1. CORPORATE ACCOMMODATION MASTER PLAN (CAMP) -
100 CONSTELLATION CRESCENT

PLAN DIRECTEUR DES LOCAUX MUNICIPAUX –
100, CROISSANT CONSTELLATION

Committee Recommendations

That Council:

1. Authorize the General Manager of Corporate Services to execute closing documents and, in particular, an Assignment of Lease Agreement with Nortel Networks Limited and an Amendment of Lease Agreement with Arnon Corporation in accordance with the terms and conditions set out in the Letter of Intent Agreement dated 14 March 2003, among Arnon, Nortel, and Ottawa.

2. Upon execution of the Assignment of Lease, designate 100 Constellation Crescent as a Municipal Capital Facility for the purpose of general administration of Ottawa as permitted under Section 110 of the Municipal Act and as defined in Ontario Regulation 46/94 and that this designation be implemented by way of an Agreement between the City and Arnon Corporation, and by presenting to Council a by-law, both in accordance with the requirements of the Municipal Act, and this report.

3. Declare the following City owned properties as surplus to the City’s needs:

a. 1595 Telesat Court -- former Gloucester City Hall (Part of Lot 21, Concession 2, Ottawa Front, shown as Parts 11 to 16, Plan 4R-16053 and municipally known as 1595 Telesat Court);

b. 495 Richmond Road – Denis Coolican Building (Part of Lot 29, Concession 1, Ottawa Front, municipally known as 495 Richmond Road);

c. 580 Terry Fox Drive -- Former Kanata City Hall (Part of Lot 1, Concession 2, geographic Township of March, shown as parts 1, 2 and 3, Plan 4R-7282, municipally known as 580 Terry Fox Drive); and

d. 150 Elgin/31 Gloucester Street - “Friday’s Roast Beef House” and adjacent City public parking lot property (Part of Lot 52, Lots 53 to 57, Plan 4556, North Gloucester Street, municipally known as 150 Elgin/31 Gloucester Street).

4. Waive City policy pertaining to the internal and external circulation of surplus properties and authorize staff to market and sell the properties outlined in Recommendation 3 immediately following approval of this report by Council;

5. Approve the Development Criteria for the property at 150 Elgin/31 Gloucester Street as outlined in Annex C of this report.

6. Approve the strategy for the immediate leasing of the approximately additional 65,500 RSF available at 100 Constellation, as outlined in this report.

7. Direct staff, as set out in this report and in accordance with the City’s 20/20 Vision, to prepare a plan for future development of the 100 Constellation property in conjunction with the City owned properties in and around Ben Franklin Place.

Recommandations du comité

Que le Conseil :

1. autorise le directeur général des Services généraux à signer les documents requis pour la clôture, et notamment une convention de cession de bail avec Nortel Networks Limited et une modification de la convention de bail avec Arnon Corporation conformément aux modalités énoncées dans la lettre d’intention du 14 mars 2003 convenue entre Arnon, Nortel et Ottawa;

2. à la signature de la convention de bail, désigne la propriété sise au 100, croissant Constellation comme un aménagement municipal durable aux fins de l’administration générale d’Ottawa, tel qu’il est permis en vertu de l’article 110 de la Loi sur les municipalités et défini dans le Règlement de l’Ontario 46/94 et que cette désignation soit mise en œuvre au moyen d’un accord entre la Ville et Arnon Corporation et par la présentation au Conseil d’un règlement municipal, conformément aux exigences de la Loi sur les municipalités et du présent rapport;

3. déclare les propriétés municipales suivantes excédentaires aux besoins de la Ville :

a. partie de lot 21, concession 2, orientée vers la rivière des Outaouais, représentée par les parties 11 à 16, plan 4R-16053 et située à l’adresse municipale du 1595, cour Telesat (ancien hôtel de ville de Gloucester);

b. partie de lot 29, concession 1, orientée vers la rivière des Outaouais, située à l’adresse municipale du 495, chemin Richmond (immeuble Denis-Coolican);

c. partie de lot 1, concession 2, canton géographique de March, représentée par les parties 1, 2 et 3, plan 4R-7282, située à l’adresse municipale du 580, promenade Terry-Fox (ancien hôtel de ville de Kanata);

d. partie du lot 52, lots 53 à 57, plan 4556, rue Gloucester Nord, située à l’adresse municipale des 150, rue Elgin/31, rue Gloucester (« Friday’s Roast Beef House » et adjacente au parc de stationnement public municipal);

4. déroge à la politique de la Ville s’appliquant à la circulation interne et externe des propriétés excédentaires et autorise le personnel à commercialiser et à vendre les propriétés visées à la recommandation 3 dès que le Conseil aura approuvé le présent rapport.

5. approuve les critères d’aménagement à l’égard de la propriété sise aux 150, rue Elgin/31, rue Gloucester, comme il est indiqué à l’annexe B du présent rapport;

6. d’approuver la stratégie de location immédiate d’environ 65 000 pieds carrés locatifs supplémentaires disponibles au 100, croissant Constellation, tel qu’elle est décrite dans le présent rapport.

7. donne instruction au personnel, comme il est énoncé dans le rapport et conformément à la Vision 20/20 de la Ville, d’élaborer un plan en vue de l’aménagement éventuel de la propriété située au 100, croissant Constellation conjointement avec les propriétés municipales de la Place-Ben- Franklin et en périphérie de la Place.

