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1. ottawa community housing
corporation mortgage refinancing REFINANCEMENT
HYPOTHÈCAIRE DE LA SOCIÉTÉ DE LOGEMENT COMMUNAUTAIRE D’OTTAWA |
COMMITTEE
RECOMMENDATION
That
Council approve the refinancing of the eight Ottawa Community Housing
corporation projects as described in this report and the continuation of the
mortgage subsidy for these projects at the current monthly rate until 2042 when
the refinanced loan with Infrastructure Ontario will be fully paid.
Recommandation DU Comité
Que le Conseil approuve le refinancement des huit programmes de la
Société de logement communautaire d’Ottawa
mentionnés dans le présent rapport, ainsi que de continuer à verser des
subventions pour le remboursement des hypothèques de ces
programmes, au taux mensuel actuel, jusqu’en 2042, après quoi le prêt de
refinancement offert par Infrastructure Ontario sera entièrement remboursé.
Documentation
1.
City Operations and Infrastructure Services and
Community Sustainability Deputy City Manager’s report dated 15 March 2012 (ACS2012-COS-CSS-0005).
Report to/Rapport au:
Community and Protective Services Committee
Comité de l’urbanisme
and Council / et au
Conseil
March 15, 2012 /
le 15 mars 2012
Submitted by/Soumis par: Steve Kanellakos, Deputy City Manager/
Directeur municipal adjoint, City
Operations/Opérations municipales
Contact
Person/Personne-ressource:
Janice Burelle, Administrator, Housing
Services /
Administratice,
Services de logement (613) 580-2424 x44239, Janice.Burelle@ottawa.ca
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SUBJECT: |
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OBJET : |
rEFINANCEMENT
HYPOTHÈcaire DE LA SOCIÉTÉ DE LOGEMENT COMMUNAUTAIRE D'OTTAWA |
That the Community and
Protective Services Committee recommends that Council approve the refinancing
of the eight Ottawa Community Housing corporation projects as described in this
report and the continuation of the mortgage subsidy for these projects at the
current monthly rate until 2042 when the refinanced loan with Infrastructure
Ontario will be fully paid.
Que le Comité des
services communautaires et de protection recommande au Conseil d’approuver le
refinancement des huit programmes de la Société de logement
communautaire d’Ottawa mentionnés dans le présent rapport, ainsi que de
continuer à verser des subventions pour le remboursement des hypothèques de ces
programmes, au taux mensuel actuel, jusqu’en 2042, après quoi le prêt de
refinancement offert par Infrastructure Ontario sera entièrement remboursé.
Executive
Summary
Ottawa Community Housing Corporation (OCHC) has identified a need for
significant capital repair and deferred maintenance work to be undertaken on
many of the social housing projects within their portfolio. The levels of funding from on-going subsidies
and from existing capital repair programs are insufficient to complete the work
that is required. The historically low
interest rates currently available present an opportunity to refinance existing
debt to generate additional monies to fund some of this work.
OCHC has applied to Infrastructure Ontario (IO) to refinance eight mortgages that are due for renewal in 2012; all of which are associated with social housing projects falling within the City of Ottawa’s Service Manager portfolio. IO offers long-term, stable borrowing rates (currently between 3.75% and 4.2%) eliminating of the risk of fluctuations in interest rates.
The intention of the refinancing is to leverage the equity in existing assets to generate capital that can be applied toward the repair of the housing stock. This can be accomplished by extending the amortization period to 30 years for each of these projects at a fixed rate of interest for the duration of the loan. By extending the amortization period and maintaining the debt payments at the current level, it is possible to generate approximately $16.6M to $18.6M in capital. This longer term obligation must be weighed against the City’s obligation as Service Manager under the Housing Service Act (HSA) to provide and maintain over 16,500 units of rent geared to income housing on an ongoing basis (Rent Geared to Income Service Level Standards). OCHC is responsible to provide 12,272 units of RGI housing.
