John Street Roundhouse - 222 Bremner Boulevard

TrizecHahn Corporation Proposal Report

(Ward 24 - Downtown)

The Administration Committee:

(1)recommends the adoption of Recommendations Nos. (1), (2), (3), (4), (5) and(7) embodied in the report (June 10, 1999) from the Commissioner of Corporate Services, subject to a provision in the lease that the Steam Whistle Brew Pub be smoke free indoors; and

(2)reports having approved Recommendation No. (6) embodied in the aforementioned report.

The Administration Committee further reports, for the information of Council, having:

(1)requested the Acting Commissioner of Corporate Services to submit a report to the Administration Committee respecting the comments raised by Miss Jane Beecroft, Chair, CHP Heritage Centre, at the meeting of the Administration Committee on June 15, 1999, regarding the proposal respecting Bays 12-32; and

(2)referred the communication (June 11, 1999) from Miss Jane Beecroft, Chair, CHP Heritage Centre, to the Acting Commissioner of Corporate Services.

The Administration Committee submits the following report (June10, 1999) from the Commissioner of Corporate Services:

Purpose:

To advise the Administration Committee and City Council of the contents of a report received from TrizecHahn Corporation respecting the revitalization of the John Street Roundhouse and the outcome of the discussions between City Staff, TrizecHahn and Steam Whistle Brewing Limited Partnership (SWBLP) and other information relative to the rehabilitation and reuse of the John Street Roundhouse.

Financial Implications:

Should City Council wish to pursue a tenancy with SWBLP, there is a requirement for capital funds in the minimum amount of $750,000.00 (subject to confirmation upon detailed review of the access and servicing elements) in order to bring the building up to base standards. No account has been identified for this purpose.

Recommendations:

It is recommended that:

(1)authority be granted to proceed with the development of the John Street Roundhouse by way of individual agreements relating to various portions thereof rather than by one comprehensive proposal;

(2)subject to City Council agreeing to provide the necessary capital funding, a lease with SWBLP be approved in principle essentially in accordance with the Term Sheet attached as Appendix "A" and subject to further negotiations with SWBLP to arrive at an appropriate percentage rent and other terms and conditions deemed appropriate by the Chief Administrative Officer and the City Solicitor;

(3)the Chief Administrative Officer be authorized to advise TrizecHahn that City Council wishes to continue TrizecHahn's involvement with the establishment of a Board of Directors as set out in the body of this report;

(4)the Chief Administrative Officer and the Executive Director of Facilities and Real Estate be authorized to enter into discussions with CB Ellis and/or Headline Sports for the leasing of space in the Roundhouse and report back on the negotiations;

(5)the Chief Administrative Officer be instructed to continue to pursue all available funding sources and report back thereon;

(6)this report be referred to the Policy and Finance Committee for a report on capital funds directly to City Council; and

(7)the appropriate City officials be authorized to take the necessary action with respect to the foregoing.

Background:

The John Street Roundhouse has been used since 1986 for the storage of various rail related equipment and rolling stock. It was acquired by the City in 1997. A proposal call was issued on May 7, 1997, and only two submissions were received and neither one was acceptable to City Council. TrizecHahn was the successful proponent resulting from a Request for Expressions of Interest issued on December 19, 1997, and City Council, at its meeting of November 25, 26 and 27, 1998 (Clause No. 1 of Report No. 16 of The Corporate Services Committee) directed the Commissioner of Corporate Services, in consultation with the Heritage Toronto, to negotiate with TrizecHahn Corporation (TrizecHahn) in order to arrive at a comprehensive proposal for the rehabilitation and reuse of the John Street Roundhouse Complex and to report back on the results of the negotiations.

On May 19, 1999, the Commissioner of Corporate Services submitted to the Corporate Services Committee, (Item No. 40) at its meeting of May 20, 1999, a report advising that the proposal report has been received and that as part of that proposal, TrizecHahn advised of an interest from SWBLP to lease approximately 30,000 sq. ft. of the Roundhouse. The intention of this report was for information purposes only as the report dated May 10, 1999 "A Phased Reuse and Rehabilitation Strategy - John Street Roundhouse" was still subject to review by the Steering Committee and a meeting was not scheduled until May 26, 1999. The Corporate Services Committee, however:

(1)recommended that City Council support the SWBLP concept as outlined in the proposal report submitted by TrizecHahn as part of "A Phased Reuse and Rehabilitation Strategy for the John Street Roundhouse";

(2)requested the Commissioner of Corporate Services to work with TrizecHahn and SWBLP to facilitate their venture as an initial phase of the John Street Roundhouse Redevelopment; and

(3)will be reporting to City Council for information purposes that it has requested the Commissioner of Corporate Services to carry out Item No. 2 above, and that a report will be submitted to the Administration Committee for its meeting of June 15, 1999 on the report of TrizecHahn.