Documentation

1. Corporate Services Department General Manager's report dated 06 May 2003 (ACS2003-CRS-RPR-0040).

2. Extract of Draft Minutes, Corporate Services and Economic Development Committee, 06 May 2003.

Report to/Rapport au :

Corporate Services and Economic Development Committee

Comité des services organisationnels et du développement économique

and Council/et au Conseil

06 May 2003/le 6 mai 2003

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

Corporate Services Department/Services généraux

Contact/Personne ressource : Stephen Finnamore, Director, Real Property Asset Management/Directeur, Gestion des actifs et des biens immobiliers

580-2424, ext. 28859, Stephen.Finnamore@ottawa.ca

Ref N°: ACS2003-CRS-RPR-0040

SUBJECT:

OBJET :

CORPORATE ACCOMMODATIONS MASTER PLAN (CAMP) – 100 CONSTELLATION CRESCENT

PLAN DIRECTEUR SUR L’ATTRIBUTION DES LOCAUX DE LA VILLE – 100, CROISSANT CONSTELLATION

REPORT RECOMMENDATIONS

That the Corporate Services and Economic Development Committee recommend Council:

3. Declare the following City owned properties as surplus to the City’s needs:

a. 1595 Telesat Court -- former Gloucester City Hall (Part of Lot 21, Concession 2, Ottawa Front, shown as Parts 11 to 16, Plan 4R-16053 and municipally known as 1595 Telesat Court);

b. 495 Richmond Road – Denis Coolican Building (Part of Lot 29, Concession 1, Ottawa Front, municipally known as 495 Richmond Road);

d. 150 Elgin/31 Gloucester Street -- “Friday’s Roast Beef House” and adjacent City public parking lot property (Part of Lot 52, Lots 53 to 57, Plan 4556, North Gloucester Street, municipally known as 150 Elgin/31 Gloucester Street).

5. Approve the Development Criteria for the property at 150 Elgin/31 Gloucester Street as outlined in Annex C of this report.

6. Approve the strategy for the immediate leasing of the approximately additional 65,500 RSF available at 100 Constellation, as outlined in this report.

RECOMMANDATIONs DU RAPPORT

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

3. déclare les propriétés municipales suivantes excédentaires aux besoins de la Ville :

b. partie de lot 29, concession 1, orientée vers la rivière des Outaouais, située à l’adresse municipale du 495, chemin Richmond (immeuble Denis-Coolican);

5. approuve les critères d’aménagement à l’égard de la propriété sise aux 150, rue Elgin/31, rue Gloucester, comme il est indiqué à l’annexe B du présent rapport;

CONFIDENTIALITY

The negotiations amongst the three parties were undertaken on an understanding of strict confidentiality. As a result, the City, its consultants, and agents cannot divulge any of the details associated with the letter of intent, since it contains specific information on the negotiations and associated proposals, to any other party without prior written consent from the other parties.

BACKGROUND

At the time of amalgamation, City departments were fragmented into 13 different locations across the new City, and the sale of 111 Sussex Drive (former Ottawa City Hall) by the Ottawa Transition Board resulted in the loss of more than one-third of the City’s office space. To compensate for this significant and sudden loss, additional space had to be leased, although staff was able to begin to reduce the City’s overall space requirements by over 90,000 ASF (assignable square feet).

On 24 July 2002, City Council approved the Corporate Accommodations Master Plan for administrative space (CAMP) so that the amalgamated City of Ottawa could reduce the total amount of administrative space it occupies by 25%, dispose of surplus properties, including former city halls, improve service delivery to residents and achieve permanent operational savings from both the consolidation of space and the co-location of staff into fewer sites. It was expected that achieving these benefits through CAMP would require a capital investment of $38 million and be achieved by the end of the 2005 budget year.

In February 2003, the City discovered a potential opportunity to achieve CAMP objectives much sooner through the use of an existing building, 100 Constellation Crescent. This building and its location are ideal. It is next to Ben Franklin Place, which means that staff could be effectively situated in two major locations rather than three, and would mean that the lands around Ben Franklin place and the nearby Transitway could be used for other mixed-use development opportunities. As well, Arnon Corporation, the owner of 100 Constellation, is the landlord for the City’s other leased office space, which would allow for the consolidation of the current leases.

Given these factors, City Council asked staff to see if it could negotiate terms for the use of 100 Constellation Crescent to successfully meet the City’s financial benchmark (the Public Sector Comparator) for good value.

Staff is able to report that lease/option to purchase terms have been negotiated that not only meet but also exceed the Public Sector Comparator. An independent, third party review of the terms for acquiring 100 Constellation confirms that it is an excellent value for the City and its taxpayers.

Further, if City Council approves the recommendations in this report, all of the City’s administrative leases will be consolidated immediately after the deal is closed, all the City’s leased administrative properties will be vacated by 1 November 2003, 4 properties (including the former Gloucester and Kanata city halls) can be immediately declared surplus, and the $38 million capital requirement for CAMP will no longer be needed.

In essence, the City will be able to consolidate its office space from 17 locations to 2 major locations and achieve significant operational savings nearly two and one half years sooner than expected without adding capital funding pressures to the City budget.

DISCUSSION

The Building

The Corporate Accommodations Master Plan for administrative space (CAMP) has been designed to support programs that deliver services to residents. Administrative staff is currently operating in 13 locations spread across the city, which leads to increased travel costs and the loss of productivity due to travel time. Fewer locations means greater staff productivity reduced costs and better service to residents.

