CITY OF VANCOUVER
ADMINISTRATIVE REPORT
Date: |
January 17, 2005 | |
Author: |
Ken Bayne | |
Phone No.: |
604.873.7223 | |
RTS No.: |
04465 | |
CC File No.: |
1401-77 | |
Meeting Date: |
February 1, 2005 |
TO: |
Vancouver City Council |
FROM: |
Southeast False Creek Steering Committee |
SUBJECT: |
Southeast False Creek Redevelopment: Financial Plan and Strategy |
S
A. THAT Council approve the Southeast False Creek Project Financial Strategy as follows:
· that the public infrastructure and amenity package set out in the Southeast False Creek ODP and the Financial Plan described in this report be adopted as an overall framework for the neighbourhood;
· that the achievement of the infrastructure and amenity package be reviewed and implemented incrementally, as the sub-areas of the neighbourhood are zoned and developed over the development period;
· that the priority for the first sub-area rezoning (the Olympic Village) be to achieve the public amenity standards for public open space, community facilities, housing and childcare identified in the ODP and that staff report back at the sub-area rezoning stage with recommendations on achieving those priorities;
· that the contribution from the Property Endowment Fund be as outlined in the Financial Plan described in this report and that any further net income provide a return to the Fund on its investment in SEFC;
· that the private lands within the ODP area provide a contribution to the cost of the public infrastructure and amenity package through the payment of City-wide DCLs and CACs, with the combined levy to reflect the benefit that they will realize, AND THAT the amount be determined as part of the CD-1 rezoning process for the private lands sub-areas;
· that the development levies (City-wide DCLs and CACs) received by the City from the development of the PEF lands and the private lands be re-invested in full in the public infrastructure and amenity package identified in the SEFC ODP;
· that the City actively pursue funding from senior governments, community partners and the private sector to achieve the financial, accessibility, environmental and sustainability objectives of the SEFC ODP;
· that as the community develops, the City be prepared to provide interim financing as necessary to ensure the public infrastructure and amenity package are delivered in a timely fashion.
B. That Council approve a policy endorsing the "risk management" approach to dealing with problem soils on PEF lands within SEFC as outlined in this report.
C. THAT Council approve a policy adopting the recommended A100 Seismic Standard for foreshore stabilization in SEFC, as outlined in this report.
COMMENTS OF THE CITY MANAGER
The redevelopment of the lands in the Southeast False Creek ODP area has been on the City's agenda for many years. Since the late 1980s, the City has consolidated the ownership of the site north of 1st Avenue in the Property Endowment Fund and has developed the financial resources necessary to turn these lands into a unique new neighbourhood that embodies a vision of financial, economic, environmental and social sustainability. The completion of the Official Development Plan and the supporting financial plan for the development of Southeast False Creek represents the next step in pursuit of that vision.
The development planned for Southeast False Creek represents a significant financial cost for the City. Over the next 15 to 20 years, the City will spend almost $250 million toward creation of the community Council approved in July, 2004 when it considered the "Choices and Directions for the Planning of Southeast False Creek" report. Moreover, the timeframe for development - perhaps through 2025 - also presents considerable financial risks to the City as the primary provider of the public amenity package. As a result, the financial plan includes measures to limit potentially significant costs related to the standards for foreshore stabilization and remediation of problem soils on the site. It also includes appropriate funding contingencies to address the significant market, construction cost and environmental risks associated with the lengthy development period.
As envisioned in the ODP, the Southeast False Creek community provides a higher standard of public infrastructure and amenities than has been provided by other major developments in the City. Many of these are directed at achieving the sustainability goals set by Council. However, there is also the risk that the development defined in the ODP will not meet traditional sustainability goals without careful financial management over the period of development. For example, the PEF as developer would have expected to recover the $30 million already invested in its site and to have earned an appropriate return on its investment. The loss of this return to the PEF represents a significant opportunity cost that will impact on the City's ability to acquire strategic sites and to meet other public objectives in the future. In making decisions now and in the future about the extent of the financial commitment in SEFC by the PEF, these trade-offs deserve careful consideration.
Achieving all of the objectives of the SEFC ODP will also require the financial participation of the privately owned lands within the ODP area, senior governments and community partners and, potentially, the allocation of the City's traditional funding sources, like the Capital Plan and City-wide development levies. As many of these sources will only be identified in the future, the community may be required to show some patience and there may be choices necessary about which components of the amenity package can be achieved and what resources the City is prepared to invest to achieve them. It is important that in working to achieve the vision for Southeast False Creek, Council and the community not jeopardize achievement of the priorities for the rest of the City nor establish precedents that impact on the long term viability of the PEF as a valuable City asset.
The City Manager notes that the ODP and financial plan reflect the decisions Council made in July 2004 and RECOMMENDS approval of A, B and C.
COUNCIL POLICY
In October 1999, Council approved the Policy Statement for Southeast False Creek.
On July 26, 2004, Council approved amendments to the Southeast False Creek Policy Statement including recommendations that require further investment by the Property Endowment Fund in the neighbourhood, including in an enhanced community amenity package.
It is Council policy that the public infrastructure and amenity costs associated with development in the City are paid in part by the benefiting land owners. This is accomplished through direct contributions from development and the collection of development cost levies and community amenity contributions.
