Agenda Index City of Vancouver

ADMINISTRATIVE REPORT

TO: Vancouver City Council

FROM: Director of the Housing Centre in consultation with the Manager of Real Estate Services

SUBJECT: Lease Terms and Other Arrangements for the Mennonite Central Committee (BC) Social Housing Society Project on the City-Owned 1265 Granville Street Site

RECOMMENDATIONS

GENERAL MANAGER'S COMMENTS

COUNCIL POLICY

To purchase privately-owned sites for non-market housing projects and lease them to non-profit societies or co-operative associations for 60 years at nominal rent or 75% of market value.

To give priority to upgrading existing residential hotels and rooming houses and building new non-market replacement housing for low-income singles in downtown.

To encourage non-market housing in Downtown South to replace the SRO stock that may be lost as the area redevelops.

On October 7, 1999, Council approved the 1999/2000 City-Provincial Housing Partnership Agreement which included this project.

PURPOSE AND SUMMARY

The purpose of this report is to obtain Council approval of the terms of the ground lease of the City-owned 1265 Granville Street site to the Mennonite Central Committee (BC) Social Housing Society (hereafter referred to as "MCC") project, and the sublease of the retail space on the ground floor of this non-market housing project to the City.

BACKGROUND

At its In Camera Meeting of November 2, 1999, the following was approved:

This project is part of the 1999-2000 City/Province Non-Market Housing Partnership. Under the terms of that partnership, this site is to be leased at no cost to the sponsor for 60 years. The project received a conditional unit allocation from BC Housing on October 15, 1999.

The project has progressed to the stage where the development permit will be issued within a month or so and the building permit is expected 4-6 weeks thereafter. Construction will begin in the fall. This is a design build project and the contractor is the Aragon Group. B.C. Housing Executive Committee is about to give final commitment to the project, subject to Council approval of lease terms and City sublease of the ground floor retail space.

THE SITE

The site is 75 x 120 with a total area of 9,000 sq. ft. The site is vacant and is used for pay parking. A Phase I environmental site assessment has been conducted and there was no indication of contamination on the site. Further investigation is not required.

Appendix B shows the site and the ground floor layout.

THE PROJECT

The MCC project is a seven storey concrete/masonry building comprised of 63 dwelling units, approximately 2,728 square feet of retail space at grade, with parking at grade off the lane at the rear. There are 6 residential parking spaces, and 3 retail parking spaces.

The project is design-build, the Aragon Group are the contractors, and will build the project for a fixed price.

Dwelling Units. The housing consists of 62 dwelling units plus one manager's suite with priority for low-income people living in Downtown South residential hotels and rooming houses. The studio suites range in size from about 330 to 415 square feet and are designed for single occupancy. There are amenity spaces on the second floor and in the basement, with an outdoor deck on the second floor.

Retail Space. A total of approximately 2,728 square feet of net rentable area can be divided into up to 5 separate retail spaces, all fronting onto Granville Street. The retail space is served by one loading bay off of the lane and three underground parking stalls. A separate garbage area is provided.

LEASE TERMS

There are two leases involved in this project. The first is a ground lease from the City to MCC for 60 years at nominal rent. The second is a sublease of the ground floor retail space from MCC to the City for 60 years less a day also at nominal rent.

Ground lease to MCC. The 1265 Granville Street site will be leased to MCC Housing Society in accordance with the standard terms and conditions agreed to between the City and B.C. Housing for social housing development on City-owned land as indicated in items 1 to 5 below. A term unique to this project to deal with the retail space will be added as identified in item 6 below.

1. Term of 60 years.
2. Prepaid lease rent for the 60-year term will be nominal.
3. Rent in lieu of property taxes will be paid only on the residential portion (i.e. not on the retail portion) of the property.
4. Commencement date will be the earlier of the date the lease is executed by all parties or 180 days from the date of Council approval of lease terms.
5. Lease may be terminated if construction has not begun within 12 months of Council approval of these terms.
6. MCC will sublease the retail space on the ground floor to the City for a term of 60 years less a day at nominal rent, in accordance with the sublease terms described below.

Retail Sublease to City. It is proposed that MCC Housing Society sublease the ground floor retail space to the City for 60 years less a day at nominal rent. In return, the City will pay MCC the construction and soft costs for the retail space estimated to be $305,000. Source of funds will be the Property Endowment Fund. Payment will be made in two installments. The initial installment of $259,250 (85%) will be made at the time of the first construction loan advance. The final installment of $45,750 (15%) will be made 30 days after issuance of the unconditional occupancy permit for the project by the City. Paying 85% of the capital cost upfront will eliminate any interim financing charges during construction. Holding back 15% will provide some financial leverage in expediting any necessary remedial work that may be identified during the final inspection of the retail space by the City prior to taking possession. The City will initially pay the full GST of $21,350 on the retail space, but will apply for an input tax credit. Further, the City will pay MCC over the term of the sublease the pro-rata share of common building expenses attributable to the retail. The lease rent will be nominal. MCC will be charged rent in lieu of property taxes only on the residential portion of the property. MCC requested that the retail space not be used for purposes which are incompatible with the type of housing they want to operate. Consequently the City has agreed not to lease the space for adult video stores, pubs or cabarets.

