March 10, 1999

To:Corporate Services Committee

From:Chief Executive Officer, Toronto Housing Company

Subject:A Plan for the Property House Portfolio: Maximizing Housing Opportunities for Low Income Tenants

Purpose:

This report identifies options to maximize use of the City-owned Property House portfolio to house families with low incomes. The proposed approaches build on the 1992 business plan and seek to address issues raised by the Community and Neighbourhood Services Committee, the Toronto Housing Company Board of Directors, the Corporate Services Committee and City Council at its meeting on November 27 to 29, 1998.

Financial Implications:

The 1998 current value assessment of the Property House portfolio is approximately $11 million.

Recommendations:

It is recommended that:

1.The existing leases between the Toronto Housing Company (former Cityhome) and the Corporation of the City of Toronto be terminated;

2.On termination of the leases, ownership of all of the Property Houses be transferred immediately to the Toronto Housing Company by the City of Toronto;

3.City Council endorse option 2, described in more detail in the report, consisting of the following actions by the Toronto Housing Company:

(a)a portion of the Property Houses portfolio containing 66 units of affordable family housing is retained by Toronto Housing Company;

(b)the properties with a higher market value and/or smaller unit sizes are sold; and

(c)a portion of the proceeds of the sale is used to pay down the mortgage on the Property House portfolio, another portion is used to complete planned renovations on the retained portion of the portfolio (including properties managed within the property houses portfolio but owned by the Toronto Housing Company), another portion is used to seed a capital and an RGI reserve for the retained portion of the portfolio: and

(d)the Toronto Housing Company report to the Community Services Committee on the use of any surplus proceeds from sales of properties or any operating surpluses not required for the uses listed above.

4.The properties not sold shall be retained for affordable housing purposes, and managed on a cost pass-through basis while maximizing RGI assistance according to a business plan to be submitted to the Board of Directors of the Toronto Housing Company;

5.All property to be sold shall be disposed of in conformance with the City's property disposal policy;

6.Subject to the terms set out in the City's property disposal policy, the first right to purchase be given to the current tenants of the properties to be sold; and

7.The appropriate City officials be given the authority to implement these recommendations.

Background:

At its meeting of November 27 - 29,1998, City Council requested that the Chief Operating Officer of the Toronto Housing Company submit a report on the number and type of houses that would have to be retained in the Property House portfolio in order that as many units as possible could be rented to tenants with low incomes.

The Property House portfolio consists of 60 properties, comprising 106 units, which were acquired between 1930 and 1974 for Parks purposes. These properties have never been used for Parks 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.

The 1992 business plan had the following objectives:

·the plan was to be self-financing;

·the properties were to be mortgaged to finance a capital rehabilitation program to bring the units up to standard;

·the rent structure was to be rationalized and rents were to be increased to low-end-of-market levels;

·rent increases were to be phased-in to reduce hardship for tenants and rent assistance provided to eligible households which would otherwise face economic eviction; and

·revenues generated were to be used to pay down the mortgage and to provide rent assistance to eligible households.

The 1992 business plan was only partially implemented. The phase in plan for the low end of market rent structure has another year to go before it is fully implemented and some of the properties are yet to be renovated as planned. Until full funding was available from the low end of market rent structure, RGI subsidies could only be provided for 12 households and the replacement reserve could not be funded to the full required amount.

Throughout 1998 reports on the disposition of the Property House portfolio were prepared for the Community and Neighbourhood Services Committee, the Corporate Services Committee, the Strategic Policies and Priorities Committee and City Council. In November 1998 Council requested the Chief Executive Officer of the Toronto Housing Company to present this report to the Corporate Services Committee.

Indicators of Housing Need in the City of Toronto

Meeting the need for affordable housing has been identified as an important objective by City Council. A number of key indicators have suggested the level of housing need in the City of Toronto, including:

·a vacancy rate (1998) of 0.9% in buildings with 3 or more units;

·average rent increases of between 5.9% and 7.4% depending on unit type from 1997 and 1998;

·a waiting list of 50,000 households seeking subsidized accommodation, which has grown from 41,000 since 1997 (Toronto Social Housing Connections);

·approximately 50% of the households on the Housing Connections waiting list are families but the supply of appropriately sized apartment units consists only of the annual turnover of 3+ bedroom units (about 850 units/year - this is the total annual turnover of 3+ Br units in all of the social housing stock in the city including MTHA); and

·increasing levels of homelessness, including a rising incidence of homelessness among families with children.

