ADMINISTRATIVE REPORT

RECOMMENDATIONS

GENERAL MANAGER'S COMMENTS

COUNCIL POLICY

On August 1, 2002, Council approved the Gastown Heritage Management Plan, involving a number of tools to promote the retention and upgrading of heritage buildings. This included the approval in principle of a five-year programme of property tax exemptions and density transfers off site for rehabilitated buildings and grants to assist property owners with the conservation of heritage facades. The program of facade improvement grants was also made available to Chinatown heritage buildings.

On November 5, 2002, Council approved extending the property tax incentive to heritage properties in Chinatown. This followed Council approval on July 23, 2002 of the Chinatown Vision which includes directions to help guide City policy decisions, priorities, budgets and capital plans including heritage building preservation and improvements to the physical environment among other objectives.

SUMMARY AND PURPOSE
Council has supported the revitalization of Gastown and Chinatown through a number of initiatives including the approval in principal of a 5-year incentive program to facilitate heritage building rehabilitation and economic development. The time limited nature of the program is intended to stimulate economic activity in the area. It is anticipated that as revitalization occurs, rents will rise and the subsidy needed per building will decline. Furthermore as federal heritage incentives come available in the future, the amount of City incentives required could be reduced.

This report recommends the approval of criteria and policies and procedures for assessing applications for heritage incentives in Gastown and Chinatown. A proposed residual density for the purposes of determining incentive amounts for Chinatown is included. Also, staffing is recommended to facilitate applications and administer the incentive program.

BACKGROUND
When Council approved the Gastown Heritage Management Plan (GHMP) staff was directed to report back on the details of the incentive program including application procedures, eligible work, evaluation criteria and on the staffing and budget required to implement and administer the new program. Since that time, Council has also approved the property tax program for heritage buildings in Chinatown, the waiving of encroachment fees for protected heritage properties, and amendments to the Heritage By-law to transfer the heritage designations for Gastown and Chinatown from the Province. These initiatives are part of a broadly based plan of actions to assist with heritage building rehabilitation and economic revitalization in these heritage areas.

A key component of the GHMP was the approval in principal, for the first time, of special incentives - facade grants and property tax incentives - for a time limited period of 5 years to kick start revitalization of the area. In addition, a residual density incentive was also approved to encourage smaller buildings to maintain their low scale. The residual density incentive is to be determined as the difference between the existing built density and 5.5 FSR and is in addition to the incentives provided to cover the full shortfall cost (including developers profit) for a viable capital project. At the time the property tax incentive was approved for Chinatown, Council requested a report back on the implications of providing a residual density bonus. This review has now been completed and is included in this report.

Council also directed staff to report annually on the activities and impacts of the incentive programs which will allow monitoring, evaluation and adjustments to be made on an ongoing basis. This will include keeping track of applications and inquiries, the amount and value of incentives approved, any changes to the low-income housing stock, discretionary review of development applications (for those owners who redevelop their properties under the existing zoning and do not apply for incentives), and impacts on the density bank. It should also be noted that staff are reviewing the Transfer of Density Policy and will be reporting to Council on the matter later this summer.

Staff are also preparing a separate report, as requested by Council, on the advisability of extending the heritage incentives to Hastings Street. This report will be forwarded shortly.
DISCUSSION
The heritage incentive package consists of two separate programs: (i) the Gastown and Chinatown Heritage Façade Rehabilitation Program, and (ii) the Gastown and Chinatown Heritage Building Rehabilitation Program. Each is summarized below and the full policy and procedures documents are included as Appendix A and B.

(i) Facade Rehabilitation Program
This program would provide capital grants to heritage building owners who improve the exterior appearance of their buildings, with emphasis on making retail and commercial uses on the ground floor viable. Generally work to repair, restore or enhance the building facade will be eligible. The program would cover 50% of eligible costs up to a maximum of $50,000 per principal facade. Funding of $1.5 M was approved in the 2003-2005 Capital Plan to support the first three years of the program. Additional funds, for the remaining two years of the program, will be sought in the next Capital Plan and will be subject to being approved at that time.

Each capital grant will require a 2/3 vote of Council members, and will be subject to any terms and conditions Council considers appropriate including section 219 covenants to ensure appropriate use of the grant money and continued maintenance of the conserved facade.

(ii) Heritage Building Rehabilitation Program
Council approved the use of property tax exemptions for up to 10 years to facilitate a major rehabilitation of a heritage building, consistent with Section 396A of the Vancouver Charter. Eligible work includes structural and foundation repair as well as seismic upgrades and facade rehabilitation. The main objective of the tax exemption program is to encourage full upgrading of buildings thereby ensuring their conservation for the long term while stimulating economic development in the area. It will also facilitate the upgrading of unreinforced masonry buildings, the predominant form of construction in the area, and those most susceptible to damage in an earthquake. Applications will be received for five years (2003-2008). The value of the total tax exemption an applicant will receive over a maximum of ten years will not exceed shortfall cost associated with the capital project. A detailed explanation of how shortfall costs are calculated is provided below.

Should the value of the tax exemption be less than the agreed to shortfall cost of an applicant's project, the difference may be awarded to the applicant through a density bonus.