Legislated by the Housing Services Act, (formerly the Social Housing
Reform Act (SHRA)), the City of Ottawa is designated as the Service Manager
(SM) with the responsibility to administer and fund social housing. It is
further obligated to maintain a Service Level Standard (SLS) of approximately
16,500 Rent Geared to Income (RGI) units in the city. There is no apparent end to the obligation to
fund social housing, nor to maintain the SLS identified in either the Act or
its associated Regulations. As such, OCHC requires the City’s approval to
proceed with this current refinancing opportunity.
Section 68 of the HSA stipulates that there is an ongoing requirement
for the Service Manager to continue to administer and fund housing projects
(housing program categories 6(a), (b) and (c) as listed in Reg 368/11, Schedule
24) and further in Part VII of the Act that this obligation to fund continues
unless the project is delisted as a “designated housing project” in Reg.
368/11. Upon full payment and discharge
of the eight mortgages in question, the City could apply to the Province to have
these projects delisted but staff are not recommending
this course of action at this time. The
City is required to ensure that the overall number of RGI units as set out in
regulation is maintained. It is furthermore obligated to ensure that current
tenants living in the RGI housing in question are not adversely affected. The
City is the sole share holder of OCHC, and as such it is in the interest of the
City to ensure the housing assets are maintained in good condition and that it
meets the service level standards as set out in regulation and in the operating
agreement which the City entered into in 2009 with OCHC. Even if these projects were “delisted”, the
City will be required to fund this ongoing obligation either through an
expanded rent supplement type program, developing new housing or continuing to fund
(through an operating funding formula similar
to what currently exists) the existing social housing stock. The monthly
payments for the new loan will remain the same as what the City currently
contributes to the mortgages.
Approval of this recommendation will
result in the City extending the mortgage subsidy for the eight identified housing
projects (based on their current monthly mortgage payments) until the end of
2042 at which time the new loan will be fully repaid. The City will continue to
pay the operating subsidy as per the existing formula which can be revisited in
the future when further work has been completed at a provincial level in
relation to the end of social housing mortgages and end of operating
agreements. Any future reworking of the subsidy payments for any or all these
projects will first ensure that the loan payment obligation is deducted from
any revised subsidy allocation.
RÉSUMÉ
La Société
de logement communautaire d’Ottawa (SLCO) éprouve le besoin d’effectuer des rénovations
majeures et des travaux d’entretien reportés dans bon nombre de logements
sociaux de son portefeuille. Cependant, le financement provenant des
subventions actuelles et des programmes de rénovations majeures ne suffit pas à
couvrir le coût des travaux nécessaires. La chute récente des taux d’intérêt
offre à la SLCO l’occasion de refinancer ses dettes afin de générer des fonds
supplémentaires pour couvrir une partie des travaux.
La SLCO a fait une demande de refinancement à
Infrastructure Ontario (IO) pour huit de ses hypothèques qui doivent être
renouvelées en 2012; ces hypothèques se rapportent toutes à des logements
sociaux faisant partie du portefeuille du gestionnaire de services de la Ville
d’Ottawa. IO offre des taux d’intérêt créditeur stables à long terme
(actuellement entre 3,75 % et 4,2 %) : il n’y a donc aucun
risque de fluctuation des taux d’intérêt.
L’objectif de ce refinancement est de tirer profit de la valeur des biens existants afin de générer des fonds qui serviront à la réparation du parc de logements. Pour ce faire, il est possible de prolonger la période d’amortissement sur 30 ans, pour chacun de ces programmes de logement, à un taux d’intérêt fixe pour toute la durée du prêt. En prolongeant la période d’amortissement tout en maintenant le même taux de remboursement, la SLCO pourrait générer environ 16,6 M$ à 18,6 M$ en capital. Cette obligation à long terme doit concorder avec le devoir de la Ville – en tant que gestionnaire de services, en vertu de la Loi sur les services de logement – d’assurer en tout temps la disponibilité et l’entretien de plus de 16 500 logements à loyer indexé sur le revenu (LIR), selon les normes de niveau de service des LIR. La SLCO est responsable d’en fournir 12 272.
