|
CITY OF VANCOUVER ADMINISTRATIVE REPORT |
Date: |
October 18, 2004 | |
Author: |
Cameron Gray | |
Phone No.: |
7207 | |
RTS No.: |
04363 | |
CC File No.: |
1203 | |
Meeting Date: |
November 2, 2004 |
TO: |
Vancouver City Council |
FROM: |
Director of the Housing Centre |
SUBJECT: |
Lease Amendments for The Wellington: 1399 Fountain Way |
RECOMMENDATION
A. THAT Council approve the Sept. 20, 2004, Memorandum of Understanding (attached as Appendix A) between the City and the Wellington Society regarding amendments to the lease for the Wellington (1399 Fountain Way) that would allow the Society to remortgage the property to generate equity to invest in non-profit rental housing in the City of Vancouver, and authorize the Director of Legal Services to amend the lease for the Wellington and to renew the daycare sublease from the Society on terms and conditions to her satisfaction.
B. THAT no legal rights or obligations shall arise or be created by this Memorandum of Understanding until it is approved by the Society's Board and by City Council, and until all legal documentation has been executed on terms and conditions to the satisfaction of the Society's and the City's solicitors.
GENERAL MANAGER'S COMMENTS
The General Manager of Community Services RECOMMENDS approval of the foregoing.
COUNCIL POLICY
Council's social housing objectives are to maintain and expand housing opportunities in Vancouver for low and modest income households with priority to be given to families with children; seniors on fixed incomes or in need of support; SRO residents; and the mentally ill, physically disabled, and others at risk of homelessness.
PURPOSE
This report recommends that the lease for the Wellington, located at 1399 Fountain Way, be amended to allow the Wellington Society to remortgage the property to generate equity to invest in non-profit rental housing elsewhere in the City of Vancouver, and that the daycare sublease be renewed to allow the daycare to be operated at the same location.
BACKGROUND
The Wellington is an 86 unit non-profit housing project on the south shore of False Creek (see Fig. 1 for location) operated by the Wellington Society. It occupies a site leased from the City of Vancouver with a 60 year term that expires in 2038. It consists of 45 units for families with children and 41 units for seniors and was occupied in 1980. A 25 space childcare, operated by the YMCA, is located on the ground floor in space the City subleases from the Wellington Society.
DISCUSSION
The Wellington was funded by CMHC under a Federal non-market housing program whose objective was the development of mixed income rental housing which could accommodate low and modest income households. Households that cannot afford market rents in the area are to receive subsidies, and those that can afford to are required to pay market rents. The program did not set a minimum percentage of households eligible for subsidies. Currently the Wellington accommodates 23 households (close to 25%) that cannot afford market rents and therefore receive subsidies. The Wellington provided $130,000 in subsidies in 2003. CMHC holds mortgages on the property and CMHC's program requirements are administered through an operating agreement which is attached to the mortgages.
The Wellington Society wish to pay out CMHC's mortgages and to refinance the project to generate equity to invest in non-profit rental housing, either by buying a rental building and converting it to non-profit rental housing, or by developing new non-market housing. Market rental rates have increased over time and the revenue from the Wellington can support a mortgage of $5,000,000, sufficient to cover the cost of paying off the current mortgages totalling $3,000,000 and generate $2,000,000 for new non-profit housing.
The Wellington Society could use the additional revenue to accommodate more low-income households in the Wellington, but the Society believes it is important to expand their non-market housing portfolio, as they only operate the one project now, and to increase the long-term stock of non-profit rental housing in Vancouver. They have agreed to accommodate a minimum 20% of households in core-need in the Wellington for the lifetime of the lease. They have also agreed that, until the $2,000,000 in equity has been invested in another non-profit rental building, to maintain the current 25% of subsidized units. No current tenants would be impacted by the refinancing. The Society says that when they invest the equity in new building, they will gradually reduce the number of core-need households in the existing building by attrition. Those receiving subsidies would continue to receive them, and rent increases would be limited, as they are, to increases in local area rents.
The Wellington Society are required to use the proceeds of the refinancing to either buy a rental building in the City for conversion to non-profit housing or to develop new non-profit housing in the City.
The refinancing proposed by the Wellington Society requires that the City's lease be amended as it restricts financing to what was required to cover the prepaid lease payment and the cost of building the project. It is recommended that the lease be amended to allow refinancing, with the restriction that the amortization term for any refinancing not exceed 2030 which is 8 years before the termination of the lease. The refinancing is restricted to the leasehold improvements and the City's fee simple ownership of the site remains secure.
The City subleases space in the Wellington for a 25 space childcare that is operated by the YMCA. The current rent for the space is $725/month and it is up for review. The Wellington Society has agreed to maintain the rent at $725/month until such time as the costs of operating the space (taxes, utilities, maintenance) exceed $725/month. When the operating costs, currently $450/month, exceed $725/month, the rent for the childcare space will be established at a rate that covers these costs. This will be a cost recovery (breakeven) rent and will put the Wellington childcare on the same basis as other childcares located in City owned space. The operating costs do not include debt service for the childcare space. The Wellington has been paying the debt service, currently $440/month, and has agreed to continue to pay the debt service, effectively providing a subsidy to the childcare of $2000 in 2004.
A Memorandum of Understanding setting out the terms of the proposed refinancing is attached as Appendix A.
CONCLUSION
The Wellington Society wishes to increase its non-market housing portfolio by refinancing the Wellinton at 1399 Fountain Way and using the proceeds to buy a rental building to convert or to build new non-profit housing. It is recommended that the Wellington Society proposal be accepted on condition that they continue to subsidize at least 20% of the households in the Wellington and that the proceeds from the refinancing be invested in non-profit housing in the City of Vancouver.