Eligibility, Evaluation Criteria and Conditions
Any building listed on the Vancouver Heritage Register (VHR) would be eligible for all heritage incentives. Those not on the Register would need to be evaluated to see if they merit being added to the VHR prior to being eligible to apply for any of the heritage incentive programs. Evaluation criteria for reviewing incentive applications have been developed by staff in consultation with the Gastown Historic Area Planning Committee (GHAPC) and the Chinatown Historic Area Planning Committee (CHAPC). Proposals will be assessed on a number of criteria such as compliance with heritage standards, regulations, policies and by-laws and the proximity of the project to other heritage properties as well as other conservation projects. Priority will also be given to projects with a higher level of private contribution as a proportion of public investment.

For the facade grant and building rehabilitation incentives, the owner must enter into any or all of the following legal agreements - Heritage Revitalization Agreement (HRA), covenant or encroachment agreement as required by the City. The HRA would specify the owner's obligations for ongoing maintenance and preservation, require replication in the event the building is destroyed and would also be the mechanism to provide the bonus density. The building would also need to be municipally designated if it isn't already. In addition, the property owner must not have any outstanding taxes owed and the proposed work must be consistent with heritage standards, applicable by-laws, policies and guidelines.

Policies and Procedures
Submission requirements will include a formal application, a detailed scope of work, architectural drawings illustrating the proposed work and clearly specifying the heritage conservation work. For those seeking a facade grant, three cost estimates are required. Those seeking property tax exemptions and bonus density must provide a development pro forma for review and approval by Real Estate Services. Typically, applications for incentives will be submitted in conjunction with a development and/or building permit application. Applications for assistance will be considered by an interdepartmental staff review group as well as either GHAPC or CHAPC. Applications will be assessed based on the evaluation criteria discussed above. The Director of Planning will report recommendations for approvals to City Council. Grants, tax exemptions and bonus density would be released only when the work is completed, inspected and certified as complying with the approvals granted.

In order to accommodate opportunities as they arise, no set deadline for applications is proposed. Should there be requests for more funding than is available under the facade program, it may be necessary to consider alternative methods for receiving applications suchas establishing deadlines for applications or reviewing applications on a competitive basis. This would be reported to Council for consideration as part of the annual reporting.

Staff used a number of guiding principles in the development of the methodology for calculating incentives to ensure that all applications for incentives are treated fairly, objectively and consistently. It is also noted that there is an element of negotiation in each case and that inputs supplied by applicants will be reviewed by staff and may be subject to revision to ensure their accuracy, reasonableness and economic viability. Final approval for all incentives rests with City Council.

Calculating Shortfall Costs
The amount of incentive to be provided to an applicant under the Building Rehabilitation Program will be based on the shortfall cost associated with the capital project. This is the amount of money required to make a construction project economically viable. Shortfall costs are determined by deducting the costs of the project, land, building and profit from the projected market value after renovation (PMVAR). A development pro forma analysis will be utilized to determine the amount of incentive required as follows:

Projected market value after renovation (PMVAR)

less total costs (hard and soft costs + contingency)

less property value (land and improvements) from BC Assessment Authority

less profit

equals shortfall costs (incentive needed)

There has been considerable discussion on the most appropriate source for the property value input. Some Gastown property owners have pointed out that BC Assessment Authority (BCAA) values often lag behind the market and have suggested that a market appraisal would more accurately reflect current market conditions. While there is some validity to the BCAA values lagging, staff are of the opinion that using appraisal and sale price values could cause artificial inflation of property values as some properties may exchange on the belief that the City's incentive program would cover the difference. This in turn could have seriousimplications on the amount of the incentive - property tax exemption or bonus density - that would need to be provided on individual projects.

To address the owners concerns, a transition policy is recommended. The policy would state that for applications under the Building Rehabilitation Program, the input for the property value in the pro forma will be the assessed value (as per BCAA) plus 20% up to March 15, 2004 (date of authenticated tax roll). After this date the input for the property value will be the assessed value established by BCAA. This will allow for a period of adjustment to the marketplace as well as be responsive to owners who are prepared to move forward on projects now.

Using the values from BCAA is seen as the most fair and equitable approach by staff. These values are determined by an independent third party, are readily available and provide more certainty to owners and the City. The Assessment Authority does review values annually and will reflect changes in the market. Owners also have the ability to affect the assessment. The Authority welcomes submission of market data related to an owners property prior to completing an assessment, and there is a formal process for owners to appeal assessments to the BCAA. Staff will monitor the impacts and if there is an insufficient subscription to the incentive program can recommend changes as part of the annual program reporting.

Calculating Incentive Amounts
The estimated total value of the tax exemption (ETVTE) will not exceed the net present value of ten years of exempted gross property taxes. If the ETVTE does not cover the shortfall cost of a project, then a density bonus will be provided to the applicant to make up the difference. The methodology for determining these amounts has been standardized and is detailed in the Gastown and Chinatown Heritage Building Rehabilitation Program Policies and Procedures, found in Appendix B. The following outlines how the various incentives will be applied:

total shortfall cost

less National incentives (when available)
less facade grant
less property tax exemption (as required)
less bonus density (as required)

plus residual density (if applicable)

A calculation for a sample site is included in Appendix C to illustrate how the incentives would be determined.

