Report to/Rapport au :
Corporate Services and Economic Development
Committee
Comité des services organisationnels et du développement économique
and Council / et au Conseil
17 November 2009/ le 17 novembre
2009
Submitted by/Soumis par : Kent Kirkpatrick, City Manager/Directeur des
services municipaux
Contact
Person/Personne ressource : Gordon MacNair, Director, Real Estate Partnerships
and Development Office / directeur, bureau de développement et de partenariats
immobiliers
(613)
580-2424 x 21217, Gordon.MacNair@ottawa.ca
REPORT
RECOMMENDATIONS
That
Corporate Services and Economic Development Committee recommend that Council:
1.
Approve a correction to the project budget for the Shenkman Arts
Centre in the amount of $865,099 to be funded by interest accrued in the
project Escrow Account, and the reallocation of funds from the Enhanced
Infrastructure Budget as further described in this report;
2.
Approve the reallocation of $108,000 within the Enhanced
Infrastructure Budget to construct a new sanitary sewer in the “Police Road” as
further described in this report; and
3.
Authorize staff to amend the Partnership Agreements between the City
and the OTCP Arts Centre G.P. Inc., in its capacity as general partner of OTCP
Arts Centre Limited Partnership, to implement the adjustments described in this
report and the staff letter dated 18 November 2009 to Forum Equity Partners
attached as Document 1 to this report.
RECOMMANDATIONS DU RAPPORT
Que le Comité des services organisationnels et du développement économique recommande au Conseil :
1.
d’approuver une correction au budget du projet pour le
Centre des arts Shenkman de l’ordre de 865 099 $, montant qui sera
financé par les intérêts accumulés dans le compte de garantie bloqué du projet,
ainsi que la réaffectation des fonds provenant du budget alloué aux
infrastructures de l’est, tel qu’il est décrit plus en détail dans le présent
rapport;
2.
d’approuver la réaffectation d’un montant de
108 000 $ dans le budget alloué aux infrastructure de l’est pour
construire un nouvel égout sanitaire dans le « chemin des services
policiers », tel qu’il est décrit plus en détail dans le présent rapport;
3.
d’autoriser le personnel à modifier les accords de
partenariat entre la Ville et le OTCP Arts Centre G.P. Inc., en sa qualité de
partenaire général du « Partenariat limité du Centre des arts du
PQCO », afin de mettre en œuvre les ajustements décrits dans le présent
rapport, et la lettre du personnel datée du 18 novembre 2009 à Forum
Equity Partners jointe au présent rapport sous le nom de Document 1.
BACKGROUND
On 1 May 2007, the City entered into Partnership Agreements with OTCP Arts Centre G.P. Inc. (OTCP) to design, build, finance and maintain the Shenkman Arts Centre; to construct certain additional public infrastructure (i.e., roads, servicing, parks); and to deliver other private sector development within the Orleans Town Centre (e.g., hotel, seniors residences, medium-density residential development, etc.).
Construction of the Shenkman Arts Centre in the Orleans Town Centre (OTC) was completed on time and the grand opening took place in mid-June of this year. The facility is now open and in full operation. Some final site works continue, primarily related to the parking area, landscape planting and construction of the road that provides access to the Arts Centre and other future development sites that back along Highway 174. A seniors’ park has also been completed, and its grand opening ceremony took place on 24 September 2009.
Recently, OTCP has submitted its final Arts Centre construction draw requests to the City for payment. As OTCP has attempted to reconcile the Construction Agreement between themselves and the builder, they have discovered the funds remaining in the City’s construction escrow account are insufficient to cover the full project cost. OTCP submits that this is due to a discrepancy that occurred in the drafting of some of the Partnership Agreements. Upon review of the relevant records and documents, staff is in agreement with OTCP that an error was made, and a shortfall of $865,099 exists in the funding of the escrow account. The “Discussion” section of this report provides further explanation of the error, and also offers a proposed funding solution for which Council authority is being sought. The adjustments will require that amendments be drafted to some of the Partnership Agreements.
OTCP is also requesting amendments to the Partnership Agreements to permit them to postpone or modify construction of some of the private sector development obligations due to the current condition of financial markets.
Staff and OTCP have negotiated an agreement with respect to the requested amendments, both financial and development-related. These are listed in Document 1 to this report as a letter of concurrence between the two parties.
