410 Queens Quay West - Amending Agreement

(Ward 24 - Downtown)

The Corporate Services Committee recommends the adoption of the following report (December 2, 1998) from the Commissioner of Corporate Services:

Purpose:

To secure approval to modify the terms of the MLQ4 Agreement dated April 1, 1998 between Her Majesty the Queen in Right of Canada, Queens Quay West Land Corporation, Harbourfront Corporation (1990) and the City of Toronto in respect of the sale of MLQ4, being 410 Queens Quay West, and the construction of the Permanent Harbourfront Office at 235 Queens Quay West.

Financial Implications:

No funding required.

Recommendations:

It is recommended that:

(1)the new business arrangements, extending and modifying the terms as defined in the April1, 1998 Agreement between Her Majesty the Queen in Right of Canada, Queens Quay West Land Corporation, Harbourfront Corporation (1990) and the City of Toronto in respect of the sale of MLQ4, being 410 Queens Quay West, and the construction of the Permanent Harbourfront Office at 235 Queens Quay West be approved;

(2)the City Solicitor be authorized to make the necessary changes to the Agreement to incorporate the required provisions as detailed in this report; and

(3)the appropriate City officials be authorized to take the necessary action to give effect to the foregoing.

Background:

The property at 410 Queens Quay West, also known as MLQ4, has been the subject of various Agreements which address the future disposition of the property and which have been affected by the fact that Harbourfront Corporation (1990) ("Harbourfront") has its main offices in this building.

The most recent amendment approved by City Council, at its meeting held on March 4, 5 and6, 1998, authorized Queens Quay West Land Corporation ("QQWLC") to issue a Request for Expressions of Interest (REI) to solicit interested developers to submit proposals whereby they would agree to construct the new Harbourfront offices at 235 Queens Quay West in exchange for the conveyance of the development site at 410 Queens Quay West.

The main components of the Agreement approved by City Council on March 4, 5 and 6, 1998, are:

(1)QQWLC would enter into an agreement with a third party, subject to the City being satisfied with the terms and conditions, whereby 410 Queens Quay West would be sold in exchange for the third party constructing an addition on the second floor of the York Quay Terminal Building at 235 Queens Quay West for the relocation of Harbourfront's offices;

(2)QQWLC shall be solely responsible for the accumulated cash flow deficiency for Harbourfront's use of 410 Queens Quay West to December 31, 1998, estimated at $550,000.00 and shall not require any compensation from the City or Harbourfront;

(3)Harbourfront shall be responsible for any cash flow deficiency after December 31, 1998;

(4)QQWLC shall pay to Harbourfront $100,000.00 for use towards defraying the cost of moving into their new space;

(5)QQWLC shall pay up to $50,000.00 towards engineering and architectural studies; and

(6)QQWLC agreed to a deadline date for payment to the City of the sum of $3,000,000.00 relative to BQ7.

It is noted that extensive retrofit is required to bring the York Quay Centre building up to standard, mainly the installation of a sprinkler system throughout, a new roof and major upgrades to the HVAC systems. These issues were to be addressed as part of the construction of the new Harbourfront offices at York Quay Centre.

Comments:

QQWLC through its agent, Canada Lands Corporation, has advised that in response to the REI no single proponent was found capable of purchasing and developing the lands at 410 Queens Quay West and carrying out the renovations to the building at 235 Queens Quay West. QQWLC and Harbourfront representatives have advised that the two processes, the disposal of MLQ4 and the construction of new office accommodation for Harbourfront have now been separated.

QQWLC and Harbourfront have initiated two separate processes and have received offers for the purchase of MLQ4 and tenders for the construction of the Permanent Harbourfront Office. They have further advised that, subject to approval by the City, they have recently accepted a conditional offer to purchase MLQ4 and that the Purchaser is currently conducting due diligence.

The current Agreement requires modification to accommodate changes to the disposal process and extension of the current terms of the Agreement to accommodate time parameters associated with the revised processes.

The required amendments to Agreement are as follows:

(1)Extensions:

(a)The deadline for approval by the Committee of each of an offer to purchase MLQ4 and a tender to design, construct and renovate the Permanent Harbourfront Office shall be extended from September 30, 1998 to February 15, 1999. If such approvals are not granted by the deadline, the Agreement shall terminate and the original MLQ4 Agreement shall be reinstated;

(It is noted that the Committee as set out in the current agreement is comprised of one representative from QQWLC, one representative from Harbourfront and the City of Toronto, Executive Director of Facilities and Real Estate, and that no action can be taken unless there is unanimous agreement.)