Selon la Loi sur les services de logement
(anciennement la Loi sur la réforme du
logement social ou LRLS), la
Ville d’Ottawa, à titre de gestionnaire de services, est responsable
d’administrer et de financer les logements sociaux. De plus, la Loi oblige la Ville à maintenir une
norme de niveau de service d’environ 16 500 logements à LIR. Ni la Loi, ni les règlements correspondants ne
semblent préciser jusqu’à quand la Ville est tenue de financer les logements
sociaux et de maintenir la norme de niveau de service. Par conséquent, la SLCO
attend l’approbation de la Ville pour saisir la présente occasion de
refinancement.
Selon le paragraphe
68 de la Loi sur les services de
logement, le gestionnaire de services administre et finance en permanence un
programme de logement transféré (catégories de programmes de logement 6(a), (b)
et (c) énumérées à l’annexe 24 du Règl. 368/11). Plus
loin, à la partie VII, la Loi
édicte que ce financement doit se poursuivre aussi longtemps que le programme
n’est pas retiré de la liste de « programmes de logement transféré »,
aux termes du Règl. 368/11. Une fois que la Ville
aura remboursé intégralement les huit hypothèques en question et en sera
libérée, elle pourra faire appel à la Province pour retirer ces programmes de
la liste, mais le personnel de la Ville ne recommande pas cette mesure pour le
moment. La Ville est tenue d’assurer le maintien du nombre total de logements à
LIR énoncé dans les règlements. Elle doit également s’assurer que les
locataires actuels des logements en question ne subissent aucune conséquence
néfaste. La Ville est la seule actionnaire de la SLCO; il est donc dans son
intérêt de s’assurer que les biens immobiliers restent en bon état et que les
normes de niveau de service définies dans les règlements et dans le contrat
d’exploitation conclu en 2009, entre la Ville et SLCO, soient respectées. Même
si les programmes en question sont « retirés de la liste », la Ville
sera tenue de s’acquitter de son obligation permanente, en adoptant un
programme élargi de suppléments au loyer, en créant de nouveaux logements ou en
continuant de financer le parc de logements sociaux (à travers un mode de
financement d’exploitation semblable à ce qui existe déjà). Les paiements
mensuels des nouveaux prêts resteront identiques à ce que la Ville verse
actuellement pour le remboursement des hypothèques.
Si cette recommandation est approuvée, la Ville
augmentera les subventions pour le paiement des hypothèques des huit programmes
de logement déterminés (en fonction de leurs paiements hypothécaires mensuels).
Ces subventions se poursuivront jusqu’à la fin de 2042, après quoi le nouveau
prêt sera entièrement remboursé. La Ville continuera de verser des subventions
d’exploitation selon le mode de financement actuel, lequel pourra être révisé
plus tard, lorsque l’on aura fait plus de progrès à l’échelon provincial en ce
qui a trait au remboursement des hypothèques des logements sociaux et des
contrats d’exploitation. Toute refonte future de ces subventions, pour un ou la
totalité des programmes, devra d’abord permettre de déduire le remboursement du
prêt des subventions révisées.
Background
With the creation of the Social Housing Reform Act (SHRA), the
responsibility for social housing was transferred to the City of Ottawa in 2001. As such, the City inherited the
responsibility to administer and fund the transferred social housing projects
according to the associated Regulations and existing operating agreements. In turn, the non-profit and co-operative
housing providers are required to maintain a specified number of RGI units and
are required to maintain their projects in reasonable condition.
Social Housing was built and developed over many decades, with various contributions from the three levels of government and as a consequence, the funding and the rules and regulations pertaining to each program under which projects exist is varied. The City also contracts with several private landlords for Rent Supplements.