CAMP was also designed to achieve maximum savings by increasing the efficiency of corporate space standards and reducing the total amount of office space required by nearly 25% since amalgamation, to 560,000 assignable square feet (ASF).

In order to achieve these efficiencies and savings, it was determined that the City’s administrative space could best be consolidated to City Hall (188,000 ASF), Ben Franklin Place (56,500 ASF), and a third location which must have at least 295,000 ASF available (although 22,000 ASF will also be located at 255 Centrum due to a geographic service delivery requirement).

There were a number of criteria for a new location that would maximize both service delivery and savings: it must be located inside the Greenbelt and outside of the Central Area, have sufficient capacity to accommodate parking at a rate of up to 3 spaces per 1,000 rentable square feet (RSF); and be located less than 500 meters from an existing Transitway or O-Train stop.

100 Constellation Crescent meets or exceeds all of these criteria. It is located at the geographic centre of Ottawa, next to Ben Franklin Place and the Baseline Transitway Station. The facility at 100 Constellation is a nine (9) storey office complex containing 353,500 ASF situated on close to 21 acres of land with 1493 surface parking spaces provided on the site. The western half of the facility was built in 1997 and the eastern half in 2000, and has approximately 65,500 RSF and 500 parking spaces beyond the CAMP project needs. This will allow the City to generate some additional revenues from leasing the space not needed for CAMP and generate added value for potential mixed-use development because of the potential for shared parking.

Because this building could be occupied quickly, thus achieving CAMP savings and service objectives as early as possible, City Council gave staff permission to negotiate terms for the acquisition of this building from Arnon Corporation, the current owner, and Nortel Networks, the current tenant, as long as those terms met the City’s financial benchmark for value, the Public Sector Comparator.

The Financial Benchmark

The Public Sector Comparator (PSC) provides a benchmark for assessing proposed arrangements and determining if they represent value for money. It is essentially a full costing of the project as if it were undertaken by the City of Ottawa itself (i.e. without a private sector partner). According to Industry Canada’s Best Practice Guide, the PSC is “a hypothetical, risk-adjusted costing by the public sector as a supplier, to an output specification produced as part of a procurement exercise.” Accordingly, it is expressed in net present value terms (NPV at 6% discount rate for the City), is based on the required output specifications (i.e. City building specifications versus 100 Constellation building) and takes into full account the risks which would be encountered by that style of procurement.

To properly evaluate the financial benefit of acquiring 100 Constellation Crescent for CAMP, the City needed to understand the difference between the original assumptions of the Public Sector Comparator and the situation at 100 Constellation. The specific concerns and approach taken are detailed in Annex B, but in essence, the City’s PSC analysis during negotiations depended on three specific issues:

· Value established by Arnon/Nortel for facility/furniture/equipment on ‘as is’ basis;

· Value of facility/furniture/equipment to City on ‘as is’ basis relative to Public Sector Comparator; and

· Structure & financing of deal relative to the NPV from Public Sector Comparator and cash flow requirements.

In the context of the CAMP project, the PSC was used to assess the proposal for 100 Constellation to determine if it represented a more cost-effective solution for the corporate accommodation needs of the organization. Typically, the cost model is constructed by establishing the direct and indirect costs over a long term planning horizon (22 years, 8 months for the CAMP project – the length of the proposed lease term).

Negotiations

The three parties established negotiating teams and negotiations commenced on 14 February 2003. The intensive negotiations required the teams to meet on the 14^th, 18^th, 20^th, & 27^th of February and the 4^th, 6^th, 11^th, 12^th, 13^th, & 14^th of March. On 4 March, the letter of intent process was initiated.

On 14 March the letter of intent was drafted to reflect the results of the negotiations, namely:

Ø An assignment of the Nortel’s leasehold interests to the City as of 1 July 2003 until expiration of the term at the end of February 2016;

Ø Provision of a fully secured subsidy from Nortel to reduce the net effective rent to the City and offset the cost of the City’s existing leased space to meet the City’s NPV requirements established from the PSC;

Ø Nortel to initiate subletting of existing City leased space in Arnon buildings with the City vacating these premises by 1 November 2003;

Ø Inclusion of all existing furniture, fit-up and equipment (free and clear to the City at no extra cost to the City) to meet the City’s NPV requirements established from the PSC;

Ø An amending lease agreement with Arnon to extend the lease term from 2016 until the end of February 2026 (total lease term 22 years 8 months) and to provide a reduced lease rate for the extended term and an option to purchase the facility at the end of that term to meet the City’s NPV requirements established from the PSC; and

Ø City to have development rights during the term of the lease for additional facilities on the property.

The letter of intent has been signed by all parties, and subject to ratification by the approval authorities of each party and the City completing its due diligence work by 15 June 2003, the transaction will be finalized on 1 July 2003.

Results and Recommendations

The lease-option to purchase arrangement for 100 Constellation, as described above and set out in the letter of intent, provides excellent value to the City, and has proven to be a better financial option than the $38 million retrofit for CAMP or building a new facility as set out in the Public Sector Comparator (PSC).

An independent audit firm has verified the validity of the Public Sector Comparator financial model. When applied to the option analysis between the PSC and 100 Constellation, the financial analysis shows that the NPV for 100 Constellation is better by $0.6 million dollars over the time period of the lease.

