Report to/Rapport au:

 

 Corporate Services and Economic Development Committee/

Comité des services organisationnels et du développement économique

 

and Council/et au Conseil

 

25 October 2001/le 25 octobre 2001

 

Submitted by/Soumis par: Kent Kirkpatrick, General Manager/Directeur général,

Corporate Services Department/Services généraux

 

Contact/Personne ressource : D. H. McCaslin, Manager, Real Estate Services/

Gestionnaire, Services immobiliers

580-2424, ext. 22595, Douglas.McCaslin@city.ottawa.on.ca

 

 

 

Ref N°: ACS2001-CRS-RPR-0058 

 

 

 

SUBJECT:

 

 

OBJET:

INTEGRATED ASSET RATIONALIZATION AND DISPOSAL STRATEGY FOR REAL PROPERTY

 

RATIONALISATION INTÉGRÉE DES BIENS ET STRATÉGIE POUR CESSION DES BIENS RÉELS

 

 

REPORT RECOMMENDATION

 

That the Corporate Services and Economic Development Committee recommend Council approve the Integrated Asset Rationalization and Disposal Strategy for Real Property as set out in the report.

 

 

RECOMMANDATION DU RAPPORT

 

Que le Comité des services organisationnels et du développement économique recommande au Conseil municipal d’approuver la rationalisation intégrée des biens et la stratégie pour cession des biens réels telles qu’elles sont expliquées dans le rapport.

 

 

 

 

INTRODUCTION

 

The acquisition, management and disposal of real estate owned by the City of Ottawa is co-ordinated by the Real Property Asset Management Branch (RPAM) of the Corporate Services Department.

 

The overall process of asset management provides support for decisions to acquire, manage or dispose of City properties in a manner that ensures that the essential City Mandated Programs (CMP) and service delivery objectives of the City are achieved.

 

The intent of this strategy is to:

 

 

 

 

The process outlined in this strategy is implemented in conjunction with the “Disposal of Real Property – Policy, Procedures & Disposal By-law”.

 

 

DEFINITIONS:

 

City Mandated Programs (CMP):  Those programs that support City initiatives as reflected in the Official Plan and Capital Program.

 

Client Department: Departments responsible for the service delivery strategy of City mandated programs.

 

Real Property Advisory Committee (RPAC): An ad-hoc committee made up of representatives from Client Departments, chaired by RPAM.

 

CORE:  Acronym for "City of Ottawa Real Estate" which is a geo-referenced database depicting all City owned Real Property, other than road allowances, transitways and railways (infrastructure).

 

Strategic Property:  Real Property, which may be required to meet long-term future economic development objectives that may not be reflected in the Official Plan or Capital Program.

 

Surplus:  Real Property interests, which are not required for Core Mandated ProgramsCMP and may be disposed of sold.

 

Declared Surplus:  Real property interests, which are not required for CMP and have been declared surplus by the Councils of former municipalities or the new City, pursuant to the Municipal Act.

 

Remediate:  To remodel, renovate or rehabilitate real property.

 

Asset Rationalization:  A process to determine the best use of real property using information gathering strategic planning, investment and analysis and identifying assets potentially surplus to requirements.

 

External Agencies:  Are considered "Public Bodies" meaning Her Majesty in right of Canada or Ontario, or an agency thereof, a local board and school boards.

 

Non-viable Property:  A parcel of land, which on its' own, would not be eligible for a building permit.

 

Policy & Procedures: Principles and best practices that have been adopted by Council, which govern the way RPAM deals with real property.

 

Disposal By-law: Regulations that have been enacted by law governing the way RPAM disposes of real property.

 

Real Property:  Land and/or buildings and all improvements thereon.

 

 

BACKGROUND

 

The creation of the new City of Ottawa resulted in the amalgamation of the real property asset base of the twelve former municipalities. A database was created to ascertain the magnitude of the property inventory and to provide an ongoing geographically referenced inventory for continuing asset management and rationalization.  The ongoing database development, data assembly, validation and maintenance activities are essential to the overall success of the Integrated Asset Rationalization and Disposal Strategy for Real Property.

 

The City of Ottawa Real Estate (CORE) database (CORE) is currently being used to conduct a preliminary review of the 3,665 propertiesreal property assets.  They properties are being classified into four categories based on the identified current or intended use in relation to the City Mandated Programs (CMP).  The categories are:

 

  1. Declared Surplus (by former municipalities)                                       121
  2. Potential Surplus (requires program rationalization)                           201
  3. Review required to determine status                                       1,275
  4. Required for ongoing service delivery – used for CMP       2,068

 

Total CORE Inventory                                                              3,665

 

Based on information provided by the Municipal Property Assessment Corporation and current market conditions, it is estimated that the current value for the CORE inventory exceeds $2 billion. The inventory includes 765 buildings or structures, and 1,,199 parks.  During 2001, a total of 200 properties from the inventory have been reviewed to confirm their status. Of these, 121 have been identified as Category 1, and are available for disposal. Any propertiesof these that have been previously declared surplus by the former municipalities are circulated again internally to confirm that they are not required for CMP.

