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10. LEASE RENEWAL WITH OTTAWA STADIUM GROUP LTD. FOR Ottawa Stadium – 300 Coventry Road
RENOUVELLEMENT DU BAIL DU OTTAWA STADIUM GROUP LTD. POUR LE STADE D’OTTAWA – 300, CHEMIN COVENTRY
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That Council approve a Lease renewal with the Ottawa Stadium Group (OSG) for use of the Ottawa Stadium facility in 2011 based on the terms set out in Document “1” of this report.
Recommandation du ComitÉ
Que Conseil approuve le renouvellement du bail du Ottawa Stadium Group (OSG) pour l’utilisation de l’installation du stade d’Ottawa en 2011 basé sur les modalités indiquées dans le document 1 du présent rapport.
DOCUMENTATION
1. City Manager’s report dated 22 February 2011 (ACS2011-CMR-REP-0015).
2. Extract of Draft Minutes dated 1 March 2011.
Finance and Economic Development Committee
Comité des finances et du développement économique
and Council / et au Conseil
22 February 2010 / le 22 fevrier 2011
Submitted by/Soumis par: Kent Kirkpatrick, City Manager / Directeur municipal
Contact Person/Personne ressource : Gordon MacNair, Director, Real Estate Partnerships and Development Office/Directeur, Partenariats et Développement en immobilier
(613) 580-2424 x 21217, Gordon.MacNair@Ottawa.ca
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Ref N°: ACS2011-CMR-REP-0015 |
SUBJECT: |
LEASE RENEWAL WITH OTTAWA STADIUM GROUP LTD. FOR Ottawa Stadium – 300 Coventry Road |
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OBJET : |
RENOUVELLEMENT DU BAIL DU OTTAWA STADIUM GROUP LTD. POUR LE STADE D’OTTAWA – 300, CHEMIN COVENTRY |
That the Finance and Economic Development Committee recommend Council approve a Lease renewal with the Ottawa Stadium Group (OSG) for use of the Ottawa Stadium facility in 2011 based on the terms set out in Document “1” of this report.
Que le Comité des finances et du développement économique recommande au Conseil d’approuver le renouvellement du bail du Ottawa Stadium Group (OSG) pour l’utilisation de l’installation du stade d’Ottawa en 2011 basé sur les modalités indiquées dans le document 1 du présent rapport.
On 9 December 2009, City Council considered a staff report (ACS2009-CMR-REP-0050) regarding both a long-term and short-term strategy for the Ottawa Stadium property at 300 Coventry Road and approved as follows:
1. Approved the methodology to produce the long-term strategy outlined in the report for a highest and best use analysis of the Ottawa Stadium;
2. Approved the short-term strategy for the interim use of the Ottawa Stadium as outlined in the Report, with the minimum conditions for the best offers to lease process being revised such that Condition 6 be amended as follows: Condition 6 - Tenant using the stadium facility to accommodate a professional or semi-professional sports team (e.g. baseball, soccer, etc.) (emphasis added) playing in a bona-fide professional or semi-professional sports league with a minimum of twenty (20) games being played at the Ottawa Stadium by the team in 2010;
3. Direct staff to solicit “best offers to lease” to utilize the Ottawa Stadium facility in the short term, based on the minimum conditions to lease described in the short-term strategy as outlined in the report; and that staff be delegated the authority to make a decision by 1 February 2010.
Long-term Strategy
The methodology approved by Council for a long-term development strategy for the Ottawa Stadium included:
A review of a range of options with different development scenarios for the Ottawa Stadium property such as:
· Maintaining the status quo (e.g. merely having a seasonal baseball facility);
· Constructing a renovated, year-round facility that would have other sports (soccer, tennis, etc.) and forms of entertainment (e.g. concerts, car shows, etc.) taking place;
· Selling the land outright (with or without the Stadium on it) by the City or its Community Lands Corporation;
· Options that provide for maintaining a stadium facility would encompass alternative uses of the facility in addition to baseball based on:
· An analysis of the highest and best use of this facility for the long-term; and
· Different operational scenarios to ensure the stadium is optimized for both commercial and community use.
