Report to/Rapport au :

 

Corporate Services and Economic Development Committee

Comité des services organisationnels et du développement économique

 

and Council / et au Conseil

 

13January 2009/ le 13 janvier 2009

 

Submitted by/Soumis par: Kent Kirkpatrick, City Manager / Directeur municipal

 

Contact Person/Personne ressource: Gordon MacNair, Manager, Real Estate Services,

Corporate Project Office / gestionnaire, Services immobiliers,

Bureau des projets municipaux

(613) 580-2424 x 21217, Gordon.MacNair@Ottawa.ca

 

Gloucester-Southgate (10)

Ref N°: ACS2009-CMR-CPO-0007

 

 

 

 

SUBJECT:

 

Ottawa Paramedic Service – Acquisition of 2475 Don reid drive

 

 

OBJET :

service paramédic d’Ottawa – acquisition du 2475, promenade don reid

 

 

REPORT RECOMMENDATIONS

 

That the Corporate Services and Economic Development Committee recommend Council:

 

1.                  Approve the acquisition of an improved industrial site located at 2475 Don Reid Drive (PIN 04741-0043), from 845470 Ontario Inc., described as being located in Part of Lot 1, Concession 4, City of Ottawa, formerly in the geographic Township of Gloucester, as shown on the attached Annex “A”, required for the Ottawa Central Ambulance Communications Centre (CACC), for the total consideration of $1,945,000 plus land transfer tax, and GST, subject to the Province committing to the total funding for this project, (to include all fit-up, operating and carrying costs);

 

2.                  Approve the upset payment of $11,000 to 845470 Ontario Inc., for costs related to extending closing, as set out in this report;

 

3.                  Approve the payment of costs to Forum Equity Partners Inc., to an upset limit of  $40,000 for expenses incurred by Forum relating to the lease negotiations and the assignment of the Purchase and Sale Agreement to the City permitting it to acquire the property set out in Recommendation 1;

 

4.                  Authorize debt in the amount of up to $5.9M to finance the acquisition and necessary fit-up work as outlined in this report; and

 

5.                  Approve the retention of Griffiths Rankin Cook Architects as the architect and AECON Building Ottawa as the general contractor for the project in accordance with Section 22 (1)(c) of the Purchasing By-law for the reasons as outlined in this report.

 

 

RECOMMANDATIONS DU RAPPORT

 

Que le Comité des services organisationnels et du développement économique recommande au Conseil :

 

1.                  d’approuver l’acquisition d’un emplacement industriel amélioré situé au 2475, promenade Don Reid (PIN 04741-0043) de 845470 Ontario Inc., décrit comme étant situé dans une partie du lot 1, concession 4, Ville d’Ottawa, anciennement dans le canton géographique de Gloucester, comme il est indiqué dans l’Annexe « A » ci-jointe, requis pour le Centre intégré de répartition des ambulances d’Ottawa (CIRAO), pour la somme totale de 1 945 000 $, les droits de cession immobilière et la TPS en sus, sous réserve de l’engagement de la Province à financer complètement ledit projet (afin d’inclure tous les coûts d’aménagement, d’exploitation et de détention);

 

2.                  d’approuver le paiement de départ de 11 000 $ au 845470 Ontario Inc., pour couvrir les coûts visant à repousser la date de clôture, comme il est décrit dans le rapport;

 

3.                  d’approuver le paiement des coûts à Forum Equity Partners Inc., d’un montant maximal de 40 000 $, pour les dépenses encourues par Forum relativement aux négociations du bail et à la cession de la convention de vente et d’achat à la Ville d’Ottawa permettant à cette dernière d’acquérir la propriété décrite dans la Recommandation 1;

 

4.                  d’autoriser une dette jusqu’à 5.9 M$ afin de financer l’acquisition et les travaux d’aménagement nécessaires, comme il est exposé dans le présent rapport; et

 

5.                  d’approuver l’engagement de Griffiths Rankin Cook Architects comme architecte et de AECON Building Ottawa comme entrepreneur général relativement au projet, conformément à l’article 22(1)(c) du Règlement sur les achats, pour les raisons présentées dans le présent rapport.