Council has a number of policies related to the activities of the Property Endowment Fund. The Fund is to be treated as an endowment for the current and future residents of the City and the objective is to protect and increase the value of the fund. The objective of the PEF are to earn a reasonable return on its investments and, where this objective can be met, to contribute to the City's public policy objectives. Net income of the PEF is shared between current residents, through direct support to the Operating Budget, and future residents through strategic investment in income producing assets.
PURPOSE
The purpose of this report is to review the financial implications of the public amenity package included in the Southeast False Creek (SEFC) Official Development Plan and to recommend a financial strategy that seeks to realize these objectives.
SUMMARY
On July 26, 2004, Council instructed staff to amend the proposed Southeast False Creek Official Development Plan by enhancing the public infrastructure and amenity package. The changes included a revised form of development that limited building heights to low to medium rise; a more active waterfront along False Creek; a change in the housing mix to include increased low income units and the inclusion of "modest income" housing; an increase in the square footage in the proposed community facilities from 10,000 square feet to 30,000 square feet and the inclusion of a non-motorized boating centre; the inclusion of additional childcare spaces. As a result of this decision, the neighbourhood has undergone a major redesign and the cost and revenue estimates in the financial plan that underlies the development have been adjusted.
The lands within the SEFC ODP area are owned by the Property Endowment Fund (approximately 50 acres north of 1st Avenue to False Creek) and a number of private owners. As the PEF is the largest single property owner, most of the public amenities are to be located on these lands with the private land owners paying city-wide Development Cost Levies and Community Amenity Contributions to provide for their share of the costs. The revised ODP anticipates that approximately $183 million will be spent providing for the amenity package, including a contribution of approximately $85 million by the Property Endowment Fund. In addition, it is anticipated that the net income to be earned by the PEF, currently $8.3 million (2005$), will be available to fund the public amenity package.
At the time the July ODP was brought forward, it was anticipated that the PEF would service and prepare its lands to the point of sale for development of market housing. Included in the PEF development pro forma was approximately $62 million ($26 per square foot) in public amenities, including offsite infrastructure, parks, community facilities, low income housing and childcare. However, it was anticipated that the PEF would generate sufficient revenues from the sale of market housing sites to recoup its site servicing costs and these amenity costs and earn a return on the value of its land of approximately $50 million over the development period. This net income was to be returned to the PEF.
Council instructed that, under the revised ODP, the $50 million should be made available to offset the costs of the enhanced public amenity package, leaving the PEF with no return, including the loss of approximately $30 million invested in land purchases, soil remediation and development planning to date. Under the revised ODP, the PEF will commit an additional $42 million (net) in the public amenity package, leaving the net income of approximately $8.3 million (2005$). This income will also be available to offset the cost of the public infrastructure and amenity package and brings the PEF investment in SEFC to approximately $40 per square foot.
The private land owners will also be expected to contribute to the public amenity package. The SEFC financial plan identifies approximately $61 million in costs that would be allocated to the private lands based on typical amenity standards for major developments. Some of that cost will be attributable to the development of specific sites with the ODP area ($11 million) while the balance would be expected to come from development cost levies and community amenity contributions. This translates to approximately $14 per square foot of development included on the private lands and excludes the costs associated with providing low income ($8 per square foot) and modest income ($4 per square foot) housing. The final levy to the private lands will be determined as part of the CD-1 zoning process anticipated later in 2005.
In order to achieve the public amenity benefits proposed by Council for SEFC, a financial strategy is recommended. This strategy acknowledges that there will be some financial challenges in achieving the public benefits strategy for SEFC and that decisions on which amenities can be provided and at what level should be made as the neighbourhood develops. At the same time, the strategy establishes as a priority the achievement of open space, community facilities, housing and childcare for the first sub-area (the Olympic Village) to be developed. The strategy balances the important roles of the PEF in the redevelopment of SEFC and as an endowment of the City by providing that a return to the fund should remain as an objective. The private land owners in the area will be expected to participate in the achievement of the public amenity package through payment of City-wide DCLs and CACs, all of which will be directed to the community. The strategy indicates the important roll that senior governments, community partners and, potentially the private sector will play in achieving the housing and sustainability objectives of the ODP.
BACKGROUND
1. The July ODP
On July 26, 2004, staff brought forward a proposed Official Development Plan for SEFC (the "July ODP"), including all of the land north of 2nd Avenue, east of the Cambie Street Bridge and west of Main Street. This site is approximately 80 acres and represents a combination of City-owned and privately-owned lands.
The ODP represents a development plan for the site that will guide the site-specific zonings to be brought forward over the development period which will likely be at least 15 years. The ODP included a number of components, including the form of development, public infrastructure requirements and the provision of public amenities within the community.
Approximately 50 acres of the Plan area - north of 1st Avenue between Cambie and Quebec Streets and identified as sub-areas 1A, 2A and 3A in the diagram above - are owned by the City and held in the Property Endowment Fund (PEF). This report refers to these lands as the "PEF lands". The balance of the sites in the Plan area, are owned by private interests (1B, 2B and 3C) but include two smaller sites owned by the PEF and one owned by Translink (3B). These sub-areas are referred to in this report as the "private lands".