In presenting its Fall 1998 rental market survey results, CMHC identified two factors which have contributed to increasing rent levels in the Toronto area. These are:

(i)Toronto's prolonged tight rental market has enabled most landlords to increase rents in occupied units up to the legal maximum of 3% in 1998. In some instances, unused past increases have been applied; and

(ii)changes to the Tenant Protection Act allow landlords to charge market rent once units become vacant.

At its meeting held on June 22, 1998, the Board of Directors of the Toronto Housing Company received a report which provided a profile of the amalgamated housing company's portfolio. Included in the report was a discussion of mismatches between the supply of housing units through turnover in its exiting portfolio and the demand for housing identified through waiting list information.

The report concluded that, based on its existing housing stock, the Toronto Housing Company is primarily geared to meet the housing needs of seniors, singles and couples. The portfolio has only a limited number of larger family size units (approximately 1,750 - 3 and 4 Br Units) and the Toronto Housing Company plays only a very small role in the supply of family units. It has been recommended that the new Toronto Housing Company seek opportunities to adjust its stock to respond to broader community need.

The Property House portfolio provides an opportunity for the Toronto Housing Company to ensure that the housing stock under its management addresses the needs of larger family households. To achieve this objective the company needs flexibility to adjust the portfolio composition so that housing is maximized for low income families.

Using the Property House Portfolio to Respond to Housing Need

With 60 houses located across the central area, the Property Houses make up a diverse portfolio. Units vary greatly according to size, price, location and other amenities. Taking into account the high level of demand for affordable housing, the following multiple criteria were developed to identify those properties which could best be used to respond to current housing needs as well as meet the operating needs of the amalgamated housing company. They are:

·larger properties with average family size units (2+ bedrooms);

·properties presently being managed in partnership with a community agency;

·properties which would have lower operating costs including:

·properties which have lower property values and lower taxes; and

·properties which are in close proximity to the Toronto Housing Company's portfolio of units for greater potential operating efficiencies.

Properties which do not meet these criteria are deemed to have a lower value to the Toronto Housing Company in responding to current housing need.

Operating Plan for the Property Houses

To respond to Council's question of how many and what type of houses would have to be retained to rent to as many low income households as possible, three options were developed.

Options for Maximizing Assistance to Low Income Households with the Property Houses

A simplified cash flow model of each option is shown in Table 1. These options reflect the housing need patterns discussed earlier in this report. To develop these options, a number of assumptions were made. Operating costs are estimated using 1998 actuals and vacancy loss was estimated at 2% of full market revenue (industry benchmark). Revenue was estimated using the low end of market rent structure for market units as of Jan. 1, 1999 and RGI revenue was estimated using average RGI revenue from similar unit sizes in the former Cityhome portfolio. Interest is calculated at 6% on funds held for the purposes of a capital repair reserve or RGI fund. In the absence of documented property appraisals, the current value assessment ( CVA) was used to estimate the value of each property. Each option is described in more detail as follows:

Option 1

What is proposed by this option?

·All properties are retained.

·The $2,500,000 mortgage is renewed.

·Renovation of the seven properties which require capital work to reduce operating costs and improve marketability. All properties would be renovated within 18 months of transfer of ownership.

How is housing for low income tenants maximized?

·Initially the maximum number of RGI units is limited by cash flow to 35. This would be an increase of 23 larger families receiving RGI assistance from the current 12 households receiving RGI. (RGI assistance would be provided as required to current tenants. On turn over units rented to low income households).

·As market revenue increases, more units can be subsidized. Once the existing mortgage is paid, an additional 30 units could be subsidized. Alternatively, revenues not required for RGI assistance in the Property Houses portfolio can be used to extend assistance within other components of the Toronto Housing Company portfolio.

Other comments:

·This option represents a lost opportunity by not selling high value properties and reinvesting in more modest cost housing or investing the proceeds to generate an income stream to support affordable housing initiatives.