 

 

BACKGROUND

 

On 26 November 2008, Council approved a long-term lease at 2475 Don Reid Drive (ACS2008-COS-RPM-0065) to operate the Ottawa Central Ambulance Communications Centre (CACC), which was to be funded by the Province. The Province had confirmed that a long-term lease was the preferred option.  The base rent and operating costs for the Ottawa CACC were to be funded by grants from the Ministry.  Significant fit-up costs were to be paid out in a one-time $3.5M payment from the Ministry and the remainder paid by the building owner. The fit-up costs incurred by the owner, together with interest, were to be captured as additional rent over the term of the lease. The additional rent was to be paid by the Ministry and, thus, the City’s total lease costs, including leasehold improvements, would be zero.

 

The property at 2475 Don Reid Drive (as outlined in Annex “A”) is adjacent to the existing Ottawa Paramedic Service (OPS) headquarters, which is under a long-term lease with Forum Equity Partners (Forum). When 2475 Don Reid Drive was offered to the market for sale, Forum approached the City with a proposition to acquire the property, complete the fit-up to a turnkey level, and lease the property to the City. This option was given high priority based on the Province’s preference for a lease, proximity of the existing OPS headquarters, and Forum’s existing landlord/tenant relationship with the OPS and its building/management experience.

 

In order to secure the property, and thereby conduct meaningful discussions with the City, Forum entered into a Purchase and Sale Agreement with the owner, 845470 Ontario Inc. City staff then entered into preliminary lease discussions with Forum based on the Ministry’s funding envelope.  As noted above, on 26 November 2008, City Council approved the long-term lease, pursuant to the following:

 

  1. Approve an agreement between the Province of Ontario, and the City of Ottawa to relocate the Ottawa Central Ambulance Communications Centre (CACC) subject to the Province committing to the total funding for this project to include all capital expenditures, financing costs, and lease costs (rental and operating), and

 

  1. Approve the Lease between the City (Tenant) and an affiliate of Forum Equity Partners Inc., (Landlord) for the improved industrial property located at 2475 Don Reid Drive, City of Ottawa, more particularly shown on Annex “A”, attached; having a term of twenty-six (26) years to house various programs run by the Province (Ministry of Health) and the City of Ottawa, and at no cost to the City.

 

During negotiations in November and December there was a shift in the Real Estate market. Recent changes in economic conditions, specifically the increased cost of obtaining debt financing in the mortgage market, had a direct impact on the lease negotiations.  Forum’s borrowing cost to purchase the building and to complete the unfunded portion of the fit-up would be reflected in the lease payments. The recent rise in these costs would cause a rise in rental costs.  Conversely, the City’s cost to borrow has remained relatively unchanged. Given the 26-year term of the lease, there would be a savings in the additional rent payments if the City were to acquire the building and fund the remainder of the fit-up. 

 

The change from a “Lease” to a “Purchase” was discussed with the Province and they supported the option to have the City acquire the property and act as the landlord to the Province. The purpose of this report is to obtain Council’s approval to purchase the facility at 2475 Don Reid Drive for the CACC.

 

 

DISCUSSION

 

The cost to the City – funded 100% by the Province – to lease the property located at 2475 Don Reid Drive over the 26-year term is estimated at $839,000 per annum, plus an escalation for operating costs. This annual lease payment includes base rent, additional rent to recover unfunded fit-up costs and operating costs.

 

In comparison, the calculated total cost associated with buying and developing the property over the same 26-year term is $703,000. Consequently, the Province would save approximately $136,000 per annum – representing a present value savings of approximately $1.4M.  An independent consultant, Altus Group, has confirmed this assessment.

 

Recommendation #1

 

City staff have negotiated a conditional agreement with Forum whereby the Landlord’s Agreement of Purchase and Sale (APS) with the present owner of the property (845470 Ontario Inc.) be assigned to the City in the amount of $1.945M, plus Land Transfer Tax, GST, and adjustments on closing (originally scheduled for 29 January 2009).  The assignment is on the same terms and conditions as the existing APS, but with the condition that, should City Council not approve the acquisition of the subject property, Forum and the City/Province would honour the Memorandum of Understanding (MOU) dated 16 October 2008 and proceed to complete the lease negotiations for the subject property.  The acquisition price is also supported by an independent appraisal.

 

Recommendation #2

 

Since the City requires an additional month to close this transaction (targeted date 27 February 2009), the present owner requires an additional $357 per day carrying costs (taxes, hydro, snow clearing, etc.) to the date of closing or such earlier or later date as may be agreed to. The upset limit would be $11,000.