This was achieved because of the added value contributed by Nortel and Arnon:

Ø Nortel, in return for the City taking over the lease obligations, has agreed to provide a substantial subsidy to the City with respect to assignment of the lease;

Ø All furniture, fit-up and equipment in the building are to be provided to the City by Nortel and a significant amount of this can be used as is by the City; and

Ø Arnon, in return for securing a long-term lease from the City, has agreed to provide an estimated below-market cost rent for the last 10 years of the term and to provide an option to purchase at the end of the term.

In addition to exceeding the City’s financial benchmark for value, an independent evaluation by an accredited real estate appraiser indicates that the lease-option to purchase arrangement also represents excellent real estate investment through:

Ø An annual net effective rent to the City over the entire 22 year 8 month term of $11.21/ sq. ft. compared to current market rents estimated at $14.50/ sq. ft., and projected market rents of $18.60 /sq. ft. in 2016; and

Ø an effective current purchase price of $43.4 million ($112/sq. ft) if the City exercises its option to purchase in 2026.

A useful comparison is the recently reported sale of the 773,000 sq. ft. Skyline complex situated at Baseline/Merivale for $91.2 million or $118/sq. ft. The Skyline complex is twice the size of 100 Constellation, is older, and is in a less desirable location.

As part of the negotiated terms, all of the City’s administrative leases will be consolidated immediately upon finalization with those leased properties to be vacated by 1 November 2003.

The terms of the full lease-option to purchase arrangement means the $38 million capital funding forecast for CAMP will no longer be required. The direct operating cost savings accruing from the CAMP program will be achieved, and those amounts reinvested in the lease to purchase 100 Constellation.

As well, the travel savings within the City organization that will be achieved through consolidation were not included in the business case for CAMP because they are difficult to quantify. Those savings, however, are real and will further reduce the City’s operating costs.

In order to achieve maximum savings, it will be necessary to ensure that 100 Constellation be treated as a Municipal Capital Facility as set out in Section 100 of the Municipal Act and as defined in Ontario Regulation 46/94 for property tax purposes.

Disposal of Surplus Properties

As was indicated on 12 February 2003, the implementation of the recommendations in this report will result in four additional City-owned properties being surplus to the City’s accommodation needs:

§ 1595 Telesat Court (former Gloucester City Hall);

§ 495 Richmond Road (Denis Coolican Building);

§ 580 Terry Fox Drive (former Kanata City Hall); and

§ 150 Elgin Street/31 Gloucester Street (“Friday’s Roast Beef House” property and adjacent City public parking lot).

It is recommended these assets be made available for sale based upon the following disposal process:

Ø The City’s Real Estate Services Division will manage the sales process in accordance with standard policies and practices except as otherwise indicated in this report;

Ø Immediately following approval of this report by City Council, “For Sale” signs will be placed on each of the surplus properties;

Ø As MBNA has an existing first right of refusal to purchase 1595 Telesat Court, negotiations with MBNA for a direct sale will begin immediately following Council approval and be based on the current market value as established by the City’s appraisal, although offers from other parties for the property will still be received and considered accordingly.

Ø As specific development criteria have been developed for the property at 150 Elgin/31 Gloucester, the sale of this property will be initiated by The Real Estate Services Division through a Request for Proposals process in accordance with the City’s standard policies and procedures.

City Council, on 12 February 2003 directed that the property at 150 Elgin/31 Gloucester be declared surplus as part of the CAMP process, conditional on criteria for the appropriate redevelopment of this site being prepared by City staff for approval by City Council. As a result, site development criteria have now been proposed and are set out in Annex C of this report.

The criteria address uses that will contribute to the increased diversity and vitality of the downtown, built form to respect the visual integrity and symbolic primacy of the Peace Tower and other national symbols, open space and linkages that will contribute to the environment of the downtown, and urban design that will reinforce the quality established for the urban environment by respecting existing heritage buildings. Also identified are studies that will be required to demonstrate how a proposed development responds to the development objectives established for the site and to assess technical considerations.

These criteria will be included as a basis for evaluation of proposals for the sale of this property through a request for proposals process issued by Real Property Asset Management (RPAM). Should responses to the request for proposals involve the potential for a public-private partnership (P3), the Strategic Delivery Unit (or P3 office) will work with RPAM to explore that potential.

In order to declare the properties surplus and initiate the sales process immediately, it is necessary to waive those internal procedures for the disposal of surplus properties, as set out in Schedule B of By-law 2002-38.

Potential for Additional Revenue from Leasing Unused Space

After accommodating the City’s administrative office space requirements, the space planning for 100 Constellation indicates that approximately 65,500 RSF will be available in the facility in the following locations:

· 42,029 rentable sq. ft. on the 2nd floor (whole floor)

· 20, 230 rentable sq. ft. on the 9^th floor (half floor – east side)

· 3,200 rentable sq. ft. on the ground floor (currently unfinished space on east side)

This will allow the City to generate some additional revenues from leasing the space not needed for CAMP.

During the negotiations for 100 Constellation, it became clear that completely vacating all 2 Constellation leases held by the City was an important factor towards achieving a successful conclusion to those negotiations. It also became clear that 100 Constellation presented the opportunity for the other City program located at 2 Constellation, Employment and Financial Assistance (EFA), to consolidate from 2 locations to 1 and reduce anticipated capital retrofit costs for significantly less gross rent than is now being paid.

People Services currently occupies 32,000 rentable sq. ft. at 2 Constellation (with a lease expiry date of 2007) and 12,000 rentable sq. ft. space at 170 Laurier for different parts of the EFA program. The current lease for 170 Laurier will expire shortly, and it had been planned to reduce its space requirements and consolidate that part of the program within existing leased space at 370 Catherine when that space is retrofit. This consolidation and the retrofit required a significant capital expenditure.