Density Bonus and Residual Density in Chinatown
Under existing provisions in the HA-1 and HA-1A Zoning District Schedule, Council can approve additional density for a site equal to 2.0 FSR for transfer off site when an owner agrees to restore a heritage building that is designated and listed on the Heritage Register. No change is being made to this provision and it will continue to be available to property owners. It provides a simple method to calculate an incentive amount which some owners may prefer over having to submit additional applications and development pro forma information to the City. If an owner seeks the 2.0 FSR density bonus for transfer, they would not be eligible to apply for the other incentives. An HRA or rezoning would be required to enable the bonus density. Owners of these heritage buildings could also apply for facade grants.

For owners in Chinatown who wish to seek incentives using the shortfall costs method, they will be able to apply for tax incentives and heritage density bonus to cover the shortfall. In order to determine an amount for the residual density that would be granted when property owners undertake a complete building upgrade, staff analyzed the development potential that could be achieved under existing zoning provisions. There are no FSR regulations in the HA-1 and HA1-A District Schedules. Therefore, the main factor in regulating development potential is the height limit - on a conditional basis (65 feet) in HA-1 and (90 feet) in HA-1A. Based on this staff believe an FSR of 5.5 should be used to calculate the residual density amount for heritage buildings in Chinatown seeking heritage incentives. This would make the incentive program for Chinatown the same as Gastown. Staff estimate that the 32 VHR listed heritage sites in Chinatown would generate an average of approximately 11,600 square feet of residual density per site. While it is anticipated that not all of the heritage sites will be seeking incentives, the actual number of buildings that may come forward is not known. Staff will monitor the amount of density generated by the heritage incentive program, as it will be important to ensure the viability of the density bank.

Staffing
With the approval of the incentive programs for Chinatown and Gastown, it is expected that the number of development and other permit applications will increase substantially. It is anticipated that 10 facade grant applications, and 7 applications for major building upgrades will be received on average per year (both areas combined). In comparison, over the past ten years there have been 1-2 major building upgrades per year. In addition to the projected increase in development applications, a commensurate increase in the number of inquiriescan be expected. Furthermore, the ongoing administration, monitoring and evaluation of the incentive programs, and implementation work on the Gastown Heritage Management Plan and the Chinatown Vision needs to be completed.

It is estimated that over its 5 year period the incentive program could result in upwards of $55 million of investment toward conservation activity in Gastown and Chinatown making a significant contribution to revitalization objectives in these heritage areas. While Council has endorsed a financial incentive package to encourage revitalization, equally important will be the ability to process applications effectively and efficiently, accommodating the increased number of applications, the completion of approved policy work and the monitoring and evaluation of the program. In the "Interim Budget Report" presented to Council on April 8th of this year, the Corporate Management Team identified implementation costs of the Gastown Heritage Management Plan as a priority.

To accommodate the new work identified, the Directors of Current Planning and Development Services recommend the approval of a new Project Facilitator position for a 5-year term to coincide with the availability of the heritage incentives in Gastown and Chinatown. The Facilitator will undertake the normal duties of the position, take on some Heritage responsibilities created by the new application load and will perform additional administrative, monitoring and evaluation duties required by the program. The Facilitator would deal with applications and inquiries in Chinatown and Gastown as a priority and could also take on other heritage applications as warranted by the work load. Should Council approve extending the incentive program to Hastings Street, the Facilitator will also be responsible for applications from this area.

The position will cost $ 73,828 annually and startup costs of $10,000 would be required in the first year. It is recommended that funding for this year (2003) come from Contingency Reserve (on a prorated basis) and ongoing funding be covered by the Community Services Operating Budget without offset.

Next Steps
Should Council approve Recommendation A, staff will immediately begin a publicity campaign in the two heritage areas advising property owners, merchants and tenants about the availability of the incentive programs. Enquiries about the program have been received on more than 30 properties and some owners have been actively preparing proposals in anticipation of the policies and procedures being approved. It is anticipated that the first applications for incentives under this program could be presented to Council within the next 2-3 months.

Social Value Partnership
Opportunities for training and employment for Downtown Eastside residents in the rehabilitation and operation of buildings will also be encouraged. Staff will facilitate discussions between developers and employment agencies providing job training and apprenticeship in the trades. This has been successful on projects such as the Gastown Parkades.

Community Input
The Chinatown Historic Area Planning Committee reviewed the draft policies and guidelines on April 1, 2003 and although a quorum was not present the members in attendance supported the material presented by staff.

The Gastown Historic Area Planning Committee reviewed the draft policies and procedures on several occasions and most recently at a Special Meeting on May 26, 2003. The committee made a number of suggestions and requested clarification on some items related to the calculation methodology for the incentives. The policies and procedures have been revised to incorporate this feedback noting that there will likely be some negotiation involved in each project in order to acknowledge the individual circumstances of each project. The Committee's concern regarding the input for the property value is discussed in the section on Calculating Shortfall Costs.

Statements of Significance
A Statement of Significance (SOS) is a summation of the core heritage values of a particular heritage site, developed through appropriate research. Under the City's current heritage revitalization process, applicants are required to prepare an SOS as part of development applications requesting substantive incentives. An SOS helps focus all participants on conserving the most important heritage values of a site.