Comments:

1.0TrizecHahn Report Elements:

1.1Governance:

Although it was the desire of staff that TrizecHahn be the head lessee of the facility and proceed to rehabilitate and lease the facility for commercial and railway museum purposes, TrizecHahn has clearly stated it does not wish this role. Its reason for this position is primarily financial in nature. As an alternative, TrizecHahn has proposed the establishment of a governance entity with a Board of Directors structure to be undertaken in the initial phase of the project. This Board will effectively guide the process of developing a museum, develop and oversee a business plan and seek capital funding sources to implement the plan. TrizecHahn recommends the governance body be comprised of such group as an elected official, City staff members, a representative of TrizecHahn, a member versed in Canada's rail and transportation history, and a member with strong philanthropic background. TrizecHahn has proposed to continue its active involvement to establish a Board of Directors and to facilitate installing the micro brewery and brewpub discussed later in this report in the immediate term. Ultimately TrizecHahn would withdraw its direct participation, expected no later than December, 1999.

1.2Allocation of Space:

TrizecHahn has advised it envisions one-third of the total space would be dedicated as an Operating Railway Museum and to achieve a fully restored and utilized Roundhouse, it is clear it will be necessary to develop a phased approach to the rehabilitation and reuse of the Roundhouse.

Their concept divides the Roundhouse into 3 functional areas and have proposed the following uses:

(a)Visitor Centre and Commercial Retail Uses, Bays 26-32;

(b)Railway Museum/Interpretive Centre, Bays 1-11; and

(c)Interim Artifact Storage/Commercial and/or Railway Museum Expansion Space, Bays 12-25.

1.3Timeline of Phased Development:

TrizecHahn's timetable of the phased rehabilitation and reuse of the complex with a commercial use in Phase 1 and railway museum and others in Phases 2-5 is shown below.

1.4Abatement and Base Building Upgrades:

TrizecHahn has advised that before any tenant can occupy the site, all unimproved space must be brought to a minimum standard in three key areas:

(a)environmental abatement including lead paint, heavy oils and asbestos;

(b)building envelope upgrades and provision of rough services; and

(c)building code and fire code compliance.

They have itemized the work they envision relative to Bays 26 to 32 and this work is set out in Appendix "B". Overall they estimate this work to require about $50.00 per square foot or $5,000,000.00 for the entire facility.

1.5Funding:

TrizecHahn has suggested that the sources of funding for the Railway Museum Centre's construction and operation include:

(a)using a portion of income from commercial tenants;

(b)potential availability of $5 to $15 million from a previously established government fund (Note - this reference was based on a 1994 Task Force report and the funds do not exist);

(c)Government funding opportunities; and

(d)Corporate Sponsorships and marketing possibilities.

What TrizecHahn's analysis fails to deal with in any concrete way is the capital funding required to undertake the work to bring the building up to base standards.

1.6Summary of TrizecHahn's Report and Ensuing Discussions:

TrizecHahn has suggested that the concepts which require immediate approval include the phased development approach, establishment of governance entity and a commitment by the City to secure SWBLP as a tenant, ensuring its fast-track occupancy to provide the kick start that the project requires.

While TrizecHahn has invested time, its expertise and funds to bring forward its report, it did not meet staff's expectations that TrizecHahn would be the head lessee of the facility. Although it has some concern about the environmental issues, its prime reason is financially based, as the potential rents from the commercial uses of up to _ of the facility are not adequate to fund the needed capital improvements to the facility and support an ongoing museum operation.

Notwithstanding TrizecHahn's lack of desire to be the head lessee, TrizecHahn has provided a preliminary plan for the rehabilitation and reuse of the Roundhouse which can be implemented if sufficient funds are made available. TrizecHahn has offered to continue to help to resolve the Board of Directors set up in composition.