As with other major redevelopments around False Creek, the ODP anticipated that development sites within the ODP area would contribute to the public infrastructure and amenity package to be provided though the payment of Development Cost Levies and/or Community Amenity Contributions. To the extent that the development offered a wider public benefit, the City could also access its more traditional funding sources, including the Capital Plan, City-wide DCLs and CACs received from outside the ODP area, senior governments and partnerships, to complete it.
In approaching the redevelopment of the PEF lands, the Council of the day instructed staff to consider the PEF as if it were a private developer. In this scenario, the form of development, public infrastructure requirements and the public amenity package expected of the PEF would be the same as if the PEF lands were held in private hands. As such, there was an expectation that:
_ The PEF would prepare the city-owned lands for development and recover its costs through the sale of residential and non-residential parcels at market prices;
_ The PEF would be expected to contribute to the public infrastructure and public amenity package on the same basis as expected of private developers;
_ the PEF would earn a return on the value of its land based on the current industrial zoning (then estimated at $50 million);
_ the private lands would share in the City's costs of providing the public amenity package through the imposition of City-wide DCLs and/or CACs.
In addition, Council indicated support for further investment in the neighbourhood by the City, including:
_ the PEF would reinvest the normal developer's risk premium in a higher level of public amenity on the site (based on current pro forma this would be approximately $18 million);
_ the City would re-invest the equivalent of the City-wide DCLs that would otherwise be paid on the development of the PEF lands in the public amenity package (value estimated at $9.0 million);
_ The City-wide DCLs and/or CACs from the private lands would be invested in the public amenity package in the ODP area rather than be allocated as part of city-wide priority setting initiative.
The July ODP and supporting financial plan reflected these expectations. It was anticipated that the PEF lands would host most of the public amenity package, including parks, community facilities, the school site, "affordable" housing and childcare facilities; that the private lands would contribute to the funding of that package in return for not having to provide amenities on their sites; and, where additional funding was required, the City would either access its traditional funding sources or decide not to include some amenities in the development.
2. The Revised ODP
On July 26, 2004 Council instructed staff to amend the ODP and enhance the public amenity package as follows:
_ change the form of the development from a "podium and tower" configuration to a low to mid-rise form;
_ develop a more active and attractive waterfront;
_ change the mix of housing on the PEF lands from 20% "affordable" housing to: 1/3 high income housing; 1/3 middle income housing; and, 1/3 low income housing;
_ increase the proposed community centre from 10,000 sq. ft. to 30,000 sq. ft. and include a non-motorized boating centre;
_ change the distribution of the park space to reflect a better balance across the site, even at the expense of a reduction in total park space of up to 10% (2.64 acres);
_ narrow the street rights of way and give less preference to vehicles and greater preference to pedestrians and bicycles in the traffic mix;
_ leave the three heritage buildings in place rather than move them;
_ increase childcare allotment from three to five centres.
Council was advised that these changes would have a significant impact on the financial plan that underlies the ODP, including additional costs and foregone revenues within the PEF development pro forma. In addition, it was noted that further technical analysis would be required to identify and update foreshore stabilization costs associated with moving activity closer to the waterfront and soil remediation costs that could arise from a change in the form of development.
In response, Council instructed staff to consider that the return expected on the value of the land owned by the PEF in SEFC - then estimated at $50 million - would be available to fund the enhanced public amenity package, including the changes note above. The revised ODP is based on the expectation that, in addition to the contribution proposed in the July ODP presented in the Choices and Directions for the Planning of Southeast False Creek report, the PEF financial contribution to the redevelopment of SEFC would include:
· the PEF would forego recovery its investment to date in SEFC, totalling approximately $30 million ($ of the day) since 1990 for property purchases and soil remediation; and
· the PEF would contribute the return on the development of its lands such that it would neither earn a net return nor incur a net loss over the term of the development.
DISCUSSION
The revised Official Development Plan, set out in the accompanying referral report, reflects a very different development than the one that was before Council in July 2004. The revised ODP outlines the changes that have been made to give effect to Council's instructions and that influence the overall financial plan for the area. This report summarizes the financial implications of the Official Development Plan based on a traditional market-based assessment. This analysis is undertaken at two levels:
· an updated development pro forma for the Property Endowment Fund which includes an assessment of the costs and revenues related to the development of the PEF lands in the ODP area, including the standard developer contributions to the public benefits strategy;
· a financial plan for the entire ODP area, including the costs of providing public amenities as well as actual and potential funding sources. This includes the participation by the Property Endowment Fund as well as by the private lands within the ODP area, the lands adjacent to the ODP area that may benefit for the amenities provided in SEFC, and the other funding sources that the City can access to achieve the public benefit strategy envisioned in the ODP.
The broader benefits review requested by Council is considered in a consultant study entitled, Southeast False Creek Multiple Accounts Evaluation, available with the SEFC Public Hearing documentation through the City Clerk.
The financial plan reflects a neighbourhood redevelopment project that will take place over 15 to 20 years, beginning with the first CD-1 area - the Olympic Village - by 2010. There will be at least two additional CD-1 sub-areas on the PEF lands to be phased once the 2010 Olympics are completed. The private lands will develop following CD-1 zoning on timing to be determined by the private owners.