However, both the 9,000 rentable sq. ft. for the 170 Laurier program and the 32,000 rentable sq. ft. for the EFA office at 2 Constellation can be accommodated by using the whole second floor of 100 Constellation and it makes good financial and service delivery sense to do so.

The total annual gross rent for both 2 Constellation and 170 Laurier is $1.14 million, while the total cost at an annual gross lease cost of $22/rentable sq. ft. at 100 Constellation is about $925,000.

This solution should also reduce the retrofit cost for 370 Catherine if the program currently occupying 170 Laurier does not have to be accommodated in Catherine St. It will also remove the need to look for space for the EFA office when the lease for 2 Constellation expires in 2007.

If approved, the City will almost immediately have a major long-term tenant occupying approximately 2/3 of the excess space at 100 Constellation, and the EFA program will be able to consolidate to 1 location from 2, for less cost.

Substantial interest in the remaining excess space (20,230 sq. ft. on 9^th floor & 3,200 sq. ft. on ground floor) has been expressed by City programs, other government organizations, agencies, and existing tenants in the City owned buildings.

The Real Estate Services Division will manage the leasing process in accordance with standard policies and procedures. First priority for the space will be given to City programs that can accommodate the lease payments and fit-up costs, and second priority given to tenants of the existing City buildings which are to be sold as part of this process and for which there may be a need for the City to relocate the tenant as part of the sale. Other uses will be considered if space permits.

Any use, which does not meet the requirements for uses under a Municipal Capital Facility Agreement (MCFA), can exist at 100 Constellation, but will not be exempt from property tax and must then be defined separately from the City’s administrative use under the MCFA.

Ottawa 20/20 Development Potential

The acquisition of 100 Constellation and the development rights around it for the term of the lease provides a significant opportunity for the City to improve the business case for this deal and produce a development master plan based on the City’s 20/20 vision and new Official Plan. This would effectively make this property and the City-owned lands around Ben Franklin Place, next to the Transitway and on Meridian Place a single site.

Opportunities include but are not limited to:

Ø Further mixed use development in this area including the potential for affordable housing;

Ø Additional public facilities;

Ø Increased transit use;

Ø Replacement of a portion of the excess surface parking to provide for increased development opportunities; and

Ø Shared use parking amongst the facilities providing for greater intensification of uses.

The potential development opportunities, depending on what they are, can add significant value to the properties, within a minimum range of between $3.5 and $4.5 million for the land, plus any future assessment revenues accruing.

Conclusion

The acquisition of 100 Constellation will clearly achieve the original goals of the Corporate Accommodation Master Plan for administrative space.

§ It meets the service delivery requirements;

§ It allows for the immediate divesting of the surplus administrative properties;

§ It achieves the anticipated operating cost savings;

§ It requires zero new capital; and

§ It leverages value from existing assets and the Nortel subsidy to allow the $38 million capital requirement forecast for this project to provide capital budget relief and avoid the significant additional ongoing operational/life cycle costs of the “do nothing” option.

RURAL

Administrative facilities located in the rural areas are not considered as part of the CAMP project. A Rural Task Force has been set up to work with local communities and City departments to determine the best future use for those buildings.

ENVIRONMENTAL

An environmental site assessment of the building and property at 100 Constellation will be carried out as part of the due diligence process before the City completes this transaction.

The consolidation of administrative facilities will significantly reduce the travel requirements for City business, and the direct access to the Baseline Transitway Station will provide convenient access to promote public transportation.

The building at 100 Constellation has teleconferencing capabilities. In keeping with the broadband strategy developed as part of Ottawa 20/20, it will be possible to investigate using broadband technology as a means to reduce travel demand.

The development of a master plan for the area in the vicinity of 100 Constellation and Ben Franklin Place can help promote development that can take advantage of access to the Transitway and already existing infrastructure.

CONSULTATION

The status of the negotiations for 100 Constellation was reported weekly to the Senior Management Team to obtain direction as required during the process.

Legal Services provided input to the negotiations and managed the letter of intent process. Outside Counsel from the firm of Borden, Ladner, Gervais, with specific expertise in large real estate transactions and tax issues, was used to assist in the preparation of the letter of intent and the vetting of proposals from other parties.

Financial analysis was provided by HOK consultants and vetted by the Financial Services Branch.

An independent review was undertaken by the accounting firm Deloitte & Touche to verify the PSC financial model with respect to the proposed acquisition of 100 Constellation.

Juteau, Johnson, Comba Inc., accredited real estate appraisers, provided an independent opinion on the estimated market value of the proposed transaction.

The Development Services Department provided the development criteria outlined in Annex C for the property at 150 Elgin/31 Gloucester.

The People Services Department was consulted with respect to relocation of programs from 2 Constellation and 170 Lisgar to the 2^nd floor of 100 Constellation.

FINANCIAL IMPLICATIONS

The acquisition of 100 Constellation, as set out in the letter of intent, can be accommodated with no net effect on the overall City’s operating costs. By allocating the annual operating cost savings for administrative space, which arise from consolidation, to the lease costs for the facility, there will no longer be a need to accommodate the $38 million in funding currently identified in the Capital Budget Forecast commencing in 2004.

ATTACHMENTS

Annex “A” - The Corporate Accommodations Master Plan: From 17 to 2 Major Locations; Annex “B” - The Public Sector Comparator;

Annex “C” - Development criteria 150 Elgin/31 Gloucester.