2.0Steam Whistle Brewing Limited Partnership (SWBLP) Proposal:

As part of its report TrizecHahn tabled an interest from SWBLP to install and operate a brewpub and brewery, including a small brewing museum and hospitality space to be used for art displays, musical performances, community events and special promotions.

As a result of TrizecHahn's refusal to be the head lessee and Corporate Services Committee's instructions "to work with TrizecHahn and SWBLP to facilitate their venture as an initial phase of the John Street Roundhouse Redevelopment," staff met with SWBLP and a term sheet respecting the potential leasing of Bays 1-11 has been developed and is attached as Appendix "A" to this report.

There are still several issues that need to be fully resolved respecting this potential tenant including:

(a)Ensuring compliance of use;

(b)Resolution of Parks requirements/issues;

(c)Costs of base building upgrades; and

(d)Resolving access issues.

Assuming these issues are resolved the single biggest issue is the provision of funds to pay for the base building upgrades, including access. SWBLP has taken the position that these costs which are estimated to be in the range of $1,000,000.00 must be borne by the City as the landlord. Upon review of its financial performance SWBLP has advised it is prepared to "loan" the City $250,000.00 towards these costs provided the City repays this amount together with interest at the rate of 8percent in the form of a rent free period. If the full net rent is allocated the rent free period would be approximately 2 ½ years. SWBLP is prepared to recover this sum over a 5 year period which reflects an approximate reduction of 50percent to the net rent.

Whether or not the City pursues the loan option it will still be necessary to provide funding in the amount of $750,000.00 for the required capital improvements.

It is noted that all City staff, Councillors and other stakeholders feel this use is complementary to the Roundhouse and proposed Railway Museum and may well be the catalyst which initiates greater interest in further rehabilitation and reuse of the Roundhouse.

3.0Other Interests:

An expression of interest attached as Appendix "C" has been received to lease approximately 30,000 sq.ft. of space in the John Street Roundhouse by CB Richard Ellis for its client, Headline Sports, a national television network. Headline Sports is a national Special Channel operating 24 hours a day. Subject to Headline Sports conducting a thorough evaluation of the condition of the building, it would be prepared to make an investment of approximately $3-4M in leasehold and technology improvements.

4.0Funding Information:

Initiatives have been taken with the Historical Sites and Monuments Board of Canada to secure funding for the restoration of this property. Attached as Appendix "D" is a letter which was forwarded in April, 1999 to this group. They have expressed interest in supporting the project and will be visiting the Roundhouse on June 16, 1999. Although no other definitive applications have been advanced, it is felt that the governance entity once formed, would be able to approach various corporate sponsors including the CPR towards funding for the rehabilitation and re-use of this national historical site.

5.0Options:

The City has three (3) options respecting this facility:

(a)To mothball the Roundhouse:

This option would result in minor costs to secure the facility properly and ongoing maintenance costs. It would result in no use being made of the Roundhouse nor any integration with the surrounding park.

(b)To re-issue either a Proposal Call or Request for Expressions of Interest:

This option is not considered prudent as we have issued both a Proposal Call and Expressions of Interest and have not been successful in securing a head lessee for this facility. TrizecHahn's rationale is that the facility is simply not financially viable given the high level of capital costs.

(c)To enter directly into a leasing arrangement with SWBLP, pursue the interest of Headline Sports and to continue discussions with TrizecHahn relative to the balance of the Phased Rehabilitation and Reuse of the Roundhouse Complex including the establishment of a Board of Directors.

This option, although it requires the City to provide capital funding, will result in leasing a portion of the Roundhouse, provides an opportunity for further utilization of other portions and provides an opportunity to integrate these uses with the Roundhouse park.

6.0Legal Implications:

As TrizecHahn has indicated that it does not wish to be the head lessee and would be involved in installing the brewpub and would become an active member of the proposed Board, entering into a lease directly with SWBLP for part of the site differs from Council's directive to find an operator for the entire site as stated in the Request for Expressions of Interest dated December 19, 1997.

Conclusion:

City Council's direction has always been that the rehabilitation and reuse of the John Street Roundhouse shall not cost the City at all. It has been impossible to find a proponent that would invest money in a building that requires a large capital outlay to bring the building to base standards for the Railway Museum and other commercial uses.