Ottawa Community Housing
Corporation (OCHC) is Ottawa’s largest non-profit housing corporation with
approximately two thirds of the total social housing stock and is the city’s second-largest residential
landlord. The City of Ottawa is
the sole shareholder of the corporation that manages the over 1.6 billion dollar
asset. As a non-profit corporation that
is owned by the City of Ottawa, OCHC is governed by a Board of Directors
composed of community volunteers and members of City Council.
OCHC tenants
include some of Ottawa’s most vulnerable citizens. Families fleeing domestic violence have first
priority for placement. Over 4,700
households are seniors; almost 3,000 households are tenants who qualify for the
Ontario Disability Support Program; and over 6,600 children, 12 years old and
under, who live in OCHC communities. The
quality and security of OCHC housing has a direct impact on the quality of life
of over 32,000 tenants.
The City of Ottawa, the Province of Ontario and the Federal government
have all invested in the construction, acquisition and maintenance of the
social housing that constitutes OCHC.
OCHC has an aging and diverse housing portfolio – apartments,
townhouses, rooming house units, multi-residential and some single family
homes. Within their portfolio is some of
the oldest social housing stock in the province. On average, the buildings are more than 35
years old.
In 2004 in its capacity as shareholder, the
City of Ottawa directed OCHC to upgrade the housing stock to an acceptable
standard of repair, and also to prepare a status report on the condition and
state of repair of the housing stock owned or under the management of OCHC (ref:
City Council minutes 2004/06/23). A
Building Condition Assessment Study (BCA) was finalized in 2008 and provided a
comprehensive assessment of the entire housing portfolio that assessed the
state of the portfolio based on site inspections and the expected life cycle of
major building systems.
A significant finding from this BCA was the need for a substantial
capital infusion to address deferred maintenance requirements within the
portfolio. The study identified $211.4
million in capital repairs that were past due and immediately required and a
further $121 million of repairs that would be required over the next five
years. Many buildings and communities were
in a poor state of repair. This housing
had reached a point where many building systems (e.g. roofs, elevators, waste
stacks) required major repair or replacement. Many communities required extensive renewal or
redevelopment and it was, and still is, a challenge to maintain them
adequately.
The BCA estimated that if OCHC invested about $66.5 million each year
for five years, the capital repair backlog would be reduced. In 2008, it was estimated that there was a
$14M shortfall in capital reserve contributions compared to the capital
requirements that arise each year, with the unfunded repairs increasing the
backlog. The BCA is currently being
updated which will provide additional information relating to the current
financial need.
OCHC has been proactive in reviewing and planning for these projected
capital needs and has been working on the development of a Long Range Financial
Strategy to address the need to acquire sufficient funds to sustain operations,
address current capital repair needs, and support further housing
development. As part of that process
they have been exploring this option of leveraging the existing asset equity to
finance some of the much needed capital work.
DISCUSSION
Despite the significant deferred maintenance and the annual shortfall
in funding for repairs that was identified in 2008, progress has been made in
recent years with the undertaking of major capital works programs to begin the
repair of the housing portfolio:
·
Since
2007, the City of Ottawa has approved over $62 million in one-time capital
grants for OCHC that have been funded by local, provincial and federal governments. The various grants have funded significant
programs of repair and renewal. There is
uncertainty about future capital funding that will be provided by the
provincial and federal governments as neither has announced any additional
funding programs since the completion of the programs arising from their
stimulus spending initiatives.
·
In 2009
and 2010, OCHC developed an ambitious capital works program to respond to the
backlog of repairs and launched major community renewal projects. Existing capital reserves were liquidated;
funding from various capital grant programs was received (including $38.6
million through the Social Housing Renovation and Retrofit Program (SHRRP)); and
a loan of $18.7M from Infrastructure Ontario was negotiated in 2010 that was secured
by the City of Ottawa committing to IO that the 360 equal monthly instalments would
be paid by the City of Ottawa directly to the lender. In addition, through Council’s $14M investment
in Housing and Homelessness, $1M went toward capital repair at OCHC in 2011. All of these steps have permitted OCHC to
complete numerous capital repair projects.