The initiative for this project stems from substantial senior government funding being available for the development of SOS. It is expected that by the beginning of 2004, properties having an SOS in place will be eligible for Federal funding flowing from the newly announced Historic Places Initiative(HPI). Development of the detailed aspects of the Federal incentive program is ongoing.

This SOS initiative will greatly contribute toward the implementation of the City's Heritage Management Plans for Gastown and Chinatown and potentially the DTES. Furthermore, completing Statements for all buildings in the same area at once will be more efficient and having them prepared by heritage professionals outside the negotiation process ensures a fair, consistent and professional standard.

Recommendation D requests Council approve a contribution of $40,000 (contingent on support from senior governments) for preparing Statements of Significance for the 231 Heritage Register buildings located in Gastown, Chinatown and the Downtown Eastside (DTES). The DTES has been included so that heritage buildings in this area could seek support under the Federal HPI Program when it is operational. Funding is available in the 2003 -2005 Capital Plan that includes an allocation of $2.5 million for Downtown Eastside Revitalization initiatives. City staff will also be contributing in-kind through managing the work and graphic and information technology support. The City's contribution will be matched with a Federal/Provincial Governments contribution ranging between $60,000 and $100,000. If additional funding comes from senior government, it will be used to prepare SOS for "A" listed Heritage Register buildings outside these three heritage areas.

In order to achieve another of Council's objectives of involving members of the community in City efforts, staff will set up the SOS programme to give priority to training and hiring local community members to assist with the research.

CONCLUSION
This report recommends policies and procedures to implement the heritage incentive programs for Chinatown and Gastown and staffing resources to facilitate the increased activity that is expected as a result of these incentives being available. Approval of the recommendations will allow property owners to begin making applications for the incentives and upgrade buildings in these historic areas. A residual density amount for heritage buildings in Chinatown, equal to that approved for Gastown, is also recommended.

Implementation of the incentive program as outlined in this report will stimulate heritage building rehabilitation and support economic revitalization in these areas. Work on reviewing the suitability of extending the incentives to Hastings Street is underway and will be reported shortly.

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APPENDIX A

Gastown and Chinatown Heritage Facade Rehabilitation Program
Policies and Procedures

June 9, 2003

City Council has approved a program of incentives to facilitate the conservation and rehabilitation of buildings in Gastown and Chinatown. The program will be available for a 5-year period (2003-2008) to kick start economic activity in these important historic areas through work on individual heritage buildings. This document outlines policies and procedures for the Facade Rehabilitation Grant Program.

For information on the other incentives available, refer to the document Gastown and Chinatown Building Rehabilitation Program Policies and Procedures. Applications for Facade Grants must be independent from applications seeking other incentives. However, applicants may apply for more than one program on a coordinated basis. Owners who apply for the facade incentive are eligible to apply for the building rehabilitation incentives at a later date.

The City strongly recommends that applicants consult with City staff, to review the proposal and submission requirements, before applying for incentives. The City also notes that it anticipates federal heritage incentives in the near future. When the federal incentives are in place, they will be applied before the municipal incentive programs and the funding available from the City of Vancouver will be decreased accordingly.

Principles
In preparing the methodology to determine heritage incentives, staff applied the following guiding principles:

E. Balance between objectivity and accuracy - The methodology and assumptions used for calculating heritage incentives are designed to best approximate actual costs and values, while at the same time have, as much as possible, been selected to be objective and consistent over time and across projects, as well as readily accessible to all participants.

F. Equal treatment of equals - All applicants and applications will be treated in the same manner in terms of the application process and incentive calculations.

G. Negotiated process with City having ultimate approval - The scope of the project being submitted for a heritage incentive and all relevant figures submitted by the applicant as part of the application process will be reviewed by City staff, and may have to be revised so that City staff ultimately agrees with them in terms of accuracy, reasonableness and economic and program viability.

Facade Rehabilitation Grant Program Policies and Procedures
A total of $2.5 million will be available for façade grants over the five-year life of this program (2003 - 2008). City Council has approved $1.5 million of this in the City's current Capital Plan. The additional $1.0 million will be sought in the next Capital Plan, and will be contingent on the Council of the day approving these funds for this purpose.

This program is available to assist owners and tenants with the costs of rehabilitating heritage building facades. The program covers 50% of costs up to a maximum of $50,000 per principal facade. A principal facade faces onto a primary street. The City deems buildings on corner sites to have more than one principal facade, and owners and tenants may apply for a grant for each principal facade. Tenants may apply for funding with written consent of the owner. The objective is to enhance the exterior appearance of buildings in a manner that is sympathetic to the heritage character of the area and to encourage economic revitalization opportunities. A priority for this program is the rehabilitation of ground floor spaces for active uses such as retail and restaurants.

Eligible Work

Eligible heritage conservation work includes the cleaning, repair and maintenance of a building exterior and appropriate new design. The work may include ground floor shopfronts, facade materials (e.g. brick, stone), windows, doors, cornices and other architectural features, stabilization of parapets, signs and awnings, and lighting on principal facades.