DISCUSSION
Project Price and Escrow Account
OTCP has
indicated that an error was made in the final drafting of the Partnership
Agreements, causing a funding shortfall of $865,099 in the escrow account. As a result, it appears that the total
project price should actually be $38,001,860, rather than $37,136,761, as
referenced in the final documents. OTCP
has requested the City fund the project escrow account to cover the shortfall. The error is the result of the wrong dollar figure being
carried forward from the Construction Agreement (entered into between OTCP, as
the Owner and Aecon as the Constructor) to the Escrow Agreement, Funding
Agreement, and the Ground Lease, which agreements were entered into between
OTCP and the City. City staff has
received a full accounting with a breakdown of Aecon’s costs, and are satisfied
that this amount remains outstanding.
The proposed solution for
funding the shortfall is to apply the interest that has been generating in the
escrow account over the term of construction; this amount is currently
$312,000. In addition there is a GST
reimbursement owing by OTCP to the City in the amount of $75,000 that can also
be applied to deal with this shortfall. It is proposed that the remaining
balance of $478,099, required to deal with the $865,099 shortfall, be funded by
another existing project budget called the Enhanced Infrastructure Budget
(EIB). The EIB account contains the
City’s funding contribution toward the joint delivery of public infrastructure,
one element of which is to build an extension to Centrum Boulevard.
Of the $3,100,000 EIB
budget, $646,079 is allocated as the City’s financial contribution toward the
cost of acquisition (land and administrative costs), as well as the design and
construction of the future east-west section of Centrum Boulevard. The north-south section of the Centrum
Boulevard extension (land and construction costs) is to be funded by OTCP, as
the City’s partner. Under the current
arrangements, OTCP is responsible for undertaking the design and construction
of both sections of Centrum Boulevard, using the City’s funding contribution to
offset these costs. It is a portion of
the east-west Centrum funds ($478,099) that staff is proposing to redirect to
the escrow account so they may be applied to the shortfall on the Arts Centre
construction budget subject to direction from Council with respect to the
design and construction of the east-west link of the Centrum Boulevard
extension and the requirements for the East Residential Subdivision as
described below.
Centrum Boulevard
The importance of the
east-west link of the Centrum Boulevard extension has been expressed through
the Cumberland Official Plan, and now is identified as a future road within the
City of Ottawa’s Official Plan. This
street is proposed to function as the main street running through the Orleans
Town Centre, and is planned to run from an existing cul-de-sac in the western
commercial area of the Town Centre to ultimately connect with St. Joseph
Boulevard, thereby creating a link between the commercial area in the west end
of the Town Centre and the future residential development in the east end of
the Town Centre and ultimately to the Commercial Highway Special (CHS) lands to
the east of the off ramp from Highway 174.
Document 2, attached,
illustrates the proposed road network as set out in the Orleans Town Centre
concept plan.
The planned requirement for
the Centrum Boulevard extension is referenced specifically in the City’s
Official Plan, Site Specific Policies (Volume 2B):
“Develop an east-west link for the central area, known as Centrum Boulevard to provide access to both the central core area and the proposed high density residential areas to the east. This collector road shall have a right-of-way of 26.2 metres (86 feet). It is the intention of the City that this road provide for an urban village atmosphere, and that it will narrow where possible to two lanes in the central core area with wide landscaped sidewalks to ensure a human scale and pleasing pedestrian environment.
AND
Ensure that Centrum Boulevard, Place d’Orleans Drive, St. Joseph
Boulevard and Prestone Drive are protected as future public transit routes
intended to sere the main central area to provide an optimum level of service
to the various land use components.”
Earlier this year, staff
worked toward finalizing a Project Report in support of the Schedule B Class
Environmental Assessment for both the east-west and north-south extensions of
Centrum Boulevard. The study concluded that the
roadway connection is necessary for a number of reasons, including providing
roadway connectivity between the two ends of the Town Centre community. Comments received through the public consultation
process indicated a preference to eliminate the proposed east-west
roadway of the Centrum Boulevard extension and limit the connection to a
pathway.
Ultimately, a Final Project Report
will need to be approved by Council prior to posting the Notice of Completion
of the Schedule B Class EA, and it is this Council approval that will then
determine the nature of the improvements for the east-west link of Centrum
Boulevard and the extent of the right-of-way requirements for that link.
East Residential
Subdivision
OTCP has requested that all of its
development obligations in the east residential subdivision be deferred by one
year, citing that demand for new medium-density housing in this location is not
sufficient for them to acquire a builder who will proceed at this time. The proposed amendments would therefore
maintain a three-phased approach to delivering the housing units, but with a
one-year deferral to 31 October 2010, 31 October 2012, and 31 October 2015
respectively for these phases.