Since whether or not the long-term development of the Ottawa Stadium property includes a stadium facility, the viability of any development in that location will be dependent on direct and convenient access to the City’s rapid transit system, then the long-term strategy would consider:
· The results of the Environmental Assessment (EA) for the pedestrian overpass from the Coventry Road area to Tremblay Road/Train Station area as set out in the Transportation Master Plan (TMP) and Long Range Financial Plan (LRFP); and
· The Business Development Strategy with the connection and development opportunities at DOTT (LRT project) stations.
Short- Term Strategy
The staff report set out that the City should proceed with an open and transparent process to receive “best offers to lease” for the Ottawa Stadium facility based on meeting minimum conditions set by the City as follows:
1. One-year term with a option for a one-year renewal subject to the status of the City’s long-term development plan;
2. Annual base rent of $108K (minimum);
3. Payment of all operating and maintenance expenses by the tenant for its proposed use of the stadium;
4. Entitlement by the tenant to all facility revenues including advertising revenues;
5. Letter of credit, or other financial security acceptable to the City from the tenant to cover rent and estimate operating, maintenance, and utility costs for one year;
6. Tenant using the stadium facility to accommodate a professional or semi-professional sports team (e.g. baseball, soccer, etc.) (emphasis added) playing in a bonafide professional or semi-professional sports league with a minimum of twenty (20) games being played at the Ottawa Stadium by the team in 2010;
7. Prohibition on the use of the Stadium for loud, stand-alone rock concerts and any other events that contravene City policies regarding the types of events that may be held on City-owned property;
8. No alterations to the stadium facility, including being permitted, unless otherwise authorized by the City;
9. Tenant acknowledgement and agreement that the tenant’s proposed use and leasehold interest in the stadium for the short-term is not based on acquiring or having any rights to the long-term use of the Ottawa Stadium property; and
10. Tenant acknowledgement and agreement that the offer to lease submitted is its best and final offer.
Best Offers to Lease Process
In accordance with Council’s direction of 9 December 2009, staff solicited “best offers to lease”. This process ended on 21 January 2010 with a submission from only one respondent – the Ottawa Stadium Group (OSG). Upon review by City staff and outside legal counsel, the submission was found, in fact, to be “non-compliant” in a number of ways (e.g. OSG did not accept the City’s prohibitions on stand-alone concerts, the public use requirements, and did not agree to provide a letter of credit as set out in Condition 5 approved by Council).
While the City had no legal obligation to proceed further with OSG, clarifications from OSG were sought on 29 January 2010 and OSG still refused to provide a letter of credit and did not accept the City’s prohibition on stand-alone concerts. OSG did, however, agree with the City’s requirement with respect to public use of the facility.
As a result, staff was not in a position to exercise the delegated authority provided by Council on 9 December 2009 and, therefore, sought and received direction from Council at an In-camera session on 10 February 2010 regarding further action with respect to dealing with the OSG proposal and negotiating a short-term Lease with OSG.
On 24 February 2010, staff reported back to Council regarding the Lease negotiations and as a result Council approved the following motion:
“WHEREAS on 10 February 2010 City staff were given direction with regard to further negotiations with Ottawa Stadium Group Ltd. (“OSG”) for the proposed use of Ottawa Stadium for 2010 - 2011;
AND WHEREAS OSG signed on 24 February 2010 a proposed lease that was delivered to City Staff, the main financial, operational and default provisions of which City staff have outlined for Council;
AND WHEREAS OSG has now indicated that it intends to undertake a corporate restructuring to create a “New” OSG.
1. THEREFORE BE IT RESOLVED that the main financial, operational and default provisions in the proposed Lease between the City of Ottawa and the “New” OSG for the use of Ottawa Stadium at 300 Coventry Road for 2010 – 2011 are approved and ratified subject to “New” OSG providing to the City on or before 5 p.m. on Friday, 26 February 2010 the following:
a. The provision of a letter of credit in favour of the City in the amount of $108,000 to the satisfaction of the Director, Real Estate and Partnerships Development Office;
b. The provision of written confirmation from the various utilities for the Stadium, including water/sewer, that satisfactory security arrangements have been put in place for these accounts;
c. Proof of insurance coverage as required by the lease is in place prior to execution of the lease by the City;
d. The receipt of satisfactory credit bureau reports on all directors, officers and share holders of the “New” OSG;
e. Confirmation satisfactory to the City of Ottawa, in its sole discretion that the “New” OSG is a valid and subsisting corporation duly incorporated under the laws of the Province of Ontario or Canada.