DISPOSITION

RPAM will assume the lead role and will coordinate the input of the Legal Services Branch as well as that of any other City staff, as required, to successfully implement the approved items of this report requiring further action.

RPAM will initiate the sale of the surplus properties in accordance with the process set out in this report immediately upon Council approval of the report recommendations.

RPAM will immediately initiate the due diligence work to complete the transaction and also the design, fit-up, and move arrangements to allow staff at the existing leased facilities in other locations to be relocated to their new location under CAMP by 1 November 2003. In order to meet the 1 November 2003 deadline, it is necessary for the City to obtain permission from Arnon and Nortel to start the fit-up work before the closing of the transaction on 1 July 2003 and accept the risk for all costs of reinstatement of the facilities in the unlikely event that the transaction does not close.

RPAM will initiate the Request for Proposals for the property at 150 Elgin/31 Gloucester in cooperation with the Supply Branch.

Annex A

The Corporate Accommodations Master Plan: From 17 to 2 Major Locations

January 2001 to July 2002 – Amalgamation and the sale of 111 Sussex

In January 2001, City departments were fragmented into 13 different locations across the new City, totalling about 750,000 square feet (SF)

The sale of 111 Sussex Drive (former Ottawa City Hall) by the Ottawa Transition Board resulted in a loss of more than one-third of the City’s administrative office space

In 2001, City Council approved the leasing of additional space at a number of locations to compensate for the loss of office space
Although there are more buildings, staff reduced space requirements from 750,000 SF to 660,184 SF

July 2002 -- The Corporate Accommodations Master Plan

On 24 July 2002, City Council adopted the Corporate Accommodation Master Plan for administrative space (CAMP). CAMP was developed as a means of consolidating office space without removing services from communities.

The Corporate Accommodation Master Plan for Administrative Space set as its objective, “to provide effective and cost efficient space” based upon the following goals:

§ to support service delivery;

§ to consolidate locations (including rationalizing and/or divesting of former city halls);

§ to achieve operating cost savings by reducing the office space requirement;

§ to require zero new capital; and

§ to leverage value from existing assets to provide capital budget relief.

In addition, CAMP has been specifically designed to support programs that offer service delivery to residents. Administrative staff is currently operating in 13 locations spread across the City, which leads to increased travel costs and the loss of productivity due to travel time. Fewer locations means greater staff productivity reduced costs and better service to residents.

In order to take advantage of the potential savings associated with consolidation while recognizing the financial restrictions of the City’s current capital challenges, City Council also approved seeking out alternative sources of capital using a Public-Private Partnership (P3) process.

February 2003 –Results of the P3 process and Potential for Use of Existing Building

In September 2002, the City began the process of looking for a private sector partner to help achieve CAMP objectives and the results reported to City Council at the conclusion of the first step in February 2003. Through the Request for Expressions of Interest process, the scope for the project was further defined:

Reduce total administrative portfolio from January 2001 by nearly 200,000 ASF, provided by consolidating several existing buildings to a maximum of three locations: City Hall – renovated to meet new corporate standards; Ben Franklin Place – renovated to meet new corporate standards achieving a total of 250,000 ASF; and approximately 300,000 ASF of office space in a new facility (with 22,000 ASF located at 255 Centrum due to a geographic service delivery requirement);
Parking provision at up to 3 spaces per 1,000 rentable square feet at a consolidated facility;
Site for the consolidated facility that meets the City’s service delivery criteria;
Business case that compares favourably to the equivalent costs of the City undertaking the project without a private sector partner; and

The results of the RFEI and an analysis by RPAM determined that, in order to achieve maximum operating savings, the proposed site should:

Have appropriate zoning in place;
Be at, next to or have convenient access to a Transitway station/stop;
Have arterial road access and access to full City services;
Be served by fibre-optic network;
Be located inside the Greenbelt and outside the Central Area;
Be free from any environmental concerns;
Have space for sufficient parking; and
Allow the facility to be part of a mixed-use development project in keeping with Ottawa 20/20 principles.

During the RFEI process, it became clear that an existing building, 100 Constellation Crescent, met all of the criteria for CAMP and that it was the only existing building that did so. In addition, that site’s advantages include opportunities for:

More efficient service delivery – being next to Ben Franklin Place effectively means administrative staff would be consolidated in two locations, instead of three;
The consolidation of the City’s administrative leases into one and to negotiate more favourable terms -- Arnon Corporation, which owns 100 Constellation, is also landlord for more than 195,000 square feet of space currently being leased by the City;
The use of lands around Ben Franklin Place for other mixed-use development projects, and possibly a better opportunity for shared parking facilities; and
The ability for the City to achieve cost savings earlier, by implementing CAMP faster.

City Council agreed that staff could consider this existing building if it could negotiate terms that met the City’s financial benchmark for good value (the Public Sector Comparator).