The timing of this development introduces a number of risks to the financial plan. In order to protect against downside risk, the plan includes appropriate contingencies to provide for new or increased costs or lower than anticipated revenues. It has also been assumed that, because much of the public infrastructure and amenity package may have to be provided earlier than the development of, and contributions from, the private lands, some interim funding arrangements will be required. Sources for any interim funding arrangements will be detailed at the time sub-area specific zonings are considered.
While the cost of the infrastructure and amenity package have been identified, along with the contribution that will be provided by the Property Endowment Fund, there are considerable funding requirements for which funding sources have not been identified. Some of this funding will come from city-wide development levies on the private lands, however, until Council establishes those development levies (at the CD-1 zoning stage), the amount of that contribution is not yet certain. Any shortfalls in the required funding will require Council to consider the application of other City funding to the redevelopment or to reduce the expectations for the amenity package.
Although the ODP will establish the public infrastructure and amenity package objectives for the SEFC neighbourhood, because of the timing issues, achieving all the components of that package will require some patience as well as the commitment of City funding on an interim basis, as the neighbourhood redevelops. However, overall, there is optimism that Council can meet its objectives as the neighbourhood redevelops.
THE OVERALL SEFC DEVELOPMENT FINANCIAL PLAN: ANTICIPATED COSTS
It is anticipated the total costs of providing the public infrastructure and amenity package for the SEFC neighbourhood will involve an investment of $183 million (2005$) over the next 15 - 18 years. This excludes the investment to be made by the PEF in preparing its lands for development or sale, including the costs of new streets and utilities, soil remediation and foreshore stabilization. These costs are summarized in the following table, along with the component that is proposed to be provided by the PEF.
The SEFC financial plan includes the following components:
· the preparation and servicing of the PEF lands, including the provision of sewer, water and streets infrastructure;
· remediation of soils to appropriate standards across the site, including the expectation of a soils risk management program outlined in this report;
· stabilization of the foreshore to standards acceptable for public developments;
· construction of pedestrian, bicycle and vehicular transportation infrastructure;
· improvements to area streets to manage pedestrian, bicycle, vehicular and transit traffic and for general public realm improvements;
· acquisition and development of 25.8 acres of parkland;
· a school site;
· construction of a 30,000 sq. ft. community centre with a non-motorized boating facility;
· a contribution to neighbourhood Library facilities at #1 Kingsway;
· stabilization in-site of the existing heritage buildings;
· provision of development sites for the modified housing mix, including 1/3 high income housing, 1/3 middle income housing and 1/3 low income housing;
· up to 684 childcare spaces.
·
Anticipated Costs of Southeast False Creek Public
Infrastructure and Amenity Package1
Cost Category |
Total Cost |
Allocated to the PEF | |
2005 $ |
2005 $ | ||
Public Realm Improvements;
|
$36.5 million |
$7.2 million | |
Housing Options: |
Low Income
|
42.0 million
|
$42.0 million
|
Park Sites and Park Development2 |
42.6 million |
21.6 million | |
Heritage Buildings |
10.6 million |
2.0 million | |
Community Centre/Boating Facility |
9.0 million |
3.6 million | |
Library |
1.5 million |
0.6 million | |
Childcare |
19.8 million |
8.0 million | |
$ 183.1 million |
$ 85.0 million | ||
1. estimates exclude approximately $58 million that the PEF will incur to service its lands for development or sale, including $26 million for roads, sewer and water infrastructure.
| |||
It is likely that an additional $700 - $900 million will be spent in construction costs to provide the residential and commercial space anticipated in the ODP.
Approximately 46% of the funding for the public infrastructure and amenity package - $85 million - has been allocated to the Property Endowment Fund based on typical standards for amenities and the expectation that most of the amenities will be provided on the PEF lands. The balance will be provided by the City through the allocation of the net income anticipated for the PEF on its land; by the owners of private land in the ODP area; or, through the City's more traditional sources of funding - capital plans, city-wide development charges, senior government cost sharing and partnerships.
Providing for the Housing Mix
The SEFC Financial Plan contemplates that the low-income housing will be provided on the PEF lands. This will be achieved by making development sites available at no cost for funding under senior government housing programs designed to serve households in core housing need. As noted above, the PEF pro forma has accounted for the full cost of providing these sites. This represents foregone revenue to the PEF of approximately $42 million, of which $16.6 million is related to topping up the amount of low income housing from the 20% standard applied in planning most major private developments to 33% in the SEFC ODP.
This investment does not provide for construction of the low income housing. In the Olympic Village sub-area, the federal and provincial governments have promised some funding for construction. Beyond that initial development, funding will be sought from federal and provincial housing programs, but may ultimately be required from the private lands or from other City funding sources. It has not been contemplated that the private lands will contain any of the low-income housing. However, the private lands should contribute to the costs of providing the sites for this housing.