·This option while maximizing the number of units and the number of RGI subsidies also retains the less needed small units and units with high operating costs.

Cthis option produces 35 units of housing appropriately sized for families (3+ bedrooms)

Option 2

What is proposed by this option?

·Sell 12 high value properties with 22 units (See Appendix 1 for list).

·Sell 3 properties with 20 1-bed or smaller units (See Appendix 2 for list).

·Principal remaining on $2,500,000 mortgage is discharged.

• Renovation of the seven properties which require capital work to reduce operating costs and improve marketability. All properties would be renovated within 18 months of transfer of ownership.

·Proceeds of sales are invested to provide revenue stream for on-going RGI subsidies.

·Any additional revenues from sales can be used for capital repairs and to increase housing affordability in the company portfolio.

How is housing for low income tenants maximized?

·A total of 66 units of affordable housing would be provided.

·Because 8 units are occupied by community agencies, a maximum of 58 units are left to provide RGI assistance to Toronto Housing Company tenants.

·Initially the number of RGI units is limited by cash flow to 50; however, 8 more units could be added as the RGI reserve is built.

Other comments:

·The total of 58 units of RGI housing would be achieved over time, at turn-over of units some market tenants will be replaced with tenants needing RGI.

Cthis option produces 33 units of housing appropriately sized for families (3+ bedrooms)

Option 3

What is proposed by this option?

·Sell 12 high value properties.

·Sell 3 properties with only 1-bed or smaller units.

·Appendix 3 lists properties in which some of the tenants have indicated an interest in purchasing their building or in the formation of a coop which would own their building. Under Option 3 it is proposed to sell up to 12 properties with 19 units in which the tenants have indicated interest in purchasing.

·Retain at least 28 properties plus the properties occupied by agencies.

• Renovation of the seven properties which require capital work to reduce operating costs and improve marketability. All properties would be renovated within 18 months of transfer of ownership.

·Principal remaining on $2,500,000 mortgage is discharged.

·Proceeds of sales invested to provide revenue stream for RGI subsidies and future affordable family housing initiatives.

·Any additional revenues from sales can be used for capital repairs and to increase housing affordability in the company portfolio (rent bank, emergency assistance, low level subsidies to in-situ tenants within market component of portfolio, limited internal rent-supplement program).

How is housing for low income tenants maximized?

·Maximum number of RGI units is limited by number of units remaining. This may be as low as 38 if all tenants exercise their option to purchase. It is expected the number of units could be 42 units based on current tenant preferences.

·Only a fixed number of households (38 or more depending on total number of units in the portfolio) will receive RGI subsidies; however, some of the proceeds can be used for capital repairs and to increase housing affordability in the company portfolio.

Other comments:

·This option generates a surplus from the sales revenue. A detailed plan will be required to identify how these funds would be used.

Cthis option produces 25 units of housing appropriately sized for families (3+ bedrooms)

Limitations of the Analysis of Options

CVA was used to estimate sale value. Real estate appraisals will be done on each property to be sold in conformance with the City's disposal policy - this will be a more accurate gauge of the value of the properties to be sold.

The proceeds of the sale may be reduced by approximately 10 per cent of the total selling price to offset the costs of preparing the properties for sale. Costs which may be incurred are appraisal fees, real estate fees, surveys, severance applications and fees and some capital work to facilitate sales (e.g. where one furnace serves both halves of a semi-detached property).

RGI revenue may be more or less than estimated depending on the incomes of tenants selected from Housing Connections waiting list; tenant incomes vary over time, and therefore the RGI costs will vary accordingly. A reserve is required to ensure funds are available where incomes are less than expected.

1. One-time capital upgrading

Of the 60 properties in the portfolio, 44 were rehabilitated through the original 1992 business plan. Funds are required to complete the capital improvements to the properties retained. Depending on which option is chosen, the number of properties will vary but in all options at least seven properties will need capital improvement immediately to decrease operating costs and improve marketability A preliminary estimate suggests that $30,000/property, or a total of $210,000, should be placed in a reserve fund to upgrade the first seven properties. It is proposed that all of this work be completed as quickly as possible after the transfer of ownership of the Property Houses to the Toronto Housing Company

2. Establishment of a Reserve Fund for capital repairs

In addition, an on-going capital reserve fund is required to ensure the availability of resources to replace major building components which have a fixed life-span (e.g. roofs, furnaces). These expenditures are not included in the annual property operating budgets; over time work will be required to all of the properties retained. An annual per unit contribution to a capital reserve is proposed as is a one time seeding of the capital reserve from the revenue generated from the sale of properties. Both the annual contribution rate and the one time funding level required would be determined by a reserves study.