 

During 2000 the former municipalities approved the sale of 26 properties. These are scheduleddue to close in 2001, and the City will receive revenues totaling $8.5M. This does not include the sale of the former City Hall at 111 Sussex for the amount of $72M. From January to October 30, 2001 a total of 10 properties have been approved for disposition and will result in sale proceeds of

$ 5.9M.

 

 

DISCUSSION

 

In a previous report dated February 14, 2001, it was estimated that revenue from the disposal of surplus property could generate $5.6M for 2001 and $62.5M over a five years period.  The ability to achieve this goal depends on market conditions, which have softened significantly over the past six months. In addition, the extent to which currently utilized assets can be made availablefreed up for disposal, and non-utilized assets are allocated to CMP,Core Mandated Programs will affect overall revenue generation.

 

Based on a review of the assets, as categorized above, the following is the February 2001 estimate and the current revised estimate of the potential revenues from property disposals over the next five years.

Year

Original Estimate

Revised Estimate

2001

$  5,600,000

$  6,000,000

2002

$  9,300,000

$  8,900,000

2003

$13,400,000

$13,400,000

2004

$15,300,000

$15,300,000

2005

$18,900,000

$18,900,000

Total Revenue

$62,500,000

$62,500,000

 

 

 

 

 

 

 

 

 

These revenue projections are based on the assessment information available, initial categorization and the estimated disposal timing based on information from the programs previously conducted at the former municipalities.  These projections represent gross revenues. The economic impact on real estate values is not available at this time. Therefore, the total potential revenue that was reported in February has not changed. The ability to realize the projected revenues will be directly related to the Issues and Assumptions that were discussed in the February 14, 2001 report, including continued economic growth and real estate market demand.

 

The Integrated Asset Rationalization Process

 

The process by which assets are determined to be strategic to supporting the service delivery objectives of Client Departments is divided into five steps. Each of these steps are intended to lead to decisions that verify whether an asset is to remain part of the property inventory of the City, for either a current or future need, or whether it should be declared surplus and be subject to disposal.

 

An overview of the Integrated Asset Rationalization and Disposal Process is shown as a flowchart and attached as Annex "A".

 

 

Step 1. Inventory Review Process

 

The real property inventory is maintained in the CORE database.  The inventory is reviewed on an ongoing basis to categorize the assets and to ensure that CORE can provide an accurate and timely inventory to facilitate the asset management, rationalization and disposal programs. The CORE database forms the foundation for other asset management related databases throughout the City. The broad based categories outlined in the previous portion of this report, facilitate the annual reporting of the status of the assets and the projection of revenues from the disposal of those assets no longer strategic to the needs of the City.

 

Step 2. Current Use Identification

 

Real Property assets that are currently being used for CMP are grouped into portfolios in line with the Client Departments that have the responsibility for the service delivery strategy for specific CMP. The properties that are currently being used to support the service delivery strategies of the various Client Departments will be reviewed from a strategic perspective to ensure a proper fit between the program and the asset.  These properties will be subjected to a review as part of step 3, Asset Rationalization.

 

If a property is not being used by a CMP or becomes surplus to a Program’s requirements, it is subjected to step 4, Internal Circulation and is reviewed by other Client Departments for strategic use related to their CMP needs.

 

Step 3. Asset Rationalization

 

A comprehensive asset rationalization process is essential to determine the long-term viability of a specific property and the potential for that property to support changing client or program needs. The process further serves to validate any decision to remediate, reconfigure or dispose of the property if it is determined that the CMP objectives are no longer being addressed. The asset rationalization process supports the disposal of non-strategic properties without interruption or reduction to CMP and service delivery.

 

A detailed asset rationalization strategy is applied where the value or significance of the property warrants assessment.  While acquisitions support the defined mission for the City, disposals may occur when it has been clearly determined that the property is not needed to fulfill any of the CMP. The asset rationalization process is a key requirement in supporting the decision to declare a specific property, or group of properties, as surplus.

 

A five-stage process for rationalization of the City’s real estate assets has been developed.  This process defines the essential partnership between Client Departments that deliver City mandated programs and the Corporate Landlord (RPAM). When the program delivery of a particular Client Department requires the acquisition, remediation, renovation or disposal of a facility, the "asset rationalization" process is initiated to ensure that the proposed recommendation can be supported.

 

The first stage involves a User Needs Assessment, which is lead by the Client Department and supported by RPAM through its Comprehensive Asset Management Division. During this first stage, the Client Department conducts demographic trend analysis and initiates relevant community consultation in an effort to identify specific property-based program or service delivery requirements.

 

The second stage consists of a Functional Audit that is lead by RPAM in consultation with the Client Department. The purpose of the functional audit is to determine and quantify specific property-based program requirements and review the available facility inventory in order to ensure that the existing property base is fully evaluated in regards to the needs expressed by the Client Department. In doing so, RPAM examines various elements such as a cost recovery index, value index, alternate use profiles for space and current utilization profiles.