OCHC continues to be proactive by identifying funding, enabling redevelopment,
leveraging assets and pursuing opportunities to increase revenue and reduce
expenses. There have been visible
improvements in OCHC communities – major programs of maintenance and capital
repair and energy retrofits. A few
examples of repair projects include large community renewal projects in the
Ledbury-Banff and Lebreton communities and major building restorations of the
Clementine and Bank Street projects. Several
renewable energy projects have been completed with one-time capital funding
from SHRRP that enable OCH to generate additional revenues from electricity
generation which feeds into the power grid.
OCHC has reviewed a number of financing options and the current debt profile of the corporation. Resulting from this review, OCHC has approached the City with a financing option which can leverage their current equity. This opportunity takes advantage of the existing favourable borrowing environment by again working with IO to refinance the mortgages on eight properties that are renewing in 2012. The combined amount of the mortgages on the eight properties is approximately $18.4 M.
Under the proposed refinancing, each of the existing mortgages, which at renewal will have remaining amortization periods ranging from 33 months to 15 years, will be paid off in full on their respective renewal dates and will be replaced by a new 30 year debt arranged through IO. IO offers long-term, stable borrowing rates (currently between 3.75% and 4.2%) allowing for the elimination of the risk of fluctuations in interest rates. The Ministry of Municipal Affairs and Housing (MMAH) has confirmed that there will be no prepayment penalties incurred as a result of this refinancing. Appendix I identifies the details of the existing mortgages. The Ministry of Municipal affairs and Housing have also confirmed in writing that the federal funding associated with mortgages will continue until the end of the original maturation date of the mortgages.
Continuing the annual mortgage funding for thirty years of $2.09M that
the City currently provides to OCHC for these eight properties will fund a loan
in the range of approximately $35M to $37M from IO. The loan will be used to fully payout the
existing mortgages of $18.4M and the balance of $16.6M to $18.6M will be used
toward priority capital repair work. The
annual repayment amount would be $2.09M for an amortization of 30 years base on
a fixed interest rate estimated at between 3.75% and 4.2% which is lower than
any of the current interest rates being paid.
As stated in the Executive Summary, the HSA stipulates that there is an ongoing requirement for the Service Manager to continue to administer and fund transferred designated housing projects and that this obligation continues even if the mortgages are fully paid and discharged as long as the projects remain listed in the schedule of the regulation. Upon full payment and discharge of the eight mortgages in question, the City could apply to the Province to have these projects delisted: but staff are not recommending this action at present. There are several reasons for this: 1. The City must maintain at least 16,503 units of RGI housing, 2. The City owns the housing stock as the sole share holder and therefore has a fiduciary obligation to maintain the housing assets in good condition. 3. The City has an ongoing requirement to ensure that current tenants living in the RGI housing in question are not displaced without an alternative being provided. 4. OCHC must meet the service level standards as set out in regulation and in the operating agreement which the City entered into in 2009 with OCHC. Further, staff have undertaken an analysis of subsidy formulas of the current 8 projects under consideration and given current interest rates and other benchmarked costs and revenues, have concluded that this approach is revenue neutral from the Service Managers perspective while providing an opportunity to have OCHC access much needed capital. This may not be the case with other mortgage renewals; each possible opportunity will need to be evaluated on its own merits. Even if these projects were “delisted”, the City would be required to fund this ongoing obligation either through an expanded rent supplement type program, developing new housing or continuing to fund the existing social housing stock through an operating funding formula similar to what currently exists. The monthly payments for the new loan will remain the same as what the City currently contributes to the mortgages.
To meet
Infrastructure Ontario’s security requirements for the loan, the City of Ottawa
is being asked to commit to continue the current level of the mortgage subsidy
until the end of 2042 and to accept a direction from OCHC to pay the 360 equal
monthly instalments directly to the lender. OCHC is in agreement with this
approach. A portion of OCHC’s monthly subsidy would be given directly to IO for
the duration of the loan for the debt servicing costs. The security afforded by
this commitment is an opportunity to access attractive interest rates, lower
than those available through other commercial lending programs and to leverage
the equity in these buildings so as to generate capital for much needed
repairs.