The SEFC ODP also includes the expectation that middle income housing will form up to 1/3 of the units to be provided on the PEF lands. There are a number of mechanisms for achieving this objective, largely utilizing market mechanisms, including a reduction in the cost of the land, to restrictions on tenure, to design guidelines and zoning that encourage units that can be provided with a lower market value than would otherwise be provided. As such, it may be possible to achieve the middle income housing objective on the private lands as well as the PEF lands at little or not cost. However, to the extent this is not possible, PEF lands may have to be leased or sold at reduced value, adversely affecting the development pro forma and the return that can be directed to the enhanced public amenity package. The assumption in the financial plan is that all of the units could require a subsidy equivalent to 50% of the land value of the unit, representing a cost in the range of $21 million. This cost has not been included in the PEF pro forma and, to the extent a subsidy is required, funding from development contingencies or other sources will need to be accessed.
The following sections discuss the role of the property owners within the ODP area, including the Property Endowment Fund and the owners of the private lands.
ROLE OF THE PROPERTY ENDOWMENT FUND
The changes to the ODP approved by Council in July have had a significant impact on the revenues, expenditures and net income anticipated in the Property Endowment Fund development pro forma. This includes changes to the revenues to be earned from the sale of market development sites, from the updating of costs for site servicing and infrastructure and the inclusion of components of the enhanced public amenity package.
The review also identified two specific areas of cost that were not fully explored in the financial plan accompanying the July ODP but which have become important components of the revised financial plan:
i.) foreshore stabilization issues and costs
The July ODP made little accommodation for foreshore stabilization work because it was not proposed to move the development (buildings or other waterfront uses) close enough to the foreshore to require significant expenditure. As a result, the cost estimate used at the July ODP stage did not include the cost to improve shoreline stability for the park and waterfront walkway.
As the revised Illustrative Plan proposed development sites closer to the water and public access along the water, the geo-technical consultants were asked to review the foreshore stabilization costs.
This analysis looked at two options. The first considered a scenario in which permanent buildings were located inside a 30 meter setback from the water's edge. In this situation, additional soil densification costs would be required on the foreshore and in the water, especially along the water side of the proposed Olympic Village site between Columbia and Ontario Streets. The cost of this additional work was estimated at $27 million. If a similar standard were employed along the entire foreshore, including adjacent to the parks, these costs were in the order of $50 million. In addition, there is concern that the indicated work will raise environmental concerns with the False Creek seabed resulting in potentially significant additional costs as well as potential delays in the completion of the Olympic Village. These concerns have led staff to recommend against encroaching on the 30 metre setback, a recommendation generally reflected in the ODP.
The second option was to keep permanent buildings generally back 30 meters from the water's edge in order to avoid having to meet building code seismic standards for shoreline stabilization. Public parks/walkways/bikeways are provided along the shoreline, similar to those proposed previously. The issues identified are summarized for the three major waterfront zones:
Cambie Bridge to Columbia Street: This area is fronted mainly by parks and related activities. Minor slope stabilization will be required to provide seismic stability appropriate for public open spaces, consisting of re-grading slopes (to two horizontal by one vertical) and protecting the shoreline with rip-rap. The estimated cost of this work is $1.2 million. Within this area, there is also a section of sheet piling which requires assessment for seismic performance and useful life. Depending on this review, there could be an additional $2 million required to replace the sheet piling.
Columbia Street to Ontario Street: Minor slope stabilization work will also be required along this waterfront area, including the work that was always included in the development plan to increase the size of the existing bay adjacent to the Olympic Village. Grading and rip-rap work on the foreshore and construction of decking for the waterfront walkway is estimated to cost $2.8 million. Enlarging and stabilizing the bay is estimated to cost $2.0 million. In addition, Front Street is now proposed immediately adjacent to the bay, requiring approximately $1.5 million to stabilize this portion of road.
Ontario Street - east: The shoreline east of Ontario is not included in this study and will be dealt with as part of the Science World deck replacement. Funding for this replacement, estimated at $10 million, is being requested in the 2006-2008 Capital Plan and will be considered along with other public infrastructure expenditures.
The recommended standard for shoreline stabilization (technically referred to as the A100 seismic standard) does involve a financial risk associated with settlements and/or localized slope failure in the event of a major earthquake. This is similar to the risk of slope failure at other locations along the seaside walkway/bikeway, such as around Stanley Park and along Vanier Park. This risk is not a life-safety hazard, but rather a potential repair liability. Considering the significantly lower capital cost with minor added risk, it is recommended that Council adopt this strategy and accept the associated risk for the SEFC shoreline (Recommendation B).
In summary, the additional costs for foreshore stabilization are estimated at:
· $4.0 - 6.0 million for foreshore work to accommodate the waterfront walkways;
· $2.0 million to enlarge and stabilize the small bay adjacent to the Olympic Village site;
· $1.5 million for stabilization of the revised street network that is closer to the water.
ii.) soil remediation and costs
The previous plan and soils strategy contemplated removing all special waste from the development area, but leaving all other commercial and industrial level soils on-site to be "risk managed". This strategy avoided cost and was seen as more sustainable as it minimized the number of trucks transporting soil to landfills. Nevertheless, it was anticipated in 1999 that approximately $10.6 million would be required for soil remediation.