2. THEREFORE BE IT FURTHER RESOLVED THAT in the event that the “New” OSG has not complied with the above requirements on or before 5 p.m. on Friday, 26 February 2010, the Parks and Recreation and Cultural Services Department be directed to allocate the Ottawa Stadium field for the 2010 season (May to October); and
a. That field use be allocated under Council approved fees for Community Sportsfields at 1A Level; and
b. That Council approve an additional net operating requirement of $60,000 to facilitate community programming to be funded for 2010 from the One-time and Unforeseen account.”
OSG provided financial security to the City, in the form of cash, in the amount of $108,000 by 26 February 2010, as set out in the Council motion and the Lease dated 24 February 2010 then provided for OSG to lease the stadium from 15 March 2010 to 14 March 2011 with the provision for a one year renewal option, with no further renewal at the City’s discretion.
Current Status
Long-Term Strategy
A report regarding finalization of the EA for the pedestrian bridge, from Coventry Road area to Tremblay Road area, is scheduled to go to Council in March 2011. This bridge project is currently identified in the LRFP as being designed in 2011 and constructed in 2012 which would bring the project into the current 3-year budget cycle.
The Business Development Strategy for the LRT project is being completed and is also scheduled to go to Council in 2011. This is one of the areas that will be identified for station integration with development is Train Station.
Based upon the above information, staff is currently undertaking a highest and best use analysis with respect to the future use of the Ottawa Stadium property and a report regarding the best options for long-term use of the Ottawa Stadium property and a recommended implementation process will be forwarded for consideration by Council in April 2011.
Short-Term Strategy
OSG operated the stadium for the 2010 season mainly for the purposes of their Fat Cats baseball team which played in the semi-professional Inter-County Baseball League.
While OSG did post the financial security required by the Lease, OSG did not make the $108,000 rental payment on 30 September 2010 as required by the Lease and instead requested that the City utilize the financial security for this purpose. As a result, the City Clerk and Solicitor Department gave written notice to OSG on a number of occasions (6 October 2010, 29 October 2010, 10 November 2010 and 5 January 2011) that failure to provide the Letter of Credit, or other financial security acceptable to the City, as set out in Section 4.8 of the Lease constitutes a default under Section 13.1(b) of the Lease and that the City has reserved the right to terminate the Lease if the default was not remedied by OSG.
On 18 January 2011, staff met with representatives of OSG. At that time, City staff reiterated the City’s position that the monies provided by OSG on 26 February 2010, in lieu of OSG providing a letter of credit, were held by the City as the financial security under Section 4.8 of the agreement, and not as prepaid rent.When the rent due on 30 September 2010 was not paid, the City then called upon this financial security at OSG’s request in October 2010 as credit towards the rent.
In addition, City staff made it abundantly clear on 18 January 2010 that the existing authority and direction by Council and the resulting Lease required the ongoing provision by OSG of financial security in the amount of $108,000 throughout the term of the Lease as set out under Section 4.8 of the Lease, and that failure to provide this security by 19 January 2011 would require staff to take steps to terminate the Lease as set out in the previous correspondence from the City Clerk and Solicitor Department.
Staff also indicated that a report is scheduled to be forwarded to Council in April 2011 regarding a process to implement a long term strategy for the Ottawa Stadium property. In that regard, , even if the OSG Lease is brought into good standing by the provision of the financial security, a long term lease extension cannot be considered by staff in order for the City to have a fair and transparent process for seeking proposals for the use and development of this property as will be proposed for consideration by Council in April 2011. It was also made clear that OSG would have the opportunity to participate in the implementation process.
Notwithstanding the existing Lease requirements and the City’s position as stated to OSG on 18 January 2011, OSG submitted a proposal to the City on 19 January 2011 based on a 5-year term and further 5-year renewal option, but made no mention of the bringing the current Lease into good standing by providing the required financial security.
Since OSG was in default of its Lease obligations and with OSG’s January 19th 5-year lease proposal being a sole source proposal that is not in keeping with the current Council authority, staff was not in a position to accept this proposal nor to provide OSG with the one-year lease renewal set out in the Lease.
