To: Board of Directors Report: TCHC:2009-18 From: Chief Executive Officer
Date: January 23, 2009 Page 1 of 6
PURPOSE:
To update the Board on the progress of discussions relating to the development of affordable housing at the West Don Lands and seek an extension of the deadline for completion to the next Board Meeting.
RECOMMENDATION:
That the Board of Directors extend the deadline for termination of discussions on the West Don Lands development established at its meeting on December 8, 2008 from January 31, 2009 to March 15, 2009.
BACKGROUND:
At its meeting on December 8, 2008, the Board of Directors passed the following resolution:
that Toronto Community Housing inform the City of Toronto, the Waterfront Corporation and other interested parties that Toronto Community Housing’s interest in proceeding in the West Donlands will terminate on January 31, 2009 should no reasonable agreement for purchasing the lands be reached.
The resolution was adopted by the Board on recommendation of the City Building Committee as a result of the protracted nature of the negotiations required to complete the agreements governing the transfer and developments of lands in the West Don Lands to Toronto Community Housing.
Toronto Community Housing’s plan to create a mixed development in the West Don Lands has been articulated in previous reports. For the purpose of this report, the lands sought for development are referred to as the “Lands”.
involved, their respective roles and the agreements being negotiated is required:
Party Role Relevant Agreement(s) Status of
Agreement Waterfront
Toronto
Master Developer of the waterfront
Development Agreement - The agreement governs matters such as: Environmental matters, compliance with (as yet unknown) requirements of the Toronto Region Conservation Authority with respect to flood protection, servicing, district energy, development schedule, green building requirements, marketing requirements etc.
Not complete Risk allocation remains an issue (discussed below)
Ontario Realty Corporation
Owner of the Lands
Purchase Agreement – governs the sale of the lands to Toronto Community Housing. Affordable component will be transferred at a nominal price, but requires that commercial (condominium) component to be transferred at fair market value.
The Purchase Agreement is otherwise fairly standard, requiring the Purchaser to satisfy itself with respect to the quality of the Lands.
Not Complete Price is the most significant issue
Ministry of Energy and Infrastructure
Crown agent instructing ORC.
Will approve Purchase Agreement N/A
Daniels Toronto Community Housing’s Development Partner and Construction Manager
Memorandum of Understanding – governs proposed Co-Tenancy and construction management on terms similar to Regent Park.
Parties working together on this basis.
City of Toronto
Funding Agent
Contribution Agreement - Through reallocation of Wave1 funds under the Affordable Housing
Program, the City has committed to fund 130 units of housing.
Complete (at City for execution) Toronto
Region Conservation Authority
Conservation Authority
Occupancy Agreement - prohibits occupation of buildings pending completion of a flood protection landform.
Pending
TCH trying to get exempted
REASONS FOR RECOMMENDATIONS:
Recommendation 1: That the Board of Directors extend the deadline for termination of discussions on the West Don Lands
development established at its meeting on December 8, 2008 from January 31, 2009 to March 15, 2009.
The condition set by the Board in December has not been achieved: No set of reasonable agreements has been reached.
However, substantial progress has been made in respect of the agreements, or, where progress has not been made, work is in progress which will bring focus to the issues. In this section, we have set out the two issues we believe to be the most significant
outstanding issues at this time, and the rationale for allowing an extension of the Board’s deadline in spite of these issues being outstanding.
Principal Outstanding Issues 1. Price
Ultimately the price must be agreed among ORC, the Ministry, and Toronto Community Housing. Since December, price discussions have been delayed as ORC, through Waterfront Toronto, ordered two appraisals to set its view of the fair market value of the Lands. Toronto Community Housing has also commissioned an appraisal to ensure it has an appraisal based on reasonable criteria for these lands.
Nevertheless, the price that Toronto Community Housing and its development partner Daniels is willing to pay for the Lands will be ultimately driven by its ability to make a reasonable return on its investment of resources into developing a condominium. Based on pro-forma developed with Daniels, it is unlikely that a commercial rate of return can be achieved with a land value in excess of $9,000/unit, though a higher value may be workable depending on the final allocation of risk, desired return and funding support.
Preliminary feedback from Waterfront Toronto has not been encouraging in this regard as they have noted that the ORC appraisals appear to be coming back “higher than expected”.
While keeping the Board fully informed, given the near completion of the appraisal work, it is premature to come to the conclusion that agreement on price can not be reached.
However, there is little question that price remains the most difficult issue in this negotiation.
2. Geotechnical Risk
Toronto Community Housing has taken the view that it ought not bear the risk of lower than normal soil bearing capacity. If soil at the site can not support townhome
construction for example, caissons may be required to support the development. This
result, such costs would be absorbed by Toronto Community Housing. If agreement on other matters can be achieved, Toronto Community Housing will consider accepting this risk, mitigating it through a thorough due diligence program. A lower purchase price for the market component would also provide some room to absorb the costs associated with this risk.
Why an Extension?
There is no question that these issues are material. There is, in fact, no more material issue than price. And there are a number of less critical issues yet to be resolved.
However staff is recommending an extension of the deadline imposed by the Board for the following reasons:
1. The deadline has succeeded in focusing the minds of those involved. We are therefore not recommending that it be lifted.
2. The appraisals are nearing completion, which will allow ORC to begin
discussions relating to price. Staff has neither had an opportunity to challenge the appraisals, nor test the flexibility of ORC with respect to the price.
3. With the exception of the geotechnical issue described above, the Development Agreement is nearing completion. While there are other issues, staff believes they can be resolved in a satisfactory way. In particular, agreement has been reached that Waterfront Toronto will bear the risk of costs associated with unknown contamination discovered during excavation.
4. There remain some significant unknowns which we understand will become known in the next two weeks, including the timelines and costs associated with compliance with Waterfront Toronto’s Remedial Action Plan (that is, the
environmental obligations for monitoring and reporting imposed on owners in the Waterfront), and the implications of Toronto Region Conservation Authority regulation. With respect to the latter, through Waterfront Toronto, staff has been pushing TRCA to relieve the development of its occupancy requirements. This would simplify the Development Agreement and reduce the risk of an occupancy delay relating to a delay in construction of flood control measures.
5. Waterfront Toronto has been diligent in the application of resources to this matter since December. In particular, they have pushed ORC into action on the
appraisals and have negotiated for relief from TRCA requirements for the Lands.
6. The City of Toronto has now committed significant resources to the development and made clear its desire that Toronto Community Housing continue with the development.
Given the heightened level of attention and activity on this development in the last month and a half, staff is of the view that the results of this activity should be known prior to terminating Toronto Community Housing’s interest in the development.
It is likely that additional information will be available at the time of the Board Meeting and, if so, a supplemental verbal report will be presented. For its part, staff will not be devoting time to ancillary agreements until the issues and main agreements are resolved. For example, staff will not negotiate the terms of an energy services agreement until the main agreements are settled.
Finally, it is worth noting that even if satisfactory agreements are achieved, they will remain conditional on Toronto Community Housing completing any further required due diligence relating to the land or the financing of the condominium.
CONSULTATION PROCESS:
N/A
CONCLUSION:
Given the heightened level of activity and interest relating to this development, staff is of the view that the work accelerated in January should be allowed to finish and
discussions relating to the matters above concluded one way or another.
FINANCIAL IMPLICATIONS:
N/A
LEGAL IMPLICATIONS:
There are no legal implications to the adoption of this report.
COMMUNICATION IMPLICATIONS:
N/A
Derek Ballantyne Chief Executive Officer
Staff Contact: Mark Guslits ... 416-981-4123 Chief Development Officer
