Agenda Index City of Vancouver

POLICY REPORT
DEVELOPMENT AND BUILDING

TO:

Vancouver City Council

FROM:

The Director of Current Planning and the Director of the Housing Centre, in consultation with the Directors of Real Estate Services and Financial Services

SUBJECT:

Woodward's Proposal: Heritage Incentives and Housing Agreement -101 West Hastings Street

 

RECOMMENDATION

A. THAT Council approve in principle a Heritage Revitalization Agreement (HRA) with the potential purchaser, Madison Bellevue Apartments Corporation, to assist in the rehabilitation of the Woodward's building, with the following terms:

B. THAT Council approve in principle property tax relief to assist in the rehabilitation of the Woodward's building, with the following terms:

C. THAT Council approve in principle a Housing Agreement for the Woodward's building with the following terms:

D. THAT the Heritage Revitalization Agreement by-law, the Property Tax relief by-law and the Housing Agreement by-law be referred to the same Council meeting, early in 2003, at which time delegations will be heard.

GENERAL MANAGER'S COMMENTS

CITY MANAGER'S COMMENTS

COUNCIL POLICY

On July 28, 1998, Council confirmed principles to provide general guidance to actions and planning in the Downtown Eastside, Chinatown, Gastown and Strathcona area which included encouraging legitimate commercial activity, improving conditions at the street level, improving or replacing existing SROs (Single Room Occupancy), reducing crime, and helping community people to find allies and seek a common future.

The Heritage Policies and Guidelines (reaffirmed by Council in April 1991) outline a procedure to be followed in applying the heritage bonus provisions as permitted in the Downtown Official Development Plan. The Transfer of Density Policy and Procedure (amended by Council in August 2002) provide that heritage density from a "donor" site nay be transferred to a "receiver" site(s). On August 1, 2002, Council approved, in principle, a property tax exemption program for upgraded buildings in the Gastown (HA2) area. The Woodward's building is outside, but adjacent to the Gastown area.

PURPOSE AND SUMMARY

Bringing the Woodward's building back to life is essential to the social and economic revitalization of the surrounding neighbourhoods. Its continuing dereliction benefits neither the low-income community, property owners, or businesses. The revitalization of Woodward's is a top priority for the Vancouver Agreement. This report recommends that Council approve in principle bonus density and property tax relief under the heritage provisions of the Vancouver Charter for the Woodward's building at 101 West Hastings Street. This would be in return for a Heritage Revitalization Agreement that will, subject to Federal and Provincial funding, ensure that a significant component of core-need households are accommodated in the rehabilitated building. The Heritage Revitalization Agreement By-law, the Property Tax relief by-law, and the Housing Agreement by-law would be referred to a Council meeting early in 2003 at which time formal public input would be received.

BACKGROUND

Woodward's Department Store was first established at the corner of Hastings and Abbott in 1903, and grew to more than 800,000 sq.ft., ultimately occupying half of the block bounded by Hastings, Abbott,Cordova, and Cambie. During those decades Woodward's was one of Vancouver's primary retail destinations, anchoring the retail along Hastings and providing its low and modest income neighbourhood with a food floor and other household necessities. It became known city-wide for its Christmas displays and the neon "W" on the roof.

Woodward's closed its Hastings Street store in 1993 and in 1995 the property was sold to Fama Holdings. In June 1995, consistent with the site's zoning, the Development Permit Board approved Fama's preliminary Development Application to develop a mixed-use project consisting of condominium units and commercial and retail space, subject to conditions. The residential square footage of the existing building, and therefore the proposal, exceeded what was permitted under the zoning, and Fama agreed to designate the heritage "C" listed building in return for a relaxation of the residential floor space regulation. The project generated substantial opposition among the low-income community as it did not include any social housing. Woodward's was designated a heritage building in November 1996.