May 2003 – The 100 Constellation Crescent Solution

Staff has successfully negotiated a lease/option to purchase agreement that, upon approval, will result in:

ü CAMP objectives being met nearly two and one-half years earlier than anticipated;

ü A business case that not only meets but exceeds the City’s financial benchmark, as confirmed by an independent, third-party review;

ü The City vacating all its leased administrative properties by 1 November 2003;

ü The immediate declaration of 4 properties (1595 Telesat Court (former Gloucester City Hall), 495 Richmond Road (Denis Coolican Building), 580 Terry Fox Drive (Former Kanata City Hall), and 150 Elgin Street/31 Gloucester Street (“Friday’s Roast Beef House” property and adjacent City public parking lot)) surplus;

ü The removal of the $38 million capital requirement for CAMP from the capital budget forecast;

ü The consolidation of the City’s office space from 17 locations to 2 major locations;

ü The achievement of operating savings as articulated in CAMP as well as additional savings accruing to decreased staff travel and mileage and increased productivity;

ü The reduction in the City’s overall office space requirement by nearly 200,000 ASF, or 25%; and

ü The opportunity for the City to significantly improve the business case for this deal and produce a development master plan based on the City’s 20/20 vision and new Official Plan for this property and the City-owned lands around Ben Franklin Place, next to the Transitway and on Meridian Place.

ANNEX B

The Public Sector Comparator

It was recognized in July 2002, when the decision was made by Council to pursue a Public-Private Partnership for CAMP, that the net present value to the City might be as much as 25% less than for a City-financed project due to variations in the cost of capital and the requirement for an operating profit for the private sector partner, unless the private sector partner could take advantage of or provide other value-added opportunities.

As a result, Council took the decision in February 2003 that all P3 options for CAMP would be compared against a Public Sector Comparator benchmark.

A Public Sector Comparator (PSC) is an increasingly common tool used by government agencies to assess value-for-money in a Public-Private Partnership or private sector proposal. It is essentially a full costing of the project as if it were undertaken by the City of Ottawa itself (i.e. without a private sector partner). According to Industry Canada’s Best Practice Guide, the PSC is “a hypothetical, risk-adjusted costing by the public sector as a supplier, to an output specification produced as part of a procurement exercise.

Accordingly, it:

§ Is expressed in net present value terms (NPV at 6% discount rate for the City);

§ Is based on the required output specifications; (City building specifications vs. 100 Constellation building); and

§ Takes into full account the risks which would be encountered by that style of procurement”.

The PSC provides a benchmark for assessing proposed arrangements and determining if they represent value for money. In the context of the CAMP project, the PSC was used to assess the proposal for 100 Constellation to determine if it represents a more cost-effective solution to the corporate accommodation needs of the organization. It was determined that this option would have to match or better the net present value to the City of the PSC to be considered, even though this might be a difficult target to match.

Typically, the cost model is constructed by establishing the direct and indirect costs over a long term planning horizon (22 years, 8 months for the CAMP project – the length of the proposed lease term). As a result, the City needed to understand the difference between a new facility envisaged by the Public Sector Comparator and the situation at 100 Constellation. The specific concerns that needed to be addressed included, the following:

· Cost to retrofit/renovate 100 Constellation to meet the City’s specific space requirements;

· Impact on operating costs from additional space & overbuilt mechanical/electrical systems;

· Availability of additional programs to utilize excess space;

· Impact on leasing cost for interim space (lease surrender/takeover issues);

· Reduced tax revenue to City by using an existing private sector building over a new building; and

· Potential need to expedite sale of surplus properties to fund earlier occupancy of a consolidated facility.

In essence, the City’s analysis during negotiations depended on three specific issues:

· Value established by Arnon/Nortel for facility/furniture/equipment on ‘as is’ basis;

· Value of facility/furniture/equipment to City on ‘as is’ basis relative to Public Sector Comparator; and

· Structure & financing of deal relative to the NPV from Public Sector Comparator and cash flow requirements.

For the proposal to take over the leases of 100 Constellation, the PSC compared the construction of a 350,000 SF building on land adjacent to Ben Franklin with the proposal for the assumption of the lease at 100 Constellation. Only costs and revenues that were different between cases or that changed when they would occur were considered. Thus, travel savings within the City organization that would be realized for either a new central building or the proposed 100 Constellation were not included in the comparison – even though the savings will be real and will impact the operating costs.

The basis for the new building was:

· A new 350,000 SF building, including a 7,000 SF basement

· Revised site plan to accommodate approximately 1,000 cars

· New servicing to the site

· Surplus building sales in 2004 and 2005

The basis for the proposal matched the letter of intent, which included:

· A takeover of the existing lease

· An option to purchase the building in the future

· Surplus building sales in 2003 and 2004

The accounting firm Deloitte & Touche reviewed and verified the comparative financial model. The firm HOK Canada provided the building specifications and interior master plan guidelines and reviewed occupancy plan assumptions to ensure consistency for the CAMP project. Hanscomb provided the cost estimates based upon plans prepared by HOK Canada and included the appropriate risk contingency values for a project of this magnitude.

ANNEX C

Development Criteria – 150 Elgin Street

The following development criteria have been developed to clarify the expectations of the City with respect to future development of the City owned land at 150 Elgin Street. The criteria address uses, built form, open space and linkages, and urban design. Also identified are studies that will be required to demonstrate how a proposed development responds to the development objectives established for the site and to assess technical considerations.

In accordance with the Council directive of 12 February 2003 regarding this matter, the Ward Councillor was consulted with respect to these criteria and has subsequently replied that she has “no concerns with the attached site control conditions for 150 Elgin”.

Uses

Objective – Contribute to the increased diversity and vitality of the downtown by accommodating a mix of uses that recognizes the current role of the site (parking and heritage) and that will create a vibrant environment supportive of a variety of working, living, shopping and leisure activities. Any redevelopment project must respond to the site’s unique situation characterized by the site’s proximity to major Central Area cultural and tourist attractions and institutions including the National Arts Center, the canal and Ottawa City Hall; its proximity to residential areas; its location along a distinctive street leading into the core and approaching Parliament Hill; its location at a transition point between the Elgin Street commercial area and the Elgin Street arm of Confederation Boulevard; and its location along the eastern edge of the Central Area Office Core across from cultural, institutional and open space uses located east of Elgin Street towards the canal.