As this use could be a catalyst for the building, SWBLP's proposal merits consideration and approval by City Council. Subject to other issues yet to be resolved, I am of the opinion that it would be prudent for the City to endorse this proposal as this provides an opportunity for the City to have a partially restored property that would spearhead the revitalization and ultimately, full restoration of the property, including the Railway Museum.

Contact Name:

Erlinda Bala, Telephone No. 392-1852, Fax No. 392-1800, e-mail:ebala@toronto.ca.

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Appendix "A"

Term Sheet

222 Bremner Boulevard - John Street Roundhouse

As Proposed By Steam Whistle Brewing Limited Partnership (SWBLP)

June 10, 1999

Set out below is the outline of the basic terms and conditions for the leasing of approximately 27,500sq.ft. of space.

(1)Area:

(a)Bays 1-11 approximately 27,500 sq. ft., save and except an area up to 1,250 sq.ft. of space which would be reserved for Parks and Recreation requirements for facilities such as public washrooms, skate change area and lockers, and warming area; and

(b)Vacant land for patio space.

(2)Term:20 years:

(3)(a)Minimum Rent:

Years 1-5:$5.00/sqf.ft. Net

Years 6-10$6.00/sq/ft. Net

Years 11-15 and Years 16-20 Rent to be determined in accordance with comparable market rents for similar space and uses and to be mutually agreed to by both parties, failing which will be determined through arbitration.

(b)Additional Rent:

Tenant to pay all taxes, utilities:

(4)Uses:

-microbrewery;

-brewpub/bistro with an outdoor patio;

-retail store;

-a steam whistle and rail related exhibition area;

-brewery and exhibit tour facilities;

-hospitality facilities for community ( special events), artistic, historical and charitable functions; and

-mezzanine offices.

(5)Construction and Fit-Up Costs:

(a)Base Building Standards:

The City shall undertake to construct all base building standards at its own expense at an estimated cost of $850,000.00, plus 15percent contingency cost for a total of approximately $977,500.00.

SWBLP shall loan $250,000.00 towards the above cost provided the loan is repaid together with 8percent interest in the form of net free rent over the first five year period.

(b)Tenant Leasehold Improvements:

SWBLP shall undertake to construct at its own expense approximately $500,000.00 for all leasehold improvements necessary to finish the space according to the uses outlined in Item No. (4)

(6)Timing of Proposal:

SWBLP agrees to comply with the City approval process for the construction of the project.

(7)Miscellaneous:

(a)consultants for both SWBLP and Parks and the City to work together and determine whether public washrooms common to both can be achieved;

(b)access and services to be investigated both by the City and SWBLP;

(c)SWBLP at its own expense, to investigate the possibility of obtaining connection from the underground garage of Metro Toronto Convention Centre (MTCC), and also check the hydro vault that exists in the roundhouse;

(d)SWBLP shall preserve the historical significance of the property; and

(e)SWBLP shall make arrangements with Metro Toronto Convention Centre (MTCC) for its parking requirements, at its own expense.

(8)The City as owner of the property, shall consent to the application for a minor variance for a microbrewery use if necessary; and

(9)SWBLP shall enter into a Lease Agreement, in a form satisfactory to the City Solicitor.

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Appendix "B"

Abatement and Base Building Upgrades

(I)Abatement of Existing Hazardous Materials, Bays 26-32 and Machine Shop:

Lead Paint:

-friable condition throughout inside of building; and

-removal by either labour intensive stripping or soft medium low-pressure air driven abrasives.

Heavy Oils:

-noxious fumes from oils from pits, fire hazard; and

-removal by surfactant treatment, possibly poulticing.

Asbestos:

-asbestos transite fire guard panels on ceilings; and

-requires level 1 abatement.

(II)Base Building Upgrades, Bays 26-32 and Machine Shop:

Sprinklers:

The building is highly combustible and would require a complete sprinkler system, fire standpipe and fire alarm system before any occupancy should be considered. If the building is to be unheated, a dry sprinkler and standpipe system will be required.

Exiting:

Currently there are not enough exits to facilitate occupancy. The train doors are not considered exit doors. New exits with adequate hardware should be installed possibly where some existing slider doors are located as well as some being cut into train doors and on south elevation through the window bays. Exit lights and emergency lighting relating to the exits would also have to be installed.