Fama did not proceed with the development and little happened until 1996 when Premier Harcourt announced that the Province would fund 200 co-operative housing units in the building. As part of a Woodward's partnership, the City agreed to develop, with VanCity, a 50 unit project for street youth at 326 West Pender which opened in 1999. Fama and the Province were unable to conclude their negotiations, and the Province re-allocated the Woodward's Co-op funding to the Lore Krill Co-op that recently completed two buildings with a total of 203 units at 65 West Cordova and 239 East Georgia. Fama submitted a revised complete Development Application for 417 condominium units and 190,000 sq.ft. of commercial and retail space which was approved by the Development Permit Board in October 1997.

The project remained moribund for the next few years. Several developers explored the opportunity but none were able to develop a viable option. In March 2001, the Province purchased the building from Fama Holdings, with the intent of developing a 200 plus unit co-operative, a home for SFU's School of Contemporary Arts, and approximately 200,000 sq.ft. of commercial space. The Province was unable to find a partner for the commercial component, and in early 2002, the new Provincial government put the project on hold. Since then it has been exploring options ranging from mothballing the building for several years, demolishing some or all of the building, developing the project in smaller phases, or selling the property to private interests for redevelopment.

MADISON BELLEVUE PROPOSAL

This summer, Madison Bellevue Apartments Corporation obtained an option to purchase the Woodward's building from the Province. If the purchase completes as proposed, it is expected that the Province would recover between half and two-thirds of its total costs expended to date.

Madison Bellevue proposes to develop the project under the terms of the 1997 development permit: 417 residential units and 190,000 sq.ft. Of commercial and retail space (565,000 sq.ft. of total floor area), with parking provided in the City-owned garage across Cordova. The development permit has been renewed annually since it was first approved, and will be issuable once all conditions have been met. Staff have been working with Madison Bellevue towards permit issuance. Madison Bellevue proposes to respect the heritage designation and to operate the residential units in the building as rental instead of selling them. It has applied for 200 units of funding under CMHC's Residential Rehabilitation Assistance Program (RRAP), which would restrict occupancy of those units to core-need households, and has applied to CMHC for mortgage loan insurance. The RRAP and mortgage loan insurance applications are currently being processed by CMHC.

During the past few months, Madison Bellevue has been assessing the financial viability of developing the building. It has asked the City to provide a heritage density bonus for use off-site to assist with the rehabilitation work required by the development permit, and to provide a property tax freeze, similar to the recently approved property tax exemption policy for Gastown. In return, it is willing to enter into a Heritage Revitalization Agreement to rehabilitate the building, and into a Housing Agreement to secure the City's housing affordability objectives. A letter from Madison Bellevue is attached as Appendix A.

ROLE FOR THE CITY

Woodward's is a difficult development challenge. With each potential purchaser, staff have been asked to consider what further assistance the City can provide. At 565,000 sq. ft. this alone makes it risky and difficult to finance. The viability of the development is further challenged by an economically marginal location typified by low retail and office rents, and high vacancy rates.

The residential component is crucial to the viability of the redevelopment of Woodward's. With low interest rates and a strong rental market, rental housing is more viable now than it has been in some time. The vacancy rate in the city, based on CMHC's October 2001 rental market survey, is currently 0.7%. There are several higher-end rental buildings under development in the city, but few with rents that will be as affordable as Woodward's, if thisproposal proceeds. The rents for the non-RRAP units will be comparable to average market rents in the city.

The Madison Bellevue proposal is the most serious proposal received to date. It proposes to redevelop Woodward's in the short term in a way that achieves the City's heritage and affordable housing objectives. Staff therefore reported to Council in-camera on September 17, 2002, with recommendations that the Madison Bellevue proposal be supported. The report was in-camera because of the confidential nature of the property negotiations between Madison Bellevue and the Province. Council approved the following:

Following Council's direction of September 17th, there has been staff analysis regarding the amount of tax relief and further discussions with Madison Bellevue concerning the Heritage Revitalization Agreement and the details of a Housing Agreement.

HERITAGE REVITALIZATION AGREEMENT

Madison Bellevue has requested a heritage density bonus and property tax relief similar to what was recently approved for Gastown. The primary difference is that it has requested that it be exempt only from any increase in taxes resulting from the redevelopment, rather than a complete exemption, and has agreed to time and location restrictions on the bonus density. Otherwise, the calculations to determine the incentive package followed the City's standard heritage procedures. These procedures ensure that the owner does not receive a windfall profit.