As set out earlier in this report, staff will be preparing and forwarding a report to Council in April 2011 that addresses the implementation of a long term strategy to deal with long term use of the stadium property.
In the meantime, staff was faced with reviewing options regarding the short-term use of the stadium facility which are listed below:
a) Terminate the Lease with OSG based on the default by OSG in failing to provide ongoing financial security in the amount for $108,000; or
b) Continue to negotiate a lease extension with OSG for the use of the stadium in 2011, based essentially on the Lease terms as approved by Council on 24 February 2010, but with certain modifications; or
c) Explore other options as outlined below in the event that they are not successful in securing the one-year renewal option.
Option 1 - “Mothball” Entire Stadium Facility Year Round
If the Ottawa Stadium facility has no tenant and is being “mothballed” year round by the City, the City will incur costs of approximately $155,000 of which a portion of the costs will be offset by monthly parking revenue of approximately $4,000 per month (down from the $12,000 per month received in 2009 before the RCMP started to relocate staff). Revenue for parking from April to December would result in $36,000. As well, there is $42,000 in the stadium account. For 2011, this would result in total revenue of $78,000 that could be offset against expenses. This will result in an annual net cost to the City of approximately $77,000 under this option. This would create a budget pressure for the 2011 budget.
Option 2 - Operate Entire Stadium Facility Year Round
If the City operates and maintains the Ottawa Stadium facility year round, it is estimated that the annual cost would be $378,500. With the 2011 revenue of approximately $78,000, the annual net cost to the City under this option would be $300,500 less any facility revenues. This would create a budget pressure for the 2011 budget.
Option 3 - Operate Entire Stadium Facility (May to October only)
If the City operates and maintains the stadium only for the period from 1 May to 31 October for community programming purposes each year and “mothballs” it for the remainder of the year, it is estimated that the annual cost would be $280,000. With the 2011 revenue of approximately $78,000, the annual net cost to the City under this option would be $202,000. This would create a budget pressure for the 2011 budget.
The Table below summarizes the three options:
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Net Cost |
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Option 1 - Mothball |
$ 77,000 |
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Option 2 – Operate year round |
$ 300,500 |
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Option 3 – Operate May to Oct |
$ 202,000 |
Staff concluded that the best option to limit the City's financial liabilities in 2011 and 2012, while providing for the stadium facility to remain open during the period in which the long-term strategy process is being implemented, was to try and finalize a new lease with OSG without the City committing to any OSG lease rights beyond the fall of 2012.
Summary
On 16 February 2011, staff met with a representative of the OSG in an attempt to secure a short-term lease option for the Ottawa Stadium. On 17 February 2011, OSG confirmed that it was prepared to accept the conditions of a short term lease as outlined on Document 1. The significant change from the original proposal is that no financial security is required. However, in lieu of this, the rent of $108,000 is being prepaid on or before 14 March 2011. As well, staff is recommending one additional renewal option for 2012 to terminate on 31 October 2012 since this would not affect the long-term strategy that will be presented to Council in April 2011. All other conditions of the original lease would remain in effect. Staff has also requested that OSG confirm that all outstanding invoices have been paid or that the appropriate arrangements have been made for payment.
The revised lease renewal does increase the financial risk for the City but it is being recommended over the other three options which would create a budget pressure for the 2011 budget.
N/A
REPDO staff consulted with Public Works and Parks, Recreation and Cultural Services staff in compiling the various options for the short-term strategy. Legal Services was also contacted in preparing the proposed documentation for the renewal with OSG.
The local Ward Councillor is aware of this report.
This is to confirm that the implications of the recommendations contained in this report do not have any significant legal implications.
N/A
N/A
Currently, the City receives annual rent of $108,000 from the OSG. This revenue would continue in 2011 upon the approval of this report.
Document 1 – Proposed Terms for OSG Lease Renewal
Upon approval of the recommendation of this report by Council, REPDO will initiate the actions to implement the short term strategy in the manner detailed in the Discussion Section and Document 1 of this report.
DOCUMENT 1
PROPOSED TERMS FOR OSG LEASE RENEWAL
· Term March 15, 2011 to March 14, 2012 with an option for a one-year renewal, subject to satisfactory performance by OSG and not being in default of the lease, which would terminate on October 31, 2012;
· Base rent of $108,000 to be prepaid on March 14, 2011 and on March 14, 2012 for the one-year renewal option; and
· No letter of credit, or other financial security required by the City.