OTCP’s obligation to construct the
north-south Centrum Boulevard link will be maintained within the Partnership
Agreements. However, through a proposed
amendment to the Agreement, its construction would be deferred from 31 October
2009 to 31 October 2012. This timing is
in line with the second phase of housing development that is to be delivered by
OTCP in their east residential subdivision.
All public roads within the subdivision would be constructed by 31
October 2012 in order to ensure that the second phase of housing development
can be connected to the Centrum Boulevard extension, thereby providing the
residential subdivision with a fully signalized intersection and full turning
movements onto St. Joseph Boulevard.
The agreements will be amended to adjust the timing of
acquisition and construction of the east-west Centrum Boulevard right of
way. The revised timing is proposed to
shift from this fall (2009) to 31 October 2012. This would ensure that its timing is coordinated with the
construction of OTCP’s north-south extension of Centrum Boulevard.
In addition, OTCP is requesting a reduction
to its minimum deliverable by reducing the number of dwelling units they must
build from 260 to 200 units. The
agreement will be amended to permit 30 of the stacked townhouses to be replaced
by 30 townhouses. This increases the
total number of townhouses from 30 to 60 of the 200 units OTCP is required to
construct within its residential subdivision.
The reduced density will be subject to approval of a zoning by-law
amendment that will be initiated and paid for by OTCP as the applicant. The zoning by-law amendment must continue to
conform with the Official Plan, as any application to amend the Official Plan
would not be supported by staff.
Staff has imposed conditions on OTCP’s residential subdivision approval
that have new financial implications to OTCP.
These are related to the construction of a road (the “Police Road”) that
will provide the only access to the first phase of housing in the east
residential subdivision. The new costs
include $108,000 for installation of a new sanitary sewer to service land owned
by others to the east; $49,000 for a new sanitary sewer to service OTCP’s Phase
1 housing development, and $75,000 for changes in the road’s geometry and
landscaping. The Phase 1 development
consists of 41 units of affordable housing, funded jointly by the City and
provincial and federal governments.
OTCP has committed to commence construction of the Police Road early in
the new year, pending approval of the proposed amendments to the Partnership
Agreements. This will help to ensure
that the affordable housing provider can meet its conditions for provincial and
federal funding.
The proposed amendment(s) will have the City pay the $108,000 for the new
sanitary sewer to service the CHS lands to the east. Ultimately the City will
recover this cost from the owners of the CHS lands as a requirement of lifting
a one-foot reserve to allow a connection to this sewer. In the meantime, it is
proposed that this amount also be funded from the $646,079 allocated in the EIB for the
east-west Centrum Boulevard link. The
other construction costs of $124,000 ($49,000 sewer and $75,000
road/landscaping) will be paid by OTCP.
EIB Funds for East-West Centrum Boulevard Link
If the east-west Centrum
Boulevard link funding provisions in the EIB ($646,079) are used to fund the
shortfall in the Escrow account ($478,099) and the sanitary sewer to service
the CHS lands to the east of the OTC
($108,000) this will leave a balance of $59,980 to carry out this link,
if required.
However, as indicated above
this link will be subject to Council approval as to the nature of the
improvements and the extent of the right-of-way and, in any event, it will not
be required until 31 October 2012.
In addition, funds in the
amount of $475,000 are available for transfer from an existing internal revenue
account (#830275) for the
purpose of undertaking this work when, and to the extent then deemed,
necessary. The $475,000 was a payment
made to the project by an adjacent landowner as a payment in lieu of
constructing part of a public road across their land. This road (Commercial Drive) was instead constructed and funded
as part of the Shenkman Arts Centre site plan earlier this year. Furthermore,
the $108,000 to be recovered from the CHS landowners for the connection to the
sanitary sewer in the Police Road will ultimately be available for funding the
east-west link.
As a result, the City will
ultimately have $642,980 available to undertake the east-west link ($59,980 EIB
link balance, $108,000 recovery from CHS land owners, and $475,000 transfer
from internal revenue account #830275) should Council so direct.
Therefore, in conjunction
with the reduction in EIB funds, the proposed amendments to the Partnership
Agreements will also relieve OTCP of their responsibility to design and
construct the east-west link of the Centrum Boulevard extension. Instead, the
City will assume this responsibility, and take ownership of the remaining EIB
funds that had been allocated for this purpose; fund this work as set out
above; and provide Council, in its sole discretion, the ability to decide as to
the nature of the improvements for the east-west link of Centrum
Boulevard and the extent of the right-of-way requirements for that link.