Both of these incentives can only be offered on the basis that they assist with the conservation of a heritage resource. The heritage conservation standards for Woodward's were established by the Development Permit Board in 1997 on the advice of Heritage staff and the Heritage Commission.

The heritage density bonus has been requested on the understanding that the density could only be used on another property or properties owned by Madison Bellevue, within 10 years and through a rezoning of the receiver sites(s). Staff conducted an analysis last fall based on detailed construction costs prepared by BC Housing and concluded that the total value of work required to restore the exterior would be approximately $2.5 million, therefore justifying a bonus of 100,000 sq. ft. The specific heritage components include:
- premium cost of wood windows, storefronts, entrances and canopies;
- brick cleaning and repair, brick and cornice seismic upgrade;
- replication of the original facade which was removed when the Cordova Street overpass was put in; and
- restoration, and a commitment to operate, the neon "W" sign (secured through a separate legal agreement).

Staff are concerned about the status of the Density Bank, noting that there is almost 400,000 sq. ft. currently in the bank and 143,000 sq. ft. in the pipeline. Until recently, the historic Density Bank high was 322,000 sq. ft. Staff are reporting back on a comprehensive analysis about how the density bank should be managed, and what levels can be accommodated while protecting the stability of the banked density market. However, the approval of 100,000 sq. ft. on the basis that it would not be added to the publically traded density bank in the city, but assigned only to another property or properties owned by Madison Bellevue, is felt to be supportable and staff recommended in September that Council support the density bonus.

A density bonus would be conferred on the site via a Heritage Revitalization Agreement (HRA). The HRA would ensure that the rehabilitation work specified in the Development Permit would be carried out and would also ensure that the building is maintained. The effect of the current Heritage Designation By-law on the Woodward's building is that no demolition or exterior alteration can take place without special approval. The designation does not carry with it any obligation to maintain the building, therefore the proposed HRA would further secure the heritage value of the building. There would also be a covenant providing that the density bonus not be available for transfer until the rehabilitation is complete, unless the owner otherwise secures completion of the rehabilitation.

PROPERTY TAX RELIEF

Section 396A of the Vancouver Charter permits the City to provide a property tax exemption, in whole or in part, to heritage properties for conservation purposes, for a period of up to ten years. In September 2002 Council agreed in camera, to consider property tax relief for the Woodward's building, subject to a detailed pro forma analysis of the Madison Bellevue proposal, because of its location and strategic importance to the revitalization of Gastown and the Downtown Eastside.

The Director of Real Estate Services has completed a detailed review of the Madison Bellevue pro forma for the Woodward's property and has concluded that the redevelopment is not viable without financial assistance beyond the density transfer proposed above. If provided through a property tax exemption, relief of $8.4 million would be required with the relief to commence once an occupancy permit is issued. The review supported property tax relief on the anticipated incremental increase in value following the rehabilitation of the building for the full 10 year period authorized in the Vancouver Charter.

The City will continue to receive the taxes it is currently collecting. It will only be foregoing taxes that would be generated by Madison Bellevue's investment in Woodward's. The City will continue to receive the taxes it would if the building remained vacant and redevelopment does not occur. This incentive, along with the heritage density bonus, will make the development of the Woodward's building viable and does not provide the owner with a windfall profit.

The following chart summarizes the value of the proposed exemption.

 

2002 Assessment & Property Taxes

Anticipated Assessment & Property Taxes

Incremental Change in Assessment & Property Taxes

Assessment

$6,489 999

$65,437,323

+ $58,938,324

Residential Taxes

$28,402

$285,975

+ $257,573

Commercial Taxes

$ 61,171

$ 615,922

+ $ 554, 751

TOTAL TAXES

$ 89,573

$ 901,898

+ $812,324

10 Year Exemption

    

$8.4 million

10 Year Exemption (Net Present Value)

    

$6.9 million

Based on the current assessment on the 2002 Authenticated Roll, the property would have been billed approximately $90,000 in property taxes, including those levied by the City and all other taxing authorities including the Provincial Government for School purposes, the Greater Vancouver Regional District, B.C. Assessment Authority, Municipal Finance Authority and Translink. During the term of the proposed property tax exemption, the building would continue to be billed this amount. In addition, utility fees would continue to be owed and payable

The proposed property tax relief would exempt the incremental taxable value that is anticipated to result from the rehabilitation of the building. Based on estimates of the incremental value and utilizing current property tax rates, property tax relief would result in foregone taxes of approximately $812,300 in the first year upon occupancy and $8.4 million over the 10 years. The net present value of that relief is $6.9 million, assuming the future taxable value estimates are accurate and the 2002 mill rate is applied.