· All other conditions to remain in force such as:
· Payment of all operating and maintenance expenses by the tenant for its proposed use of the stadium;
· Provision by OSG to the City of written confirmation from the various utilities for the Stadium, including water/sewer, that satisfactory security arrangements have been put in place for these accounts;
· Tenant using the stadium facility to accommodate a professional or semi-professional sports team (e.g. baseball, soccer, etc.) (emphasis added) playing in a bona-fide professional or semi-professional sports league with a minimum of twenty (20) games being played at the Ottawa Stadium by the team in 2011;
· Authorization for OSG to hold up to 14 live entertainment events/concerts, fundraising jamborees, theme nights such as highland games, tradeshows and Winterlude activities with stage, sculptures, skating rink, together with professional and semi-professional baseball;
· Prohibition on the use of the Stadium for loud, stand-alone rock concerts and any other events that contravene City policies regarding the types of events that may be held on City-owned property;
· OSG to provide for Community Use at rental rates comparable to City rental rates for similar baseball diamond/field areas such as Minto Field and Terry Fox Field or the use of the stadium stands at rental rates relative to those of Lansdowne Park and to the satisfaction of City staff;
· No alterations to the stadium facility including being permitted unless otherwise authorized by the City; and
· Tenant acknowledgement and agreement that the tenant’s proposed use and leasehold interest in the stadium for the short-term is not based on acquiring or having any rights to the long-term use of the Ottawa Stadium property.
LEASE RENEWAL WITH OTTAWA STADIUM GROUP LTD. FOR Ottawa Stadium – 300 Coventry Road
RENOUVELLEMENT DU BAIL DU OTTAWA STADIUM GROUP LTD. POUR LE STADE D’OTTAWA – 300, CHEMIN COVENTRY
ACS2011-CMR-REP-0015 13 – Rideau-Rockcliffe
Mr. Gordon MacNair, Director, Real Estate Partnership and Development Office, provided a brief overview of the above-noted staff report. In particular, he explained that the report dealt with a one-year lease renewal for 2011 and a further renewal for 2012. He noted this went back to a report approved by Council in December 2009 whereby Council approved the short-term and long-term strategies for the Ottawa Stadium and the short-term strategy was to move forward on an offer for a lease process. This resulted in one proponent coming forward. However, the proponent did not meet the essential criteria established by Council, which resulted in a subsequent report to Council for further direction in February 2010. As a result of further direction received at that time, staff was successful in negotiating a lease for the current year. He reported that the tenant was the Ottawa Stadium Group and that staff had met with them on a number of occasions to discuss terms and conditions for the proposed lease renewal, as detailed in the report. He indicated the main distinction, in terms of what was being proposed, were:
· The fact that the City would not have the financial security but the proponent would be required to pre-pay the year’s $108,000 rent by March 14, 2011; and
· The option for renewal in 2012 on the same terms.
Mr. MacNair explained that staff was recommending this lease renewal because the Ottawa Stadium Group had done a good job of looking after the facility and because any other short-term options relative to the facility would create a budget pressure for the City. In closing, he indicated staff would be coming forward next month with a long-term strategy for the stadium.
Responding to a question from Councillor Egli with respect to Option 1, Mr. MacNair noted that the original report indicated this option would not create a budget process. He advised this was an error and it was his reason for issuing a revised report. He explained that the total cost of option 1 would be $155,000 and there was currently $42,000 in the account plus potential parking revenues adding up to a total of $78,000. Therefore, he clarified that Option 1 would create a budget pressure of $77,000.
Councillor Egli referenced the default relative to the $108,000 security. However, he wondered if there were another other defaults in terms of paying supplies and/or service providers. Mr. MacNair confirmed that concerns had been raised in this regard and he advised that staff had addressed this with the tenants, as part of the terms and conditions of the renewal, by asking for confirmation that suppliers had been paid or that arrangements had been made to ensure they were paid. He advised that at this point, staff was uncertain whether suppliers and service providers had been paid.