City staff recommends the refinancing of the 2012 mortgages to align with
OCH’s multi-faceted approach to address the significant need for capital
repairs. By maintaining the level of mortgage
subsidy funding based on the existing monthly mortgage payments and extending
the term of the debt, additional funding for capital repairs can be generated
without any requirement for the City to increase its current level of mortgage subsidy
funding; only extending it to 2042. This capital infusion will go toward
priority repair work, and as with all previous funding, OCHC will make every
effort to leverage the funds to ensure the maximum positive impact on the aging
stock.
It must be noted however, that the gap between annual funding and
required repairs will contribute incrementally to a rising backlog of repairs,
unless additional capital investments are made.
OCH continues to make a business case to all levels of government to
promote funding for repair and maintenance.
Without further capital grants and increased annual funding, the backlog
will continue to grow. There will be a
direct impact on the quality of life for tenants and the eventual loss of stock
as some buildings deteriorate to a point where they can no longer be rented or
occupied.
There
are no specific rural implications associated with this report.
City staff has met on several occasions with
staff from OCH to work out details for the refinancing proposal.
Comments by the Ward Councillor(s)
This is a City-Wide report.
LEGAL IMPLICATIONS
There are
no legal implications to this report as long as CMHC continues to make
financial contributions to the City in accordance with the terms of the current
tripartite Municipal Non-Profit Housing Agreements (which affect several of the
eight housing projects) for a period of time that is the equivalent of the
current amortization period of each CMHC loan as outlined in this report.
RISK MANAGEMENT IMPLICATIONS
There are no risk management implications associated with this
report.
FINANICIAL IMPLICATIONS
With the approval of the report recommendations the current annual funding OCHC receives of $2.09M for the existing mortgages would remain constant until 2042. The annual funding is included in Housing's 2012 operating budget and would remain constant until the end of the loan. Based on OCHC’s direction to pay, the City will issue a portion of OCHC’s monthly subsidy directly to Infrastructure Ontario for the debt servicing costs. Since the level of debt servicing is expected to remain the same under the proposed refinancing there will be no impact on the City’s Annual Repayment Limit other than to extend the period during which the mortgage payments are to be made.
ACCESSIBILITY IMPACTS
There are no accessibility
impacts associated with this report.
Technology
Implications
There are no technology implications
associated with this report.
The recommendation in this report aligns with the Term of Council
Priorities as it targets the Health & Caring Communities strategic priority
by addressing the strategic objective to improve social and affordable housing.
Document 1: 2012 Mortgage Renewals
Staff will action any direction received as part of consideration of this report.
DOCUMENT 1
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2012 Mortgage Renewals |
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|
Site |
Expiry
Date |
Current
Rate |
Amount |
Current
Payment |
Remaining
Amort. (yrs) |
|
|
|||||
|
Lebreton 1 |
01-Jun-12 |
4.55% |
395,160.19 |
153,054 |
2.75 |
|
Strathcona: Sentier |
01-Dec-12 |
5.34% |
2,804,531.95 |
271,099 |
15 |
|
Fairlea Court |
01-Mar-12 |
4.31% |
3,174,670.28 |
388,056 |
10.083 |
|
Rockingham |
01-Jul-12 |
5.844% |
2,743,613.96 |
273,840 |
15 |
|
Hasenack Place |
01-Jul-12 |
5.844% |
2,894,343.45 |
288,900 |
15 |
|
Allard Place |
01-Dec-12 |
5.418% |
3,291,787.81 |
319,788 |
15 |
|
Harmony House |
01-Mar-12 |
4.368% |
742,694.41 |
91,632 |
10 |
|
Blohm Court |
01-Jul-12 |
5.072% |
2,384,891.69 |
303,815 |
10 |
|
Total |
|
|
18,431,693.74 |
2,090,184 |
|