As with the proposed Gastown Heritage Management Program incentive, no funding would be required from the taxing authorities, however, existing and future property taxpayers will have this cost transferred to them for the duration of the exemption.

If Council supports the property tax relief proposed in this report, the Vancouver Charter requires that legal notification be provided to the public and that a by-law authorizing the relief be passed by Council. The by-law would include terms specifying when the tax relief would commence (after the first occupancy permit has been issued), the length of the taxrelief period (10 years), provisions for repayment (should the building be destroyed or altered without permission or there be non-compliance with the Housing Agreement).

HOUSING AGREEMENT

In return for allowing property tax relief for heritage preservation and rehabilitation, Madison Bellevue is willing to enter into a Housing Agreement that will secure the City's affordability objectives for Woodward's. Madison Bellevue intends to operate the building as rental housing; however, the lenders will require that the building be strata-titled. To ensure the building remains rental for a significant period of time, the Housing Agreement will require that all the residential units in the building be rental for at least 15 years. The Housing Agreement will not restrict the commercial strata units which the owner will be free to sell.

Madison Bellevue has submitted an application to CMHC for 200 units of RRAP funding. RRAP would provide a forgivable loan of $18,000 per unit in return for Madison Bellevue agreeing to restrict rents to 30% of the core-need income threshold, and to restrict occupancy to households with incomes at or below the core-need income threshold ($28,500 for one bedroom units) for 15 years. Rents for a one-bedroom unit in the building funded by RRAP would average $678 per month. CMHC allows RRAP loans to be repaid prior to the end of the 15 year term, and the restrictions on rent and income removed. The Housing Agreement will prohibit Madison Bellevue from paying off the RRAP loan and require that it abide by the RRAP restrictions for the full 15 years.

CMHC has yet to approve the RRAP application for Woodward's, and Madison Bellevue may or may not receive all 200 units of RRAP, which would consume most of the local RRAP allocation. Given the importance of Woodward's, it is recommended that Council urge CMHC to fund at least 100 RRAP units for Woodward's.

The RRAP units will not be affordable to many of the low-income residents of the Downtown Eastside who are in deep core-need. They require greater subsidies. Singles on welfare can only afford $325 a month. The Housing Agreement will require that Madison Bellevue make available at least 50 units to the Province for rent supplements that would subsidize rents sufficiently to accommodate deep core-need households in Woodward's for the term of the rental housing covenant. Confirmation from the Province that funding for fifty rent supplements for deep core-need households needs to be confirmed, and it is recommended that Council urge the Province to provide at least 50 rent supplement units to Woodward's and that the term of the rent supplements be at least 15 years.

Staff will continue to work with the Federal and Provincial governments to secure the RRAP and rent supplement funding, and, if possible, to enhance the housing affordability that might be achieved in the project, either by extending the affordability beyond the minimum 15years or by increasing the number of subsidized units or the depth of subsidy. Madison Bellevue propose to have a non-profit society manage the subsidized units, and staff will report on this and the results of their discussions with CMHC and BC Housing when the Housing Agreement is considered early in 2003.

From the non-market perspective, the 100 RRAP units with rents affordable to core-need households with 50 rent supplements for households in deep core-need guaranteed for perhaps only 15 years compares to the 200 unit co-op proposed when the Province purchased the building. That co-op would have been funded under HOMES BC and 120 units would have been affordable to core-need households, of which 60 would have been affordable to deep core-need households. The project would have been leased to the co-op for 60 years.