 

The third stage of the asset rationalization process involves an Operational Dynamics Assessment that is undertaken by RPAM.  Within this stage of the process, staff determines the range of operating and maintenance activities, as well as environmental conditions, required to support the Client’s program(s). The impact on future life cycle renewal and remediation costs is the main deliverable of this stage of work.

 

The fourth stage of the process deals with Market Validation. This work is undertaken by the Real Estate Services Division of RPAM and focuses on estimating the current market value of the asset, reviewing current market conditions and providing an analysis of costs related to disposal.

 

The fifth and final stage of the asset rationalization process is the Rationalization Recommendation which is undertaken by both the Client Department and RPAM in partnership. The decision to acquire, dispose, remediate, or utilize the property is the outcome of the process. If the property is to continue in its current state supporting current program delivery the asset remains in the portfolio. If the asset requires modification to effectively support the current or future program delivery, it becomes subject to a capital project in the next budget cycle or as part of the five-year capital budget projection. If however, the asset is no longer required for the current or future program delivery it is subject to Step 4, Internal Circulation. During this step other Client Departments may review the asset to determine the potential for the asset to support their current or future program delivery.

 

During the entire process, the respective Client Department and RPAM are integrally involved in activities leading to the final recommendation. Different stages in the asset rationalization process may occur concurrently.

 

Step 4. Internal Circulation

 

Assets are subjected to step 4 if, during the second step, there is no current programming support need or as a result of step 3, where an asset is no longer required to support a current or future program delivery strategy.  All property assets are subjected to an internal circulation prior to being recommended to Council as surplus. All City Departments, senior staff and elected City officials are included in the standard internal circulation.

 

Where a specific property is identified as being required to support a current or future program delivery strategy, the property is removed from the list of properties with disposal potential and is placed on the five year capital budget process or subjected to step 3, Asset Rationalization, in the context of a Departmental portfolio. In the event of conflicting needs identification from more than one Client Department, the issue will be reviewed by RPAC, an ad-hoc committee made up of representatives from each Client Department, chaired by RPAM for resolution.  If necessary, the allocation of the property for the program need will be referred to the Senior Management Team (SMT) for a final decision.

 

If no internal need for the property is identified, the property will be subjected to step 5, the Disposal Process.

 

Step 5. Disposal Process

 

Once it has been verified that no internal requirement for a real property asset exists, the Disposal Process may be initiated.  This process consists of External Circulation, Market Strategy and Sale Completion.  The Disposal By-law, Policies and Procedures and disposal principles guide the overall process.

 

 

External Circulation

 

Information about the property will be circulated to External Agencies. Where an external need is identified and an agreement reached to dispose of the property at market value, a report is prepared.  The report is submitted to the Corporate Services and Economic Development Committee and Council for declaration of the property as surplus to City needs and approval of the sale pursuant to delegated authority.

 

Where no external interest is indicated, the property may be offered to the general public.

 

                       

Marketing Strategy and Sale Completion

 

Once a property has cleared both internal and external circulation, it is available for marketing to the general public.  Prior to offering the property for sale, the property will be reviewed to determine whether any action, such as Official Plan amendments, rezoning, servicing, severance, subdivision or other activities would be appropriate and necessary.

 

The method of marketing shall be selected from the available alternatives pursuant to Policies and Procedures and the Disposal By-law.  Where appropriate, a property may be held for strategic purposes.

 

When a parcel is considered viable, the property shall be made available to the general public.  Parcels that are non-viable may involve direct sale to the abutting owner(s) at market value.  The marketing method must ensure an open, fair and transparent process.

 

Where an agreement is reached for the sale of a property, a report is prepared and is submitted to the Corporate Services and Economic Development Committee and Council for approval pursuant to the delegated authority. All property to be declared surplus to City needs must be submitted to Council.

 

Disposal Principles

 

The disposal of real property assets will be conducted having regard for the following principles:

 

 

 

CONSULTATION

 

This report deals with an administrative matter and as such public consultation was not undertaken.

 

 

FINANCIAL IMPLICATIONS

 

The actions that are implemented as a result of the asset rationalization and disposal strategy will result in revenues and expenses to the City. The disposition of the net proceeds of sale will be dealt with on a policy basis. The recommended policy will be presented as part of the 2002 Budget Policies.

 

 

ATTACHMENT

 

The Integrated Asset Rationalization and Disposal Strategy Process is shown as a flowchart and attached as Annex "A".

 

 

DISPOSITION

 

The originating Department of Corporate Services through its Real Property Asset Management Branch, shall ensure that the Integrated Asset Rationalization and Disposal Strategy be applied in its efforts to support decisions in acquiring, managing or disposing of City owned real property.

 

 

Annex A

 

INTEGRATED ASSET RATIONALIZATION & DISPOSAL STRATEGY PROCESS