Criteria

Provision of a mix of uses - Uses may focus on employment type uses, however, other uses that generate evening and weekend activity are to be provided such as entertainment and cultural uses to maximize the attributes of the site’s situation.
There will be a requirement for residential development that at a minimum represents 1/3 of the development.
Short-term parking equal to the current supply provided by the site must be included as part of the mixed-use project.

Pedestrian oriented uses are to be provided at grade along pedestrian corridors including Elgin Street, and Laurier Avenue and along Gloucester Street. Pedestrian oriented uses can include street oriented retail where direct access to the use is provided from the street and where their visibility to pedestrians is maximized (preference will be for narrow store fronts), and public plazas/pocket parks.

Built Form

Objective – To respect to visual integrity and symbolic primacy of the Peace Tower and other national symbols by respecting the height limits set out in the Zoning By-law for the site and to contribute to an appropriate built form and scale transition from the high profile development of the core to the lower profile and open space area east of Elgin Street toward the canal and avoid overpowering effects of higher profile buildings on adjacent streets and in particular on Elgin Street (Confederation Boulevard) by setting back upper stories and integrating the scale and massing of development with existing heritage buildings both on-site and in the immediate area.

Criteria

Building heights, including roof treatments and mechanical equipment must not exceed the height limits set out in the Zoning By-law
Retention of the Friday’s Roast Beef heritage building
Integration of the scale and mass of new development with the Friday’s Roast Beef heritage building and with the church through various techniques such as providing for a transition in building heights and through architectural detailing.
Contribution to a sense of human scale for adjacent pedestrian areas including public sidewalks and open space areas through various techniques including setting back upper portions of buildings.

Open Space and Linkages

Objective -To contribute to the environment of the downtown by incorporating as part of the development strategically located public open spaces such as a plazas, pocket parks, indoor publicly accessible gardens that can provide opportunities for various activities such as outdoor café areas, areas for small gatherings and/or for passive activities and providing for attractive and animated outdoor and/or publicly accessible indoor through block connections from Gloucester Street to Laurier Avenue and from the site to Elgin Street to maintain current pedestrian movement opportunities through the site.

Criteria

· Provision of pocket parks, plazas, indoor public amenity areas that provide opportunities for programmed, active and/or passive activities

· Provision of animated pedestrian linkages through the site that connects on-site features/focal areas (such as pocket parks and plazas) with the sidewalk environment and that maintains existing pedestrian movement patterns through the site.

Urban Design

Objective – To achieve high quality design of the buildings through architectural treatment, massing, details and high quality open spaces that enhances the urban forest and supports the activities and uses proposed for the site and ensuring that the project is designed in a way that improves and enhances the pedestrian environment, reinforces the quality established for the urban environment by existing heritage buildings, recognizes and capitalizes on the sites context at a gateway into the central area and along a distinctive street, locates loading and parking where they will not compromise achieving a high quality design for the development and minimizes adverse environmental impacts related to shadow casting, weather protection and winds.

Criteria

High quality architectural design for new development with respect to massing, materials and the provision of interesting roof treatment that is within the height limits as set out by the Zoning By-law.
Reflect a human scale in building design adjacent to pedestrian corridors through various techniques that include setting back upper stories, architectural detailing and embellishment of lower floors, providing for transparency into buildings through extensive use of glazing, and the provision of at grade street retail and other interior spaces that relate to the street environment and are publicly accessible and useable and in the design of open spaces through the provision of landscaping, seating, public art, water features.
Design that compliments and enhances existing heritage buildings in terms of massing, scale, materials.
Provide for weather protection along key pedestrian corridors through various techniques such as awnings, canopies, tree planting corridors
Enhance the urban forest through the provision of landscaping that includes street tree planting, tree planting within open spaces and in particular through the establishment of green pocket parks.
Recognize through the project design the role of the site in contributing to defining a key gateway into the downtown in a way that also recognizes that Elgin is a distinctive street requiring special consideration.
Minimize shadow impacts on public open spaces, maximize sun penetration into/along pedestrian corridors, avoid undesirable wind conditions for pedestrian areas and open space areas, and provision of weather protection along key pedestrian corridors.
Provision of parking below grade and provision of access to parking and to loading where impacts on the pedestrian environment will be minimized.
Any lay-by provided must be contained within the site.

Support Studies

Planning Report that discusses the sites urban context, development opportunities and constraints, and site’s planning policy context and discusses how the proposal will fit into its urban context, how it responds to the site’s opportunities and constraints and how it addresses the objectives for development of the site and advances the policies of the City’s Official plan.

Urban Design Study that establishes the contextual relationship of the development with its urban surroundings (streets, buildings, areas, nodes, views activity centers etc.) and documents how the development will contribute to the image/design of the site, immediate area and downtown.

Traffic Impact Study prepared in accordance with the Traffic Impact Study Guidelines approved by the former Region of Ottawa-Carleton.

Site Servicing Study to assess existing servicing capacities and requirements related to the proposed development.

Sun Shadow study to assess the shadow casting that will result from the proposed development.

Wind Study to determine the wind impacts of the development on the pedestrian environment.