As part of the 2004 ODP re-design, the assumption that most soil could be kept on-site was tested. This proved impractical because the soil volumes from the excavations would result in finished elevations that were too high in relation to the surrounding neighbourhood and the waterfront. The change in development configuration in the revised ODP also does not provide quite as much opportunity to accommodate soils on-site as the original plan. However, the consultants have determined that with some increase in grade across the site and an acceptance of "risk management" techniques on the PEF lands, cost increases can be kept to an estimated $8.0 million above the 1999 estimate (total of $18.6 million, excluding approximately $4.0 million already spent on environmental assessment and remediation of the site). If risk management is not acceptable on the PEF lands, then these costs will increase.
Council is therefore asked to endorse a soil risk management strategy (Recommendation C) that includes the risk management of industrial and commercial level soils under parks, community facilities, the school and all City-owned housing sites. Problem soils under market sites will likely be fully remediated prior to development to meet private financing requirements.
The Property Endowment Fund Participation
In its role as the owner of the largest consolidated site in SEFC, the PEF will take a major role in the redevelopment, including being the host for most of the enhanced public amenity package. The development pro forma provides for the following components:
¬ Approximately 18 acres of land fully serviced and ready for sale/development with the proceeds to support achievement of the public infrastructure and amenity package.
A number of factors have impacted on the revenues anticipated to be earned by the PEF from the sale of development sites in SEFC and, therefore, on the net income that can be expected. These include:
· A net reduction in the income anticipated from land sales as a result of the change to the low to mid rise form of development; and,
· an increase in the amount of space allocated to low income housing (from 20% to 33%) for which it is anticipated the PEF will not be compensated.
The impact of these amendments is a net reduction of $25 million in the net income of the PEF from the July pro forma.
¬ normal public works infrastructure (water, sewer, streets, etc.) on it property north of 1st Ave from Cambie to Quebec Streets.
These costs have increased by $15.2 million to $26.0 million as a result of:
· the requirement for a greater level of soil stabilization that must be provided under streets in more marginal soils closer to the shoreline
· the need to remove more soil from under most streets for structural reasons and dispose off-site; and
· an update to infrastructure development costs as a result of construction inflation of approximately 25% over the last year.
¬ stabilized foreshore from Cambie to Ontario, including enlarged and stabilized inlet area and provision for the replacement of sheet piling at the west end of site.
These costs have increased from $2.0 million to $8.0 million as a result of:
· the development of a more active waterfront with pedestrian and bicycle uses; and
· recognition of the need for minor slope stabilization along the entire waterfront walkway.
These costs are sensitive to the recommended Council policy on an appropriate standard for foreshore stabilization discussed above and to the location of development sites within the 30 metre set-back.
¬ Soils remediated to residential standard, with PEF lands "risk managed".
These costs have increased from $10.6 million to $18.6 million as a result of:
· updating the 1999 cost estimate;
· the relocation of development sites closer to the water and in more problematic soils areas; and
· the redistribution of open space resulting in smaller areas on which to store marginal soils.
These costs are sensitive to the recommendation of Council policy on a "risk management" strategy for handling soils on the PEF lands discussed above. In addition, contingencies are required in the PEF development pro forma to mitigate against further contamination that may be discovered on site.
¬ A mix of housing options, including 1.37 million sq ft of market residential development potential and 602,000 sq. ft. allocated low income developments.
Of the 1.37 million sq. ft. allocated to market sites, approximately 770,000 sq. ft. will be available for sale for market housing. The balance of 602,000 sq. ft. is anticipated to be required to meet Council's objective of achieving 33% of the units as middle income housing. If achievement of this component of the housing requires a 50% subsidy on the value of the land (which translates into a 10% reduction in average selling prices for finished housing), the cost is anticipated to be $21.0 million. Unless funding is provided from other sources, any reduction in selling prices to achieve this objective will affect the PEF pro forma, potentially jeopardizing the contribution to other components of the amenity package.
The PEF pro forma includes provision for 602,000 sq. ft. of low income housing on sites to be provided at no cost. As these sites will have to be provided for free, this represents foregone revenue (and cost to the project) of approximately $42 million to the PEF of which $16.6 million is the result of increasing the non-market allocation from 20% to 33% of the housing units on the PEF lands.
As noted above, while land has been allocated to these uses, the estimates do not include any allowance for the cost of construction of the low income housing nor the costs of providing any discount in land values to achieve the 1/3 modest income housing units.
¬ 13.9 acres of developed parkland and the allocation of an additional 11.5 acres for park development.
Approximately 25.4 acres of the 25.8 acres of park will be provided on the PEF lands with the balance anticipated to be provided on the Translink site (sub-area 3B). Based on typical standards for major developments, the PEF will provide and develop 13.9 acres of this total and will recover the value of the balance from the private lands and other City sources to help fund the balance of the public amenity package.
¬ Heritage Buildings stabilized in place pending identification of final use and tenant.
The July ODP anticipated moving these buildings into the Olympic precinct at a cost of approximately $3.4 million and utilizing them as part of the community facilities. The decision to leave the buildings in their current locations has been accommodated in the revised ODP; however, their final uses are not yet certain. The PEF pro forma anticipates that, initially the Salt Building, and ultimately the other two heritage buildings will be stabilized on site pending determination of their final use.
A provision of $2.0 million has been made with the source of funding for further development likely to be provided by the eventual building occupiers.