The HOMES BC program ended earlier this year with the final allocation of 697 units. In April 2002, the Province announced the Supported Living BC program which will provide 3,500 units over the next four years, primarily targeted to frail seniors who require some support in order to live independently. Funding under the Supported Living BC program is
unlikely to be available to Woodward's as there is a supportive housing project for seniors currently under development by the Katherine Sanford Housing Society in the Downtown Eastside. The Province does provide rent supplements to those at risk of homelessness (the mentally ill, physically disabled, those with HIV/AIDS), many of whom live in Downtown Eastside SROs and it is more likely that 50 rent supplement units would be made available. The 15-year limit on the Housing Agreement restrictions reflects the end of the RRAP term. Rent Supplements are often provided for consecutive 5-year terms and could be extended for 15 years.

From the market perspective, a 100% rental project, as proposed by Madison Bellevue, compares to the 100% condominium project for which the Development Permit was approved. While the project, as proposed, may not include the diversity of tenures (condominium units for sale, units for rent, non-profit co-operative units), as proposed in some earlier iterations, it will provide a range of unit sizes and rent levels affordable to different income levels. At least half the units would be market rental under the Madison Bellevue proposal.

The terms of the Housing Agreement would include:

- that the residential component of the building be operated as rental housing for a minimum of 15 years from the date of occupancy permit;
- a prohibition of repayment of any loan from CMHC's Residential Rehabilitation Assistance Program and a requirement that the RRAP units be operated in accordance with the RRAP restrictions regarding maximum rents and maximum household incomes for the 15-year term;
- that at least 50 units will be made available to BC Housing for rent supplements to accommodate households in deep core-need for as long as the covenant restricting the residential component of the building to rental housing remains in force;
- that the property tax relief will terminate if the owner of Woodward's defaults on the Housing Agreement, and all property taxes forgiven to that date must be repaid;
- that the Housing Agreement can be terminated by a lender if there is a bona fide foreclosure, in which case the property tax relief will also terminate; and
- such other terms and conditions as may be required by the City's Directors of Legal Services and the Housing Centre.

PUBLIC CONSULTATION AND TIMING OF ALL BY-LAWS

Before Council can consider the Property Tax relief by-law or the Heritage Revitalization by-law, notices must be placed in local newspapers (described below). Leading up to a meeting early in 2003, where Council will consider these by-laws (as well as the Housing Agreement by-law), staff will coordinate a program of public consultation. It is proposed during the months of November and December, staff would produce and make available written information that describes the proposed project. Staff will also be available to provide information at meetings organized by community groups and are prepared to hold an open house, should this be requested by the community.

This report recommends that Council advance three by-laws for the Woodward's project. There are different process requirements for each by-law:

- Heritage Revitalization Agreement By-law: a notice is to be placed in at least two consecutive issues of a daily newspaper between 7 and 14 days before the date of the Public Hearing.

- Property Tax By-law: Notice is to be placed in two editions of a local newspaper and a notice posted at City Hall, at least 30 days before Council considers the by-law. The 30-day period provides any opponents time to file a counter petition. A Public Hearing is not required.

- Housing Agreement By-law: There is no requirement for notice or a Public Hearing.

CONCLUSION

Woodward's is crucial to the revitalization of the Hastings corridor west of Main, and creating a link between Gastown and International Village. The renovation and reuse of Woodward's has been identified as a top priority by the Vancouver Agreement Management Committee. The economics of this project continue to be challenging. Among a number ofpotential purchasers, Madison Bellevue is the most serious to date. Madison Bellevue has asked the City to provide two development incentives: a heritage density bonus and a property tax freeze.

Based on past practice for establishing heritage density bonuses and the recently approved policy for providing property tax exemptions for adjacent Gastown, both incentives are merited for the Woodward's building. The City contribution of a heritage density bonus and property tax relief will provide the additional necessary assistance to make this important heritage project viable. In return, Madison Bellevue will enter into a Heritage Revitalization Agreement to rehabilitate and maintain the building, and into a Housing Agreement to secure the City's affordability objectives. The affordability objectives require that CMHC provide RRAP funding and BC Housing provide rent supplements, which are as yet unconfirmed.

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