 

Recommendation #3

 

Forum has experienced certain due diligence costs associated with obtaining required information, legal costs for document review, and costs associated with securing commitments and monies expended to secure a previous extension from the Vendor.  Should Council approve the purchase of the subject property, this report is seeking approval to pay the reasonable expenses associated with the lease negotiations and the assignment of the APS incurred by Forum to an upset limit of  $40,000. 

 

Recommendation #4

 

The total funding for this project is estimated at $9.4M ($2.1M for the acquisition and soft costs plus $7.3M for fit-up). Deducting the capital grant of $3.5M from the Province results in $5.9M being required for this project. It is recommended that this amount be debentured, but the debt service costs be covered by annual payments over 20 years from the Provincial funding (Grant) program for the CACC.  Upon termination of the term of the agreement between the City and Province, the City will retain ownership of the property located at 2475 Don Reid Drive.

 

Recommendation #5

 

In September 2008, Forum Equity Partners engaged the services of Griffiths Rankin Cook Architects to plan out the requirements of the CACC at 2475 Don Reid Drive. They produced preliminary floor plans. Subsequently AECON Building Ottawa were engaged to produce a Class C Budget Estimate. Both the architect and contractor have significant experience in these types of buildings and they served as the architect and constructor of the adjacent OPS headquarters. This work formed the basis for lease negotiations between the City/Province and Forum over November and December.

 

If the City were to follow contracting procedures and proceed through an RFP for architectural and general contractor services, there would be a delay of up to 180 days. The delay would create complications and additional costs in relocating the CACC from its existing premises. In addition, a delay to complete an RFP would also place at risk the MOH funding arrangement, which is now scheduled to commit $3.5M by 31 March 2009.  Failure to have the project in place creates some risk that the funds may be withdrawn by the Province and the project terminated.

 

In an effort to mitigate these consequences, staff undertook discussions with AECON.  As a result, they have offered to have an “open book” process by which they would tender the project to the various sub trades in an effort to seek best price and value for the City. AECON’s construction management fees, together with the architectural fees, would be based on percentages of the tendered construction costs per industry standards, which will be reviewed and validated for “best value” by Supply Management Division.  Section 22 of the Purchasing By-Law allows the requirement for competitive bids be waived and replaced by direct negotiation with the vendor under certain conditions. The Manager of Supply Management Division advises that section 22(1)(c) would apply in this case, “where only one source of supply would be acceptable and cost effective.”

 

Given the consequences of potential delays described above, and considering the background and expertise of the service providers, staff recommends that Council approve the continuation of AECON as the General Contractor and Griffiths Rankin Cook as the project Architects.    

 

 

ENVIRONMENTAL IMPLICATIONS

 

A Phase I & II Environmental Site Assessment will be completed as part of the City’s due diligence.  As well, a Designated Substance Survey will also be completed.

 

 

CONSULTATION

 

As this acquisition is for property required to facilitate the Ottawa Central Ambulance Communications Centre, there was no consultation required.  The Ward Councilor is aware of, and has been briefed on this project.

 

 

FINANCIAL IMPLICATIONS

 

The proposed agreement with the Province results in no net costs to the City.  The City will be responsible for the flow of costs related to the new CACC building, but will be reimbursed for all such costs by the Ministry of Health and Long-Term Care (MOH & LTC).

 

Funding for Recommendations 1, 2 and 3 will be available in the Paramedic Capital Budget and will be funded by the $3.5M grant from the Province. 

 

The $5.9M proposed debenture and carrying costs would be recovered through payments made by the Province.

 

Once all the annual operating costs (debt charges, repairs and maintenance, utilities, etc.) for the new CACC facility have been determined, the Paramedic CACC Operating Budget will be adjusted to reflect the increased expenditure with the corresponding offsetting provincial revenue.

 

 

LEGAL/RISK MANAGEMENT IMPLICATIONS

 

There are no legal/risk management impediments to implementing any of the recommendations in this Report.

 

 

SUPPORTING DOCUMENTATION

 

Attached, as Annex “A”, is a sketch outlining the area to be purchased.

 

 

DISPOSITION

 

Following approval, OPS and Legal Services staff will finalize an agreement with the Province to secure the necessary financial commitment.

 

Real Estate Services and Legal Services staff will finalize the acquisition once the financial commitment is in place with the Province.  The closing of the transaction is scheduled for 30 days from Council acceptance.