¬ contribution to offsite infrastructure requirements, including reconstruction of 1st Ave. and public realm beautification and area traffic control measures along 2nd Ave., Quebec St. and Main Street.
As a major developer in the area, the PEF will contribute to the costs of public realm improvements in the ODP area (street trees, boulevards and medians, bike routes, etc) on the same basis as private land owners. In addition, where it is determined the development will require improvements to traffic management system (left turn bays, traffic lights, etc) in the area of the development an allocation to these will also be required. These are standard costs that developers are expected to pay as a condition of development.
It is anticipated that PEF will contribute approximately $7.1 million to these improvements.
¬ financial contribution to the public amenities.
The PEF will provide contributions to the following amenities:
· 30,000 square foot community/boating centre
· contribution to Mt Pleasant Library
· Childcare standard
· Public Art plan for site
The total contribution to these amenities has increased from $8.0 million to $14.3 million as a result of an increase in the size of the community centre, a recalculation of Library costs assigned to SEFC properties, and a return to the City-wide childcare standard. The decision to include a full community centre within the SEFC neighbourhood will also require Council to identify replacement funding of approximately $2.0 million for the centre at #1 Kingsway which was to be the primary centre serving the SEFC lands.
Contingencies: Providing for Risk in the PEF Pro forma
The PEF pro forma has also been adjusted to include contingencies appropriate to mitigate the market, construction cost, environmental and timing risks associated with the development of its site over 15 to 18 years. Contingencies of approximately 15% (for a total of approximately $30 million) have been included, reflecting the stage of the development of the PEF lands, the horizon for its development and the level of cost estimation that has been completed.
The inclusion of contingencies in the pro forma is not only important to protect the financial exposure of the PEF in developing its land in SEFC it also provides some opportunity to achieve objectives of the financial plan for SEFC. To the extent that contingencies are unnecessary as the neighbourhood redevelops, the net income of the PEF will improve providing Council a choice between achievement of the amenity package and providing a return to the fund. In order to take advantage of these potential opportunities, the financial plan for SEFC will need to be reviewed regularly.
Contribution of the PEF Net Income
Throughout the updating of the PEF pro forma, the expectation was that the PEF would service its lands for development or sale with the costs to be recovered from land sales. Surpluses earned on these sales would then be directed to the offsite public infrastructure and offsite and onsite public amenities to similar standards expected of private developers. If the development was financially successful, the PEF would earn a net return which would be committed to assist in providing for the costs of the pubic amenity package defined by Council.
The following table summarizes the revenues, expenditures and contingencies in the PEF pro forma and indicates the net income anticipated from the development of PEF properties, currently $8.3 million (2005$).
Based on the development potential of the PEF lands and the public infrastructure and amenity costs that have been assigned, the PEF will be contributing approximately $40 per square foot to the public infrastructure and amenity package. This compares to approximately $26 per square foot included in the July ODP.
Staff believes that there is the potential for the PEF to improve on the current estimate of net income as the SEFC neighbourhood develops. For example, if the contingencies included in the PEF development pro forma are not required to fund future expenditures or if actual revenue from the sale of development sites exceeds the expectations in the pro forma, the net income of the Property Endowment Fund may increase. Should this situation arise, Council will be able to consider whether the PEF should provide additional funding of the public infrastructure and amenity package or whether the net income should be credited to the PEF as a return on its investment.
FUNDING THE BALANCE OF THE AMENITY PACKAGE
The South East False Creek Official Development Plan sets out a vision for a sustainable and inclusive community that will require funding from the PEF and other sources if it is to be realized. As noted above, the Property Endowment Fund will provide a significant component of the public benefit package in SEFC, including the open space and community facilities, low income (affordable) and middle income (modest market) housing, and a portion of the childcare requirement.
The private lands within the ODP area will benefit from the uplift in value through rezoning of the neighbourhood from the current industrial to primarily residential, as well as from the provision of enhanced public amenities on the PEF lands and is expected to contribute toward the provision of these public amenities.
The City has a number of mechanisms for ensuring that the private lands provide a contribution to the neighbourhood amenities:
· A City-wide Development Cost Levy (DCLs) of $6.00 per square foot is charged on all development in the City. These funds can be directed to provision of park space, childcare, replacement housing and limited public works infrastructure initiatives throughout the City.
· A Community Amenity Contribution (CACs) program that requires properties subject to rezoning to contribute amenities "in kind" or to make payments toward amenities developed off their sites.
· Requirements for sites adjacent to public works to contribute to the cost of upgrading of infrastructure where a benefit is provided.
The SEFC Financial Strategy assumes that all of these mechanisms will be utilized in order to achieve the objectives of the ODP. Moreover, it assumes that all of the proceeds of the development levies, be they City-wide DCLs or CACs, will be being directed to SEFC rather than made available for priorities on a city-wide basis.
As noted earlier in this report, there are approximately $183 million in costs to redevelop SEFC with the infrastructure and amenity standards reflected in the ODP. Based on the current financial plan, the PEF will be responsible for approximately $85 million of these costs. The balance of approximately $100 million will have to be funded by levies imposed on the private lands that will benefit from the redevelopment, through cost sharing arrangements with senior governments and the City's community partners and from occupiers of City buildings on the site; or from city-wide funding sources such as the Capital Plan and City-wide DCLs.