3. Maximizing RGI Assistance

A new business plan will be required to establish the maximum subsidy level that can be sustained as properties are sold. However, vacancies in the immediate future should be rented from Housing Connections list until the maximum RGI proportion is reached. Careful monitoring will be required to maintain cost-pass through, funding for RGI, funding for repairs, and funding for capital.

4. Value of portfolio and amount of sale proceeds

The total value of the Property Houses portfolio is $ 11,874,320 based on CVA. It is generally known that the CVA values under-represent the actual market, or sale value of the properties. In addition, in options 2 and 3 above, the total number of properties to be sold is not known at this time as it is in part dependent on tenant decisions. Therefore, the total amount of proceeds from sales is not known. For this reason it is recommended that the Toronto Housing Company report to Community Services Committee on the options for the use of proceeds from sales of the properties, once these transactions are effected, capital repair requirements are known, and the RGI and capital repair funds have been established. The Toronto Housing Company can provide the Committee with status reports in six and twelve months.

5. Protection of tenures

In options 2 and 3 above, where it is proposed to sell a property, the current tenancy of residents will be ensured until such time as they choose to terminate their tenancy, or the Housing Company provides alternative accomdation, and that this option be solely exercised by the Housing Company. This may have the effect of delaying some sales and therefore stretching the time frame from realizing the proceeds of such sales.

Recommended Option

Option 2 is recommended as it responds to the request of Council to provide information on the number and type of properties that would have to be retained in the portfolio to allow the Company to rent as many units as possible to low income tenants. This option also balances the interests of the Toronto Housing Company in structuring the portfolio to better address the needs of families, and withdraw from the operation of high cost properties. It should be noted that it is probable that many current tenants will remain in situ, and therefore the retention of the 66 units proposed will not mean that all such units will be available for low income houses in the near term.

Option 2 provides the most flexibility to allow the Toronto Housing Company to rent units to low income tenants. This option provides at least 66 units (50 RGI, 8 market and 8 rented to community agencies) and may allow for the addition of additional assistance for low income households within the overall portfolio. This option will also ensure that sufficient funds are available for immediate repairs.

Option 3 is a viable option. In this option a significant number of units are retained and made available for low income households. In addition, funds may be available to direct to housing affordability issues elsewhere in the Toronto Housing Company portfolio and to address other capital funding issues. Tenants were previously contacted and expressed an interest in the purchase of their unit. This option may allow these tenants to do so. The market value of the properties sold would be based upon a real estate appraisal.

Option 1 is not recommended as high value properties and properties which do not match Toronto Housing Company applicant needs would be retained.

Next Steps

Once this report is approved by City Council, the Toronto Housing Company's Board of Directors will need to terminate the existing leases, authorize the acquisition and adopt the strategy contained in Option 2.

A satisfactory disposal process was previously recommended in the June 11, 1998 and the October 26, 1998 reports to the Corporate Services Committee by the Commissioner of Corporate Services; however, the Toronto Housing Company may wish to review the disposal strategy to ensure the Company's interests are protected as well. The disposal process will also need to include real estate appraisals, property surveys, severances and capital work. The disposal process will also need to address the issue of flipping and obtaining fair market value. As well, any tenants in receipt of RGI assistance in the Property Houses which are sold will need to incorporated into a tenant relocation plan.

Once the Toronto Housing Company has completed the disposal, the Board of Directors of the Toronto Housing Company will need to approve a new business plan for the ongoing management of the Property House portfolio.

Conclusion

This report sets out a plan to more effectively use the City-owned Property House portfolio to house families with low incomes. The proposed approach builds on the 1992 business plan and seeks to address issues raised by various stakeholders during 1998 discussions of the fate of this portfolio.