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APPENDIX A
Page 1 of 2
MEMORANDUM OF UNDERSTANDING
between
The Wellington Society (the Society), and
the City of Vancouver (the City),
regarding the refinancing of The Wellington,
1399 Fountain Way, Vancouver, B.C., and
dated for reference September 20, 2004.
Introduction
The Wellington Society wishes to expand its non-market rental housing portfolio by purchasing an existing rental building and converting it to non-market housing or by developing a new non-market housing project. There is limited government funding available for non-market housing, and the Society proposes to refinance The Wellington to generate the equity that financing for a new building will require.
The Wellington
The Wellington is an 86 unit building located at 1399 Fountain Way on the south shore of False Creek consisting of 41 1-bedroom apartments, 29 2-bedroom apartments, 8 2-bedroom townhouses and 8 3-bedroom townhouses. It is owned and operated by the Wellington Society (the Society), a non-profit housing society whose primary mandate is to house low and modest income seniors and families.
The Wellington is located on a site (PID: 007 812 285, Lot 50, False Creek, Plan 17420) leased from the City of Vancouver (the City). The lease was prepaid, commenced on Oct. 1, 1978, and has a 60-year term. The lease limits the mortgaging of the Society's leasehold interest to the cost of constructing, repairing or replacing the Wellington.
Current Financing for the Wellington
The construction of the Wellington was financed by CMHC under Section 56.1 (now Section 95) of the National Housing Act. CMHC holds two 35 year mortgages on the property: a first mortgage at 8.5% which is now due, and a second at 11% which is due on August 1, 2015. As a condition of CMHC financing, the Society entered into an operating agreement which requires the Society to rent the units to seniors and families who pay a low end of market rent if they can or 30% of their gross household income on rent if they cannot afford market rents. The operating agreement with CMHC does not set a minimum percentage or number of units that must be occupied by households requiring subsidies. CMHC provides subsidies equal to the difference between the interest rate on the mortgage and 2%. As of December 1, 2003, 23 households were receiving subsidies totalling $10,885/month ($130,620/year).
Refinancing the Wellington
The Society proposes to refinance the Wellington. By paying out CMHC and refinancing at lower interest rates, the Wellington can continue to subsidize Wellington tenants and generate enough equity to support financing for a new project.
CMHC has agreed to let the Society payout their two existing mortgages at a total cost of $3,050,000, and have agreed to insure a new mortgage to a maximum of $5,111,742.50. The refinancing will generate $2,011,000 in equity (the Equity) that the Society can invest in a new project. The Society has secured financing at 5.72% for a 10 year term and a 25 year amortization. At a Debt Coverage Ratio of 1.2 for the Wellington, the Society can pay the new mortgage payments and generate a minimum of $100,000 annually in internal subsidies so that the current mix of subsidized and market renters can be sustained. Appendix A (on file in the City Clerk's Office) sets out the annual operating budget for the refinanced Wellington.
APPENDIX A
Page 2 of 2
Lease Amendments
The refinancing of the Wellington requires amendments to the lease between the City and the Society.
The lease will be amended to permit the Society to use its leasehold interests in the Wellington as security to support a mortgage for other purposes than the construction, repair or replacement of the Wellington. The lease will require that any financing that is not required for the construction, repair or replacement of the Wellington only be used to finance non-profit rental housing in the City of Vancouver. Any mortgage on the Wellington must have an amortization that does not extend past Oct. 1, 2030.
The lease will be amended to require the Society to restrict occupancy of 25% of the units to core-need households who will pay 30% of their gross household income on rent until such time that the Equity has been invested in non-profit rental housing in the City of Vancouver at which time the Society will be required to restrict occupancy of 20% of the units to core-need households who will pay 30% of their gross household income on rent. The lease will require that all non-core need households pay a fair market rent for their units.
The lease will require that the Society provide annual audited statements to the City for the City's review, setting out the number of core-need households accommodated, the market rents for their units, the subsidies each received over the course of the year, and the total amount of subsidies provided.
Use of Equity
The Society will advise the City of the address, number of units, and rents of the housing project into which the Society=s proposes to invest the Equity. The Equity must be invested in the development of or conversion to non-profit rental housing in the City of Vancouver. The City must approve the investment of the Equity, such approval not to be unreasonably withheld.
Wellington Childcare
The City subleases space on the ground floor of the Wellington from the Society which is operated as a licensed 25 space childcare for children between the ages of 3 and 5. The City currently pays the Society a gross rent of $725/month for the childcare space. The Society pays the mortgage cost and all utilities, taxes and other charges for providing and servicing the childcare space. The current term of the sublease expired on September 1, 2002. The sublease between the City and the Society will be amended to extend the term to October 1, 2038, and to set the gross rent for the childcare space at the greater of $725/month or the total monthly cost incurred by the Society to cover the taxes, utilities, and maintenance but not any mortgage payments to provide and to service the childcare space based on the net square footage of the childcare space to the net rentable square footage of the Wellington.
Once this Memorandum of Understanding is signed it will be presented to the Society's board and to City Council for approval.
No legal rights or obligations shall arise or be created by this Memorandum of Understanding until it is approved by the Society's Board and by City Council, and until all legal documentation has been executed on terms and condition to the satisfaction of the Society's and the City's solicitors.
For the Wellington Society For the City of Vancouver
____________________________ ____________________________
Norm Jones, Chairman Cameron Gray, Director of the Housing Centre
__________________ ________________
Date Date
Appendix A of Appendix A (on file in the City Clerk's Office)
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