The Chief Building Official (CBO) considers the restoration and repair of existing exteriors to restore them to their original condition, including safety or building envelope issues, are voluntary improvements and would not trigger additional upgrading requirements. Typically, the replication of a heritage facade and new storefronts, designed in a manner consistent with design guidelines, does not trigger upgrades either. However, the CBO will assess each application on a case by case basis to check that they do not create accessibility or water leakage problems and that any unsafe conditions are met. Applicants should review proposals with the CBO at an early stage.

Eligibility Criteria

· The site must be within the HA-1 or HA-1A (Chinatown) or HA-2 (Gastown) Zoning District.
· Buildings listed on the Vancouver Heritage Register are automatically eligible. Council may add buildings to the Register if they meet the City's evaluation criteria.
· To receive grants, properties must be subject to a covenant under section 219 of the Land Title Act that relates to the conservation of heritage property as specified by sec 206(2) of the Vancouver Charter.
· The property owner must not be in arrears in payment of property taxes.
· The applicant must complete the work in accordance with the approved permit, and must comply with all heritage conservation standards, design guidelines, policies, bylaws or complementary standards and provisions that apply before the City disburses any grant to the applicant.
· The City will not consider retroactive funding for work completed prior to submission of the grant application.

Application Requirements

Applications must include:

· a completed application form
· a cover letter describing the proposed work (including how it complies with program objectives)
· architectural drawings and coloured renderings accurately describing the existing condition and proposed work
· an outline conservation specification
· a minimum of 3 competitive estimates for the proposed work
· current colour photographs of the building
· archival photographs and historical documentation.

In addition to these criteria, the City may require additional historic research, engineering, or other studies in support of the application. Applicants are also responsible for providing any further information the City requires to determine the incentive amount.

Application costs

The costs of preparing and submitting an application, including any consultant fees, are the sole responsibility of the applicant. The applicant may apply to recover such costs as part of the incentives, however the City will only approve such recovery for successful applications.

Application consideration and evaluation criteria

The City will use the following criteria to evaluate applications:

· level and quality of heritage conservation work proposed
· heritage quality of building (based on Heritage Register evaluation)
· rehabilitation of ground floor for active uses
· relationship of building to groupings of heritage buildings
· relationship to other heritage conservation projects being undertaken
· compliance with design guidelines, conservation standards and principles, and by-laws
· amount of incentive being sought as a proportion of capital investment (the City will consider more favourably those projects proposing a higher level of private investment).

The City will complete its review of the application, and determine the value of any heritage incentives it decides to provide concurrently with its review of a development permit application. All applications will be carefully considered, but will not necessarily receive incentives at all, or to the level being requested.

City Council must approve all grants by a 2/3 majority.

The City will also require registration against title of a covenant, easement, statutory right of way, and/or heritage revitalization agreement to ensure continued maintenance of the restored/rehabilitated facade. Such covenant, easement , statutory right of way, and/or heritage revitalization agreement must be in form and substance, and with registered priority that is, satisfactory to the City.

Process Chart for Facade Rehabilitation Grant Program for Gastown and Chinatown

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APPENDIX B

Gastown and Chinatown Heritage Building Rehabilitation Program
Policies and Procedures

June 9, 2003

City Council has approved a program of incentives to facilitate the conservation and rehabilitation of buildings in Gastown and Chinatown. The program will be available for a 5-year period (2003-2008) to kick start economic activity in these important historic areas through work on individual heritage buildings. The incentives that comprise the Building Rehabilitation Program are:

Property Tax Exemption
Bonus Density
Residual Density.

This document outlines policies and procedures for the Building Rehabilitation Program.

For information on the Facade Grants, refer to the document Gastown and Chinatown Heritage Facade Rehabilitation Program Policies and Procedures.

The City strongly recommends that applicants consult with City staff, to review the proposal and submission requirements, before applying for incentives. The City also notes that it anticipates federal heritage incentives in the near future. When the federal incentives are in place, they will be applied before the municipal incentive programs and the funding available from the City of Vancouver will be decreased accordingly.

Principles
In preparing the methodology to determine heritage incentives, staff applied the following guiding principles:

· Balance between objectivity and accuracy - The methodology and assumptions used for calculating heritage incentives are designed to best approximate actual costs and values, while at the same time have, as much as possible, been selected to be objective and consistent over time and across projects, as well as readily accessible to all participants.

· Equal treatment of equals - All applicants and applications will be treated in the same manner in terms of the application process and incentive calculations.

· Negotiated process with City having ultimate approval - The scope of the project being submitted for a heritage incentive and all relevant figures submitted by the applicant as part of the application process will be reviewed by City staff, and may have to be revised so that City staff ultimately agree with them in terms of accuracy, reasonableness and economic and program viability.

Building Rehabilitation Program Policies and Procedures
The City intends to provide incentives to meet the "shortfall cost" or the amount required to make a project viable (when a major building upgrade is completed) through a combination of property tax exemption and bonus density.

Program Objective
The City's main objective is to encourage the full upgrading of heritage buildings to ensure their long-term conservation while stimulating economic development within the area. The specific objective of the Building Rehabilitation Program is to provide incentives to property owners who wish to upgrade their heritage buildings and meet the criteria for this program. The total value of the incentives provided are intended to meet the "shortfall cost" of the renovation project, defined as the amount required to make a project viable when a major building upgrade is completed. Incentives will be provided by the City through a combination of property tax exemption and bonus density.