FINANCIAL IMPLICATIONS

Real Estate Services will sublease the retail space to commercial tenants on a triple net basis whereby the tenant will be required to pay the property taxes, utilities and maintenance.

The total cost of the retail space will be $305,000 plus GST for construction and up to $75,000 plus GST for fit-up costs. Based on projected market rents, it is estimated that the retail space will provide a reasonable return to the City. The development of quality retail space will assist in the continued revitalization of Granville Street.

CONSTRUCTION EASEMENTS

Most downtown construction projects require the developer to negotiate construction easements with adjacent and nearby property owners. These easements include shoring and underpinning agreements for excavation and foundation work, and overhead crane agreements for above ground construction. Many of these arrangements are reciprocal and no money changes hands. Others involve a combination of reciprocity and cash payment.

Council approval is required to enter into shoring and underpinning agreements for excavation and foundation work, and overhead crane agreements for above ground construction with the owner of the adjacent property to the south, the A.K.L. Holdings Ltd., at 1275 Granville. An agreement has been reached which gives the City access after payment of $10,000. The agreement provides for reciprocal access and payment to the City of $10,000 when the adjacent property is developed.

CONCLUSION

The 1265 Granville Street non-market housing project will serve 62 low-income singles now living in residential hotels and rooming houses in Downtown South. In addition, the project includes retail space at grade which will assist in the continued revitalization of Granville Street and provide, over the longer term, a reasonable rate of return to the City.

The development permit for the project is close to being issued and the building permit should be issuable later this summer. The project will be constructed by the Aragon Group. B.C. Housing Executive Committee is prepared to provide final commitment to the project provided the City first approves the lease terms for the housing project and purchase of the retail space in the ground floor of the project.

- - - - -

APPENDIX A

July 11, 2000
Memorandum of Understanding
between
BC Housing Management Commission (BC Housing),
City of Vancouver (the City), and
Mennonite Central Committee (BC) Social Housing Society (MCC)

regarding the development of Lot K, Block 102, D.L. 541, New Westminster District, Plan LMP 44471 and dated for reference July 11, 2000.

The Site

The Site is located at 1265 - 1271 Granville Street. It has an area of 9,000 sq. ft. and is zoned DD (Downtown District).

Project

It is proposed to develop a seven-storey mixed use building (the "Project") with retail on the main floor and 63 units of social housing on the upper six storeys, with parking at grade off the lane at rear. This is a replacement housing project for low-income singles living in Downtown South SROs.

City Council Approval

Vancouver City Council, at its November 2, 1999 meeting (In Camera), approved the acquisition of the Site at a purchase price of $1,050,000, plus applicable taxes. Council also approved the lease of the Site to MCC for the development of non-market housing funded by BC Housing for a term of 60 years at a nominal prepaid rent.

Conditional Allocation

On October 15, 1999, the Province issued a conditional allocation of 63 units to MCC from BC Housing's 1999 Homes BC program for the Project.

Development Permit

Burrows Huggins Architects, architects for the Project, submitted an application for a Development Permit (DE404718). It is under review by the City.

Lease

The City will lease the whole of the Site to MCC on the standard charge terms for non-market housing funded by BC Housing for a term of 60 years for a nominal $1.00 prepaid rent. Under the terms of the 1999-2000 City/Province Non-Market Housing Partnership, this Site is to be leased at no cost to the sponsor. The lease will commence on the earlier of the date the lease has been executed by all parties, or 180 days from Council approval of lease terms, provided that, in eithercase, all of the prerequisite conditions described in this MOU have been satisfied. The lease may be terminated if construction has not begun within 12 months of Council approval of the lease terms.

MCC will sub-lease the retail space to the City of Vancouver for 60 years less a day. The City will rent the space to tenant(s) and agrees that the space will not be used for adult video stores, pub or cabaret.

Parking and Loading

Three retail and six residential parking spaces are provided. One loading bay for retail uses is provided.

Costs Sharing

A quantity survey was completed based on the architectural drawings A0.00 to A9.02 dated April 25, 2000 and reviewed by the City. The retail space has an approximate gross floor area of 2,728 sq. ft, including circulation and service areas. The quantity survey allocated the construction costs between the non-market housing and the retail space. The total costs to the City for this space is $305,000 plus GST. The cost allocation for the project is attached as Appendix A-1.

