, at the City's option, the balance held in the trust account plus accrued interest less holdbacks pursuant to the Construction Lien Act, shall be payable to the City of Toronto.

 Upon the issuing of a "Certificate of Substantial Completion" by the Purchaser's environmental consultants, the balance of the funds held in trust account together with accrued interest shall be paid to the Purchaser.

 (3)Article 6.6 and Schedule "B" contained in the Offer to Purchase for the property specifying that the Purchaser "shall indemnify and save harmless the Vendor from and against any and all claims, damages, liability, orders and expenses arising out of or related to Environmental Matters" shall not apply to mercury contamination in the buildings, except for the requirement to remediate the property as set out herein and future standards developed or put in place by any future legislation.

 (4)Closing will be set for August 27, 1998.

 (5)1245686 Ontario Inc. will not exercise its rights under Paragraph 6.1(f) of the Agreement of Purchase and Sale with respect to environmental matters pending receipt of confirmation on or before August 5, 1998 that City Council has accepted the terms of this letter. Upon receipt of such confirmation 1245686 Ontario Inc. will automatically have waived its rights under Paragraph 6.1(f) of the Agreement of Purchase and Sale.

 (6)There is to be an amendment to the Agreement of Purchase and Sale and the following paragraph is to be included:

 The City of Toronto and 1245686 Ontario Inc. will enter into an agreement to reflect the terms of this letter and the terms are to be agreed upon before Corporate Services Committee meets on this matter on July 20, 1998.

 The Medical Officer of Health has reviewed this matter and is satisfied that the holdback of the $500,000.00 trust fund provides sufficient safeguards to ensure the mercury contamination in the buildings would be adequately addressed and that the proposal is acceptable.

 The resolution of this matter on the foregoing basis is considered fair and reasonable and will permit the City to finalize this transaction.

 If City Council approves a reduction of the sale price it may be appropriate for the City Solicitor to report to the Corporate Services Committee, in Camera on what legal rights the City of Toronto has, if any, to recover the amount of reduction in the sale price from Canadian General Electric Corporation.

 Conclusion:

 The request from the Purchaser for a reduction of the sale price from $2,460,000.00 to $2,100,000.00 together with the other amendments set out above is considered to be reasonable. In addition, the establishment of a $500,000.00 trust fund would ensure the remediation of mercury within the buildings is completed in a timely manner.

 Contact Name:

 Ron Banfield, 392-1859, Fax 392-1880, rbanfiel@city.toronto.on.ca,(cs98103.wpd)

 (A copy of the map attached to the foregoing report was forwarded to all Members of Council with the July 20, 1998, agenda of the Corporate Services Committee, and a copy thereof is also on file in the office of the City Clerk.)