Option 2, as described earlier in this report, is recommended as the proposed approach whereby the properties that do not meet the Toronto Housing Company's needs will be disposed of according to City policies giving the tenants first right to purchase and the balance of the properties would be managed according to a business plan approved by the Toronto Housing Company's Board of Directors. This approach would satisfy most of the stakeholders while maximizing the housing available to low income households.

Contact Name:

Bob Dryden, Director, Asset Management

Toronto Housing Company

Telephone: 392-3723; Fax: 392-3037

Derek Ballantyne

Chief Executive Officer

Toronto Housing Company

Appendix 1

List of High Value Properties

125	Roxborough	St.
1	Hubbard	Blvd.
3	Hubbard	Blvd.
5	Hubbard	Blvd.
7	Hubbard	Blvd.
9	Hubbard	Blvd.
11	Hubbard	Blvd.
13	Hubbard	Blvd.
2	Wineva	Ave.
4	Wineva	Ave.
6	Wineva	Ave.
8	Wineva	Ave.

Appendix 2

List of Properties with Only 1-Bed or Smaller Units

15	Hubbard	Blvd.
205	Crawford	St.
215	Crawford	St.

NOTE:Sale of Listed Properties would occur only after tenant relocation plan is implemented

Appendix 3

List of Properties Where Tenants Indicated a Desire to Purchase Their Unit or Their Building When Surveyed in September 1998

Address	No of Units	Interest in Purchasing	Interest in Coop Formation
176 Bain Ave	1 - 3 Br	1	0
144 Balsam Ave	2 - 1 Br	1	0
11 Coady Ave	1- 4 Br	1	0
35 Coady Ave	1 - 3 Br	1	1
37 Coady Ave	1 - 3 Br	1	0
185 Crawford St	1 - 1 Br, 1 - 3 Br	2	2
187 Crawford St	1 - 4 Br	0	1
195 Crawford St	1 - 4 Br	1	1
201 Crawford St	2 - 1 Br, 3 - 2 Br	1	3
205 Crawford St	2 - 1 Br	0	2
213 Crawford St	1 - 4 Br	1	0
215 Crawford St	2 - 1 Br	0	1
217 Crawford St	1 - 4 Br	1	0
221 Crawford St	1-1Br, 1-2Br	1	0
223 Crawford St	1-1Br, 1-3Br	1	0
225 Crawford St	1 - 5+ Br	0	1
229 Crawford St	1 - 5+ Br	1	1
237 Crawford St	1 - 5+ Br	1	0
949 Dundas St	1 - 5+ Br	1	0
959 Dundas St	1 - 1 Br, 1 - 2 Br	1	0
981 Dundas St	1-1Br, 1-2 Br	0	0
987 Dundas St	1 - 5+ Br	1	1
989 Dundas St	1- 1 Br, 1-2 Br	0	0
112 Havelock St	1 - 4 Br	1	0
114 Havelock St	1 - 4 Br	0	0
1 Hubbard Blvd	2 - 2 Br	2	2
3 Hubbard Blvd	2 - 2 Br	2	1
5 Hubbard Blvd	2 - 2 Br	2	2
7 Hubbard Blvd	2 - 2 Br	1	2
9 Hubbard Blvd	2 - 2 Br	2	1
11 Hubbard Blvd	2 - 2 Br	1	0
13 Hubbard Blvd	1 - 4 Br	1	0
15 Hubbard Blvd	17 Bach	1	3
2 Sylvan Ave	1-3 Br	0	0
2a+b Sylvan Ave	2 -2 Br	1	0
4 Sylvan Ave	2 - 2 Br	0	1
6 Sylvan Ave	1 - 1 Br, 1 - 3 Br	2	0
10 Sylvan Ave	2 - 2 Br	0	0
14 Sylvan Ave	2-2 Br	1	0
15 Tiverton Ave	1 - 2 Br	1	0
2 Wineva Ave	2 - 2 Br	2	1
4 Wineva Ave	2 - 2 Br	2	0
6 Wineva Ave	2-2 Br	1	0
8 Wineva Ave	2-2 Br	0	0

NOTE: Decision to withhold individual Property Houses from sale based upon operating costs, unit size and property location. Those units to be sold will be offered first to building tenants.