The City of Vancouver will pay MCC a fixed price of $305,000 plus GST representing the construction costs and soft costs. The City will pay MCC an amount of $21,350 for the GST and the City will apply for an input tax credit. The space will be finished to the stage where it is ready for tenant improvements.

The City will approve the specifications and any changes. The City will pay for any changes it initiates. The City will pay MCC $ 259,250 (85% of the total cost) at time of first construction loan advance as advised by BC Housing. After substantial completion and before an occupancy permit is issued, an inspection will be done by the City. The remaining 15% ($45,750) will be paid when deficiencies have been rectified to the satisfaction of the Manager, Facilities Development, in conjunction with the Director, Housing Centre and Manager, Real Estate Services. The GST payment will be made at the same time as the 15%.

Common Building Maintenance Expenses

The intent is that MCC and the City of Vancouver are each responsible for the operating and maintenance expenses of their respective spaces.

There are some expenses that MCC and the City agree will be cost-shared. For these, the City will pay MCC over the term of the sublease a share of common building expenses attributable to the retail space. It is assumed that MCC will have a caretaker on site who will be maintaining MCC's areas. Items/ areas of common maintenance may include the card access system, fire alarms pull stations and sprinklers, and snow removal. The City's share of the maintenance for the card access system, fire alarm pull stations and sprinklers will be paid based on the number of doors, stations, and sprinklers within the retail space compared with the total building. Snow removal will be paid proportional to the linear feet of retail exposure/total building exposures on Granville Street. The City will also pay MCC for maintenance of the exterior lighting on the front of the building (on thebasis of 4 out of the 7 lights) and maintenance of other City spaces, including the retail garbage collection area, retail parking and the loading bay. Payment will be proportional to the number of total number of garbage areas and parking/loading areas. MCC has 6 parking stalls, the City has 3 parking stalls and 1 loading bay. The City will pay 40% of the maintenance costs of the parking/loading areas. MCC and the City both have 1 garbage area and the City will pay 50% of the maintenance cost of the garbage areas. Maintenance includes, among other things, cleaning lightbulb changing, parking/loading line painting. Other expenses may be shared by agreement of MCC and the City.

The amount that the City will pay for the above expenses will be determined, through agreement with MCC, when estimates of the expenses are determined. If the parties do not agree to the value, each can contract and pay separately for the services.

It is intended that property taxes for the retail and housing portions will be billed and paid separately.

The kitchen venting system in the retail space goes up through the residential floors and cleaning must be done on a periodic basis. This is expected to be no more often than twice a year. The City will pay the costs of this and MCC will provide access to the building at mutually agreeable times.

The intent is that all lighting for the commercial space will be metered separately, including the commercial hallway, lighting for 4 out of 7 lights on the front of the building, and the lighting on the back of the building, including the loading, parking, and garbage areas.

Soil Contamination and Remediation

A Phase I environmental site assessment has been conducted and there was no indication of contamination on the site. Further investigation is not required.

Project Commitment

Project Commitment from BC Housing for the Project must wait until Council approves the lease terms. If the Project does not receive Project Commitment within one year from signing of this Memorandum of Understanding by the City and by BC Housing, the City may cancel the Project with all parties responsible for their own costs incurred to the date the City cancels the Project. The City will not share in any of the costs incurred by BC Housing or any other party.

MCC will enter into a Homes BC operating agreement with BC Housing.

Development Process and Schedule

Report to Council July 11, 2000
Development Permit Approval August, 2000
Building Permit Approval August, 2000
Project Commitment August, 2000
Construction Start End of August/early September 2000

Once signed, this Memorandum of Understanding will be submitted to City Council, to the Board of Directors of MCC and to BC Housing's Development Committee for approval.

No legal rights or obligations shall arise or be created until all legal documentation has been fully executed on terms and conditions to the satisfaction of the solicitors for BC Housing, the City and MCC.

July 11, 2000
Memorandum of Understanding
between
BC Housing Management Commission (BC Housing),
City of Vancouver (the City), and
Mennonite Central Committee (BC) Social Housing Society (MCC)

_________________________________ ____________________________

Authorized signatory Date

for Mennonite Central Committee
(BC) Social Housing Society

_________________________________ ____________________________

Authorized signatory Date

for Mennonite Central Committee
(BC) Social Housing Society

_________________________________ ____________________________

Authorized signatory Date

for BC Housing

___(Signed)____________________________ ____________________________
Cameron Gray Date
for the City of Vancouver

* * * * *

ag000725.htm

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