Washrooms:

There are not functioning washroom facilities on site. It will be necessary to provide adequate service so that washroom facilities based on use and occupancy can be provided.

Structural Repairs:

A full structural review of Bays 12 to 32 including the machine shop should be performed and any repairs to structure performed. Note deteriorated purlins and corroded steel columns in machine shop.

Mechanical:

If heating and cooling were to be installed a system would have to be adequate to service these large uninsulated spaces, with adequate re-circulation to avoid heat build-up in the monitor space. The environment would have to be maintained at a minimum of humidity (less than 25percent) and would have to keep the building in a non-pressurized condition to keep air from being forced into the exterior wall where it could condense and do damage.

Electrical:

Power to the building has been removed and would have to be re-established. This would most likely result in a transformer vault being installed. The current vault at the west end of the building is dedicated to power requirements of the park.

Artefacts:

Large quantities of railroad industrial artefacts ranging from locomotives, entire out-buildings, to the disassembled turntable are stored in the Roundhouse. Re-occupancy would require cataloguing and relocation and concentration of these artefacts to one area of the Roundhouse. This could be part of the establishment of a museum function, however any type of re-occupancy as well as initial base building work will involve dealing with the artefacts.

(III)Building Envelope Upgrade Bays 26-30, and Machine Shop:

Vapour Barrier:

Interior default vapour barrier needs to be established if interior is to be left exposed.

Masonry:

Interior sealant such as paint, clear epoxy based coating. (Either tends to affect the appearance of the masonry).

Sealing and trim work around windows after lead paint removal is required.

Timber:

Jamb Columns, Lintels and Beam ends that are exposed to both inside and outside environments will require sealing at edges and joints and a default vapour barrier at the inside face (paint, varnish, etc.).

Transoms:

New and existing transoms exist above the train doors. These are made up of pine slats and have gaps between each board. These will require a back panel of plywood or other sheathing material to attain any measure of air/vapour barrier.

Windows:

New replacement windows were sealed at the outside but still require sealing (one component urethane foam) and ⁰ round trim at the jambs head and sill.

Train Doors:

The train doors were never designed to create a proper air seal and have large gaps around each. These would have to be renovated with soft compressible seals as well as inner stops at the jambs and head, a threshold strip at the sill, and an astragal strip at the interior edge of the junction between the two doors.

We have analysed the interior environment that will be required to support the proposed Phase1 use for Bays26-30 and the Machine Shop and recommend this level of reversible intervention. This will balance the heritage value of the building with the short to mid-term requirements of re-use.

The Administration Committee reports, for the information of Council, having also had before it the following communications:

(i)(June9, 1999) from Mr.Raymond L. Kennedy, Old Time Trains, advising that he fully supports the concept of a microbrewery and pub in the John Street Roundhouse provided it is located in Bays1-11, and encouraging the City to make all possible efforts to meet its timetable; and further advising that he does not support any further consultant study; and

(ii)(June 11, 1999) from Miss Jane Beecroft, Chair, CHP Heritage Centre, expressing concern with regard to missing artifacts and equipment belonging to or brought to the John Street Roundhouse; providing an inventory of items attached to the John Street Roundhouse prepared by Heritage Toronto staff some years ago; expressing concern regarding the matter of $7.5 million which was to have been applied to the Roundhouse; and stating that without the full involvement of the heritage community, the John Street Roundhouse cannot succeed because the City owns few items with which to develop a museum and has no one on its staff with any expertise about rail operations.

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The following persons appeared before the Administration Committee in connection with the foregoing matter:

-Miss Jane Beecroft, Chair, CHP Heritage Centre;

-Mr. Raymond Kennedy, Old Time Trains;

-Mr. Cameron Heaps, Steam Whistle Brewing; and

-Mr. A.W. (Bill) Davis, Senior Sales Consultant, CB Richard Ellis Limited.

(A copy of the attachment to the communication (June 11, 1999) from Miss Jane Beecroft, CHPHeritage Centre, entitled "Appendix V, Inventory of Roundhouse", was distributed to all Members of Council with the June 15, 1999, agenda of the Administration Committee and a copy thereof is also on file in the office of the City Clerk.)