The City will determine the amount of each incentive through site-specific analysis based on objective measures of market values and costs, and anticipates that there will be some negotiation of the inputs to the incentive calculations between the applicant and the City. The Director of Planning, with advice from Real Estate Services, is responsible for making recommendations to City Council on the appropriate type and amount of incentive for each individual project. The City may also apply a facade grant toward the shortfall (see facade improvement program for details). Owners may apply for the incentives on a coordinated basis.

Property Tax Exemption Program
This program will provide a 100% property tax exemption for up to 10 years to cover the shortfall costs. Applicants will be able to apply for this program during the 5 year period (2003-2008). Tax exemptions will apply to property tax levies as per Section 396A of the Vancouver Charter but not to local improvement fees, business improvement fees, utility charges, or other like fees or charges.

The material under the "Bonus Density Program" below regarding eligible work, eligibility criteria, application criteria, application costs, application consideration and evaluation criteria apply to both the "Property Tax Exemption Program" and "Bonus Density Program" except where otherwise indicated.

Bonus Density Program
At the time of the application, should the estimated value of the tax exemption (as calculated below) be less than the agreed to shortfall cost of an applicant's project, the difference will be awarded to the applicant through a transferable density bonus.

Relief or variance to Development Cost Levies may also be provided through the Heritage Revitalization Agreement. For more information refer to Section 592(2)(b)(ii) of the Vancouver Charter and the Development Cost Levies Administrative Bulletin.

Eligible Work

To apply for the incentive program the following work must be included - heritage restoration workand a major building upgrade which involves upgrading to meet Building By-law requirements. This can include but is not limited to, structural and foundation repair, seismic upgrades, and voluntary upgrades. Refer to the section on Calculation of Shortfall Costs for a description of costs that can be included.

Eligibility Criteria

· The site must be within the HA-1, HA-1A (Chinatown) or HA-2 (Gastown) Zoning District.
· Buildings listed on the Vancouver Heritage Register are automatically eligible. Council may add buildings to the Register if they meet the City's evaluation criteria.
· To receive property tax exemption (as enabled under section 396A of the Vancouver Charter) and bonus density incentives, properties must be subject to a Heritage Revitalization Agreement (HRA) under section 592,of the Vancouver Charter. The HRA enables the bonus and residual density incentives, if applicable, and establishes the owners obligations with respect to ongoing maintenance obligations as well as replication of the heritage building in the event of destruction. The City may also require other legal agreements with respect to bonus densities.
· The property owner must not be in arrears in payment of taxes.
· The applicant must complete the work in accordance with the approved permit, and must comply with all heritage conservation standards, design guidelines, policies, by-laws, or complementary standards and provisions that apply before the City disburses the incentives to the applicant.
· The City will not consider retroactive funding for work completed prior to submission of the grant application.

Application Requirements

Applications must include:

· a completed application form
· a cover letter describing proposed work (including how it complies with program objectives) and request for property tax, bonus density and residual density incentives as applicable
· a Conservation Rationale describing the approach used to preserve the core heritage values and character defining elements of the heritage building
· an outline conservation specification
· architectural/conservation drawings and coloured renderings, accurately describing the existing condition and proposed work
· a development pro forma (as described in this document)
· current colour photographs of the building
· archival photographs and historical documentation.

In addition to these criteria, the City may require additional historic research, engineering, or other studies in support of the application. Applicants are also responsible for providing any further information the City requires to determine the incentive amount. All conservation related work (e.g. research, approach, architectural drawings, specifications, and site supervision) to be carried out by an architect, engineer or equivalent professional, each having substantive experience and expertise in heritage conservation.

The development application and development pro forma will be prepared and submitted by the applicant. The City will review the submission and reserves the right to redefine the scope of development if it determines the proposal can be made more economically viable and/or revise the inputs into the pro forma to accurately reflect market conditions. The authority for approving all incentives rests with City Council.

Application costs

The costs of preparing and submitting an application, including any consultant fees, are the sole responsibility of the applicant. The applicant may apply to recover such costs as part of the incentives, however the City will only approve such recovery for successful applications.

Application consideration and evaluation criteria

The City will use the following criteria to evaluate applications:

· Level and quality of heritage conservation work proposed.
· Heritage quality of building (based on Heritage Register evaluation).
· Relationship of building to groupings of heritage buildings.
· Relationship to other heritage conservation projects being undertaken.
· Compliance with design guidelines, conservation standards and principles, and by-laws.
· Amount of incentive being sought as a proportion of capital investment (those projects proposing higher level of private investment will be considered more favourably).

City staff will review each application and determine the value of any heritage incentives it decides to provide concurrently with the review of a development permit application. All applications will be carefully considered, but will not necessarily receive incentives at all, or to the level being requested. For each application, City Council must pass a by-law for an Heritage Revitalization Agreement and another for a property tax exemption. The latter requires approval by a two-thirds majority of City Council.