(b)The deadline for completion of the Permanent Harbourfront Office shall be December31, 1999;

(c)Harbourfront shall be entitled to remain in possession of its premises at MLQ4 pursuant to the MLQ4 Lease until the Permanent Harbourfront Office is completed.

(2)Sale of MLQ4/Construction of Permanent Harbourfront Office:

(a)If the purchase agreement provides for an all cash, short-term (ie. 60 days) closing, the sale proceeds shall be held in trust by QQWLC, and such proceeds, together with any interest accrued thereon, shall be released by QQWLC as progress draws to pay construction costs in respect of the Permanent Harbourfront Office.

(b)If the purchase agreement for MLQ4 provides for a closing date beyond 60 days, QQWLC shall finance construction of the Permanent Harbourfront Office and shall be reimbursed for all reasonable expenses, costs, liabilities and charges incurred in respect of such construction, together with interest thereon, out of the eventual proceeds from the sale of MLQ4, save and except for the Ongoing Obligations costs as set out in (5)(b) herein;

(c)If QQWLC has financed the construction of the Permanent Harbourfront Office and the sale of MLQ4 subsequently fails to close, QQWLC shall be entitled to remarket MLQ4 and to sell the property on such terms as it sees fit, acting reasonably;

(d)If a shortfall exists following the sale of MLQ4 and construction of the Permanent Harbourfront Office, such shortfall shall be paid by QQWLC;

(e)If a surplus exists following the sale of MLQ4 and construction of the Permanent Harbourfront Office, such surplus shall be paid to the City;

(f)All expenses incurred in connection with the sale of MLQ4 shall be paid out of the sale proceeds;

(g)The date to complete the sale of MLQ4 shall be no later than December 31, 1999 but may be extended for up to a 90 day period; and

(h)In no case shall a tender to renovate 235 Queens Quay West be finally approved until such time as a firm agreement of purchase and sale has been executed for the sale of 410Queens Quay West.

(3)Indemnities:

(a)QQWLC shall indemnify the City in respect of any liens or other claims (and related costs) registered against 235 Queens Quay West and any other lands owned by the City in Harbourfront in connection with the construction of the Permanent Harbourfront Office.

(4)Operating Costs for MLQ4:

(a)QQWLC shall be solely responsible for the accumulated Cash Flow Deficiency accrued to March 31, 1999, which is currently estimated to be approximately $600,000.00; and

(b)From April 1, 1999 to the date of closing of the sale of MLQ4, operating costs shall be paid out of any revenues derived from MLQ4.

(5)Ongoing Obligations:

(a)QQWLC's obligation to pay Harbourfront $100,000.00 on account of moving costs upon execution of a purchase agreement in respect of MLQ4, shall continue (Section 5 of the Agreement);

(b)QQWLC's obligation to pay the Consultant's fees and any other consultant's fees in respect of engineering and architectural studies relating to the Permanent Harbourfront Office to a maximum of $50,000.00, shall continue (Section 6 of the Agreement); and

(c)QQWLC's obligation to pay to the City the sum of $3,000,000.00 relative to BQ7, shall continue (Section 19 of the Agreement).

Analysis of the Proposed Modifications:

QQWLC and Harbourfront representatives have advised that the linked REI process was unsuccessful. The amendments set out herein will allow two separate processes, one to sell and develop 410 Queens Quay West and one to renovate 235 Queens Quay West. The disposal process would still ensure that the City is receiving fair consideration for its interest in MLQ4, while the renovation process should secure an experienced contractor specializing in retrofit. It is reasoned that, although the business plan is being altered, the outcome will remain the same, in that a solution to Harbourfront's long term office need is still being met and the objectives for MLQ4 will be achieved.

Financially, the City is not exposed to any greater risk and will realize capital improvements to the City-owned building at 235 Queens Quay West. The cost of the renovations will either be recaptured from the proceeds of the sale of MLQ4 or, assuming any shortfall, will be paid by QQWLC, and if a surplus exists, QQWLC will pay the City such surplus. All other financial obligations under the existing Agreement remain the same.

Conclusion:

The separation of the two REI processes will realize the best price for MLQ4 and should attract an experienced contractor to carry out the renovations at 235 Queens Quay West. As the City is not exposed to any additional financial risks pursuant to these amendments, the proposed amendments should be approved.

Contact Name:

Greg Wallans, 392-7135, gwallans@city.toronto.on.ca.