Responding to follow-up questions from the Councillors with respect to going back into business with this group, Mr. MacNair submitted that so far, the discussion had focused on the negative aspects. He maintained that the positive aspects included the fact that the Ottawa Stadium Group had performed in terms of providing the facility with baseball and in terms of looking after this City facility. As a result, staff was trying to work with them so that both parties could move forward this year and have a win-win situation. He re-iterated that staff had requested confirmation that the group had paid their outstanding invoices or made the necessary arrangements to do so. As far as the letter of credit, in its place staff had negotiated for the rent to be prepaid by mid-March as opposed to be paid in September. He recommended that, should the City receive confirmation of outstanding accounts with suppliers and/or service providers, staff would commit to ensuring additional monies were in place to cover those costs and to protect the City.
In response to a question from Councillor Clark, Mr. MacNair confirmed that the group in question had done a lot of work the previous year to fix the stadium.
Councillor Clark maintained the Ottawa Stadium Group had spent money that might normally be landlord expenses, that they were good tenants and did not cause the City any grief. He submitted this was a group of people who went out on a limb and fixed-up the facility. Therefore, he hoped they would benefit from it this year. In any event, he remarked that the City needed to do something to keep the facility open and occupied while figuring out its long-term strategy.
Councillor Hubley talked about the fact that a revised version of the report was released the previous day and he asked that in future, when such situations occurred, that staff highlight the changes made in the report, for Members’ ease of reference.
Councillor Monette recalled that Council had agreed to accept rent upfront in lieu of the security deposit because this was essential the purpose of the deposit. Mr. MacNair responded affirmatively and confirmed the purpose of the security deposit was to protect the City and that it was to be in place for the term of the lease as well as any renewals.
Councillor Monette reported on conversations he had with representatives of the Ottawa Stadium Group, who had given him assurances with respect to any unpaid bills. He advised that one of the examples sited to him, in terms of a service provider not being paid, related to work that had not been done. Therefore, it made sense that the provider would not be paid. He asked for confirmation that the group was prepared to sit down with the City and deal with any outstanding bills. Mr. MacNair responded affirmatively.
Councillor Monette remarked that in 2008, the stadium was “mothballed”, which resulted in it falling into a state of disrepair. He noted that when this group came forward, they were prepared to revitalize the facility and bring life back to it, which they did. He advised they were also successful in terms their average game attendance. He indicated he supported the smart use of the stadium and the current proposal represented a good short-term strategy. However, he recognized that Council needed to figure out its long-term strategy for the facility. Although he did not have a vote on this Committee, he urged his colleagues to support the report recommendation.
Responding to a question from Mayor Watson, Mr. MacNair confirmed that before entering into this agreement, the City would have to receive the $108,000 rent pre-payment by March 14, either via certified cheque or money order.
Mayor Watson noted that the baseball season was drawing near. He indicated that he wanted to organization to success, remarking that their success was in the City’s best interest because it would keep the stadium open and bring in revenue. He also recognized that they had done a good job of maintaining the stadium. However, he wondered if staff had received assurances that the group was ready to hit the ground in terms of ticket sales and fielding a team for the 2011 season and in terms of getting their $108,000 pre-payment into the City by the prescribed deadline. Mr. MacNair indicated his understanding was that the organization had made arrangements for this season and was ready to go forward.
Mayor Watson felt it would be helpful to hear from the proponent in terms of their level of comfort with the agreement and their ability to pay the rent up-front.
Mr. Duncan MacDonald, General Manager of the Ottawa FatCats and partner in the Ottawa Stadium Group Ltd., noted that the previous year, the organization had submitted a certified cheque to the City for $108,000 and it was prepared for a similar arrangement this year. As far as hitting the ground running, he indicated there was not much to do with the stadium in the winter, except to plan and sell tickets. He reported that to date, they had surpassed the 4,200 mark in terms of season ticket sales, both corporate and individual. He thanked Council for the opportunity to use the facility again this year and bring fun back to the Ottawa Stadium. In closing, he extended an invitation to all members of Council and their families to attend a ball game and take part in the fun.
Mayor Watson congratulated them on their ticket sales and wished them a successful season ahead.
At this juncture, Committee voted on the report recommendation.
That the Finance and Economic Development Committee recommend Council approve a Lease renewal with the Ottawa Stadium Group (OSG) for use of the Ottawa Stadium facility in 2011 based on the terms set out in Document “1” of this report.
CARRIED