Important Notes
· Applications will be processed on an "as received basis"; there is no annual deadline.
· Approval by Electors: The Vancouver Charter specifies that by-laws providing tax exemptions greater than one year (but not greater than 10 years) must receive assent or approval of the electors. This requires notices to be published in a newspaper at least 30 days before Council adopts the by-law. If more than 1/20 of the electors petition Council the by-law would require assent of the electors. If the petition is less than 1/20 of electors, assent is deemed (refer to sec. 396A of the Vancouver Charter).
· Any incentive provided by the City to an applicant is a subsidy, and there is a risk that changes in the market over time may result in an owner being either over- or under-subsidised. By entering into an Heritage Revitalization Agreement with the City of Vancouver, the owner bears all risks associated with the ultimate adequacy of compensation.

Calculating shortfall costs and incentive amounts

1. Shortfall Costs Calculation
Owners of heritage buildings in Gastown and Chinatown completing major upgrades (including seismic and life safety) can apply for incentives. The amount of incentive to be provided will be based on the "shortfall cost" or the amount required to make a project viable in a restoration and re-use project. Shortfall cost is determined by deducting the costs of the project, land/building and profit from the Projected Market Value After Renovation (PMVAR) of the completed project. A development pro forma analysis (prepared by the applicant and agreed to by Real Estate Services) will be utilized to determine the amount of incentive required as follows:

projected market value after renovation (PMVAR)
less     total costs (hard and soft costs + contingency)
less     property value (land and improvements)
less     profit

equals shortfall cost (incentive needed)

· where, up to March 15, 2004, the input for the property value figure to be included in the pro forma will be the assessed value published by BC Assessment Authority + 20%. Applications received after March 15, 2004 will use the assessed value published by the BC Assessment Authority.

2. Total Tax Exemption Received by Applicant
The total cumulative tax exemption will be equal to either (a) the agreed-on shortfall cost, or (b) ten years of tax exemptions, whichever is met sooner. The tax exemption period will cease fully at the earlier of the following two points in time: (i) the applicant has received a tax exemption for ten years, or (ii) the discounted value of the actual tax exemptions received is equal to the shortfall cost, as described in Section 1 of this document

3. Bonus Density
If the Estimated Total Value of the Tax Exemption (ETVTE) (see section 3a) does not allow for recovery of the shortfall cost, a density bonus may also be provided (see Section 3b).

3a. Estimated Total Value of Tax Exemption
The estimated total value of the tax exemption (ETVTE) will not exceed the net present value of ten years of exempted gross property taxes (local improvement charges and utility fees are not exempted), calculated as follows:

· For the purposes of calculating the ETVTE, the baseline taxable value is assumed to be equal to the projected market value after renovation (PMVAR), as determined in the pro forma. This taxable value will be assigned to the appropriate property tax classes, per the BC Assessment Act definitions.

· The baseline tax rate is defined as the combined property tax rates associated with all tax levies from which the property will be exempted. These include the City of Vancouver general levy, the provincial school tax levy, the BC Assessment Authority levy, the Municipal Finance Authority Levy, the GVRD levy, the Translink (GVTA) levy, plus any other property tax levies that would be exempt under Section 396A of the Vancouver Charter. Those tax rates that have most recently been approved by City Council at the time the application is received will be used.

· To arrive at the ETVTE, the estimated annual tax exemption for each of the ten years will be calculated by multiplying the baseline taxable value by the baseline tax rate for ten years. In this calculation, the baseline tax rate will be inflated (compounded) each year by an index which is equal to the three-year average of the Council-directed annual increase to the tax levy, per the latest three years at the time the application is received.

· Finally, the ETVTE will not exceed the net present value of the ten years of estimated annual tax exemptions, using a discount rate of 2.00% over the yield on a five-year Government of Canada bond, as published by the Bank of Canada, on the first day of the month the application is received by the City of Vancouver. If this information is not available from the Bank of Canada, the five-year Government of Canada yield published by a major Canadian financial institution will be used instead.

See Table 1 for summary of steps.
TABLE 1. Calculation of the Estimated Total Value of the Tax Exemption (ETVTE)

where:
· Baseline Taxable Value projected market value after renovation (PMVAR), from pro forma
· Baseline Tax Rate combined property tax rates associated with all taxes from which the property will be exempted; rates that have most recently approved by City Council at the time the application is received
· Index three-year average of the Council-directed annual increase in the tax levy, per the latest three years at the time the application is received
· NPV Discount Rate 2.00% over the yield on a five-year Government of Canada bond, as published by the Bank of Canada, on the first day of the month the application is received by the City of Vancouver

Important Notes
i) The estimated total value of the tax exemption may not equal the actual total tax exemption, since it is an estimate at the time of projection. No later adjustment will be made to incentives granted as a result of actual deviations from this estimate.
ii) Gross taxes are fully exempt for up to ten years, with the total payout not to exceed the total shortfall cost, as approved in the pro forma submitted in the application process. For the purposes of this comparison, the total actual payout will be discounted to the year the application is approved, using the same discount rate that is used in the ETVTE calculation in the application.
iii) Tax exemptions will cease fully at the earlier of the following two points in time: (i) the applicant has received a tax exemption for ten years, or (ii) the discounted value of the actual tax exemptions received is equal to the shortfall cost, as described in the previous point.
iv) If the total shortfall cost is recuperated via tax exemptions before the tenth year, there may be a transition year in which the applicant pays partial taxes so that the net present value of the total tax exemptions received is equal to, but does not exceed the shortfall cost.
v) If shortfall costs have not been fully recovered by the tenth year of the exemption, the applicant will not have access to further tax exemptions nor to any claim on the difference between the shortfall cost and total tax exemptions received in ten years.

vi) The property tax exemption commences in the year following issuance of the final occupancy permit. If the final occupancy permit is issued after October 31, the tax exemption will commence in two years. This is due to legislation governing the BC Assessment Authority, the agency responsible for implementing the exemption. Tax exemptions will only begin at the time of the City's main tax billing, in July of each year.