West Town Centre
Land
In the west end of the Orleans Town Centre, the Partnership Agreements commit OTCP to deliver a hotel or office building, as well as a combined condo/seniors residence/mixed-use development by 5 November 2010. Failure to construct the foundation of the hotel or office building by this date would give the City the authority to penalize OTCP by cashing $1.5 million in securities. Similarly, failure to construct the foundation of the 140 unit condominium and receive site plan approval for the 100-unit retirement residence and mixed use component would allow the City to cash $1.0 million in securities. Given current market conditions, OTCP has requested a two-year extension to its delivery dates, as well as a reduction to the building area of the mixed-uses it must deliver.
OTCP indicates
that the hotelier they are working
with is now focused on financing another deal but is proceeding with plans for
the design and site plan for a new hotel in the Orleans Town Centre. It is proposed that two additional years be
allowed for delivery of the start of construction of the hotel. The Partnership Agreement(s) would be
amended to move this delivery date from 5 November 2010 to 5 November 2012.
Currently the seniors’ development is deemed to include a 140-room condo, a 100-room retirement residence, and 30,000 square feet of mixed-uses. In keeping with good Town Centre and Main Street design principles, much of the mixed-use component will be on the ground floor and will front on the main street, which is Centrum Boulevard. The proposed amendments to the Partnership Agreements would allow the mixed-use component to be reduced from 30,000 square feet to 20,000 square feet. It would also allow flexibility in the distribution of condominium versus retirement residence units, permitting a slightly lesser deliverable of 220 units (rather than 240) units overall. Planning staff have reviewed the proposal to reduce the mixed-use component and do not object to it, provided the final plans will maintain the Main Street design principles of providing street-front retail and commercial uses along Centrum Boulevard. A zoning by-law amendment may be necessary to permit the reduction in floor area, and OTCP will be responsible to submit the application and cover any associated costs. Like the hotel, the Partnership Agreement(s) would also be amended to adjust the seniors’/mixed-use construction start-date from 5 November 2010 to 5 November 2012.
Should a zoning by-law amendment and site plan be approved for the seniors / mixed-use development, staff recommend that the Partnership Agreements be amended to reflect the size of each of the components of the development, as determined by an approved site plan. The amendments should also provide for a prorated release of the $1,000,000 in securities based on the number of units in the overall development. Release of the securities would be subject to completion of the foundation for each component. This approach will offer OTCP an incentive to build all of the seniors units as soon as possible.
CONSULTATION
Substantial consultation has taken place with respect to the various requests for amendments. On the matter of the $865,099 adjustment to the contract price, staff have obtained a legal opinion from Perley Robertson, which is the law firm that drafted the original Partnership Agreements. Based on their review of the relevant documents and discussions with City staff, their lawyers advise that it appears OTCP is correct in stating that the project was underfunded by $865,099, and this amount was inadvertently omitted from the Fixed Price. For this and other development-related amendments, consultation occurred between OTCP the City Manager's Office, Real Estate Partnerships and Development Branch, Planning Staff, Finance staff, Legal Services and the Ward Councillor to resolve the situation as described in this report.
ENVIRONMENTAL IMPLICATIONS
This
report deals with the amendments to partnership agreements for the funding and
implementation of an existing development project and, therefore, there are no
environmental implications with respect to implementing the recommendations set
out in this report.
LEGAL/RISK MANAGEMENT IMPLICATIONS:
There are no legal/risk management impediments
to implementing any of the Recommendations arising from this report. The parties to a legal agreement, after
obtaining directions and the consent from their respective principals, may make
mutually agreeable changes to the agreement that they consider to be in their
respective best interests.
FINANCIAL IMPLICATIONS
Funds are available in the Enhanced Infrastructure Budget and the Escrow Account for the adjustment to the Arts Centre budget and the construction of the sanitary sewer. Any third party legal costs incurred to amend the partnership agreements as described in this report are to be paid for by OTCP since they requested that the amendments be made.
SUPPORTING DOCUMENTATION
Document 1 - Letter of
Concurrence between City staff and OTCP
Document 2
- Town Centre Concept Plan
DISPOSITION
Staff of the Real Estate Partnerships and Development Office (REPDO) and the Corporate Development and Environmental Law Branch will work with OTCP to finalize and execute the amending agreements.
The two applicable zoning by-law amendments will be initiated by OTCP at their expense.
DOCUMENT
1
LETTER OF CONCURRENCE BETWEEN STAFF & OTCP
DOCUMENT 2
ORLEANS TOWN CENTRE CONCEPT PLAN