3b. Bonus Density Calculation
The value of the density bonus will be calculated as follows:

· The maximum amount of bonus density provided will be the difference between the calculated shortfall cost and the estimated total value of the tax exemption (ETVTE), calculated as described in the following steps.

                less estimated total value of tax exemption (ETVTE)

                equals maximum bonus density value

                divided by value per sq. ft. of transferrable density
                equals amount of bonus density available for transfer

where
· ETVTE = NPV of ten years of estimated tax exemptions
· value of transferrable density is established by Real Estate Services, and is currently set at $25 per sq.ft. of buildable area.

Important Notes
i) The value of transferable density may be recalibrated at the discretion of Real Estate Services at any point in time to reflect market conditions.
ii) City Council must approve the bonus density and the owner must enter into a Heritage Revitalization Agreement which creates the bonus density.

4. Residual Density
In addition to providing incentives to meet shortfall costs, heritage buildings with a total density less than 5.5 FSR are eligible to apply for a residual density incentive. When a major upgrade of a building listed on the Heritage Register is completed, the owner can apply to transfer the residual density amount. The property must be a protected heritage property, and subject to a Heritage Revitalization Agreement. The amount will be the difference between the existing built density and 5.5 FSR.

5. Summary of Incentives
The following summarizes the incentives available under the heritage building rehabilitation program:

less National incentives (when available)
less facade grant
less property tax exemption (as required)
less bonus density (as required)

plus residual density (if applicable)

Process Chart for Property Tax and Density Bonus Incentives for Heritage Properties in Gastown and Chinatown

 

MILESTONE/
ACTION

PARTICIPANTS

INPUTS

OUTPUTS

1

Inquiry
- meeting to discuss concept

- project scoper
- heritage staff
- applicant

- concept
- approach to heritage conservation

- preliminary feedback & issue identification

2

Pre-application (scoping) meeting

- project facilitator
- staff from dept's that will review application
- applicant

- detailed project proposal
- review of major issues
- heritage conservation
- urban design
- impact on neighbours
- pro forma analysis
- process

- advice on proposal and process

3

Applications for grant and development permit submitted

- applicant

- architectural drawings
- request for incentives
- financial pro forma
- supporting documentation/
reports as required

 

4

Review & assessment of
- development application
- financial pro forma

- staff
- advisory committee
- public

- review/evaluate for compliance with policies, by-laws, regulations
and incentive program criteria

- calculation of shortfall costs
- value of tax exemption and bonus density determined

5

Preliminary decision on development and incentive applications

- staff

- receive feedback

- staff recommendation (incorporating input from public and neighbourhood advisory body) on development and incentives application
- "draft" prior-to letter

6

Legal Agreements and By-laws
Prepared

- staff
- applicant

  

- reach consensus on agreements

7

Advertise for tax exemption (if necessary) and public hearing as per Vancouver Charter

- staff

 

newspaper ad
- on at least 2 days at least 30 days prior to adopting by-law for tax incentive (when by-law exempts property tax for more than 1 year)
- on 2 consecutive days at least 7 and not more than 14 days prior to Public Hearing for HRA/designation

8

Public Hearing for Approval of Incentives and Heritage Revitalization Agreement

- staff
- City Council

- report to Council

Council Decisions
- HRA
- tax exemption by-law (requires 2/3 majority)

9

Decision on development application by Director of Planning or DP Board decision

  

- staff recommendation and\or report

- development application approved with conditions or not approved

10

Revisions as required

- applicant

- revisions responding to conditions

- revised application

11

Development permit issued and legal agreements completed

- staff

  

- development permit (including heritage alteration permit) issued
- legal agreements registered on title

12

Obtain other permits (building, electrical etc.) as required

- applicant
- staff

- application and supporting material as required

- permits issued

13

Construction begins

- applicant

    

14

Project completed and heritage work certified

- applicant
- staff

- review for compliance with approved scheme

- work inspected and certified
- occupancy permit issued

15

density available for transfer off site

  

- as per terms of HRA

- owner able to sell density

16

property tax exemption begins

  

- as per terms of tax exemption by-law

- tax exemption for specified period

17

tax exemption ends*

     

* The tax exemption period will cease fully at the earlier of the following two points in time: (i) the applicant has received a tax exemption for ten years, or (ii) the discounted value of the actual tax exemptions received is equal to the shortfall cost, as described in Section 1 of this document.

pe20030710.htm

LINK TO APPENDIX C

Summary of Incentives Calculation for Sample Site

* * * * *

pe20030710.htm

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