The financial plan assumes that the private lands in the ODP area will share in these costs based on City policies related to major rezonings - the same policies applied to determine the contribution by the PEF. Application of these policies indicates the following costs be allocated to the private lands:
Cost Category |
Amenity Costs1 |
Direct Costs2 |
Total |
|
Public Realm Improvements;
|
$ 13.1 million |
$ 10.8 million |
$ 23.9 million |
Park Sites and Park Development |
18.9 million |
0.3 million |
19.2 million |
Community Centre |
5.3 million |
5.3 million | |
Library |
0.9 million |
0.9 million | |
Childcare |
11.8 million |
11.8 million | |
$ 50.0 million |
$ 11.1 million |
$ 61.1 million | |
1. Costs are calculated based on typical standards for major redevelopments. Low income housing costs are in addition to these costs and are discussed in more detail below.
| |||
Based on the 3.7 million square feet of buildable space on the private lands, a development levy of approximately $14 per square foot would be required if the private lands were to pay based on typical amenity standards for major private developments in the City. In addition, the private lands would be expected to provide the direct costs associated with their specific sites.
The SEFC ODP contemplates that the private sites will not be required to provide low income housing in their developments. The requirements will be met by an allocation of 1/3 of the housing units to be provided on the PEF lands. However, Council policy is that, in a major rezoning, developers provide for this type of housing. As a result, Council might expect that the private lands would contribute to the cost of providing for this housing. If the costs now allocated to the PEF for low income housing were distributed across all of the space reflected in the ODP, the result would be a levy in the range of $8.00 per square foot.
In addition, the ODP anticipates that 1/3 of the units on the PEF lands will be directed at modest income housing. The financial plan anticipates that some $21 million would be required if development of these units required a 50% subsidy to the land value. Shared across the space in the ODP area, this would represent an additional levy of approximately $4.00 per square foot to the private land owners. As noted above, the emphasis in the sub-area rezonings will be to provide this middle third of the housing mix without the need for subsidy.
In summary, if the private lands are to share in the provision of low income and modest income housing in SEFC, a total levy of approximately $26 (2005$) would be required, as follows:
Indicated Costs |
Levy per Square Foot | ||
Private Lands |
|||
Public Infrastructure and
|
$41.7 million |
$14.00 | |
Non Market Housing |
$42.0 million |
$8.00 | |
Modest Market Housing |
$21.0 million |
$4.00 | |
Total |
$26.00 | ||
Property Endowment Fund |
|||
Public Infrastructure and Community Amenities |
$85.0 million |
$40.00 | |
As noted, in the table, the comparable PEF contribution is currently estimated to be $40 per square foot for the development on its lands.
The City has engaged Coriolis Consulting to assess the ability of the private lands to support the public infrastructure and amenity package. The consultant reviewed the current and expected development economics on the private lands, using examples of recent sales and developments in the area and has submitted a draft report which has not yet been finalized.
The Coriolis report will be completed before the rezoning process for the private lands, providing the private land owners the opportunity to review the work and provide comment to Council as part of that process. As a result, the appropriate time for consideration of this levy will be during consideration of the CD-1 zoning for the private lands, expected later in 2005.
Staff note, however, that the levy on the private lands that is eventually recommended should consider the full range of costs and benefits accruing to the private landowners, the ability of the private lands to pay and the impact of various levies on the timing of development on the private lands.
A FINANCIAL STRATEGY FOR REALIZING THE PUBLIC AMENITY OBJECTIVES
Realizing the public infrastructure and amenity objectives of the Southeast False Creek ODP represents a significant challenge for the City because of the standards being proposed. Moreover, the redevelopment of the neighbourhood will take place over 15 to 18 years, introducing an increased level of risk to the financial plan both in terms of the ultimate costs and the availability of funding from the private lands to provide the amenities in a timely fashion.
Council has instructed that the Property Endowment Fund should contribute the return that would otherwise have been anticipated on the value of its land in SEFC toward the enhanced public infrastructure and amenity package. While this additional contribution will make the package more achievable, it does not provide sufficient funding.
It is also anticipated that Council will approve the allocation of development levies from the PEF lands and the private lands within the ODP area to assist in providing the public amenity package. This expectation is consistent with Council policy on rezoning/redevelopment of major sites within the City. This assumption has been built into the PEF pro forma. The amount of funding expected from the private lands will be determined at the time these lands are rezoned.
Even with the allocation of this funding to the Financial Plan, there are some items referenced in the ODP that do not have an identified source of funding. Some of these will be candidates for funding from the Capital Plan or City-wide DCL reserves. However, it should be recognized that, if these other City funding sources are required to pay the City's costs to implement the SEFC vision, it will be in competition with other City-wide priorities and will require Council to make choices about the priorities for the allocation of City-wide funding.
The City should also actively pursue funding from senior governments, our community partners and, potentially, private sources for items such as environmental demonstration projects. Provincial and Federal funding will also be required to fund the construction of the low income housing component of the housing mix and the cost of operating the planned childcares. Private sector funding - provided directly or "in kind" - will be required to restore the heritage buildings and to implement some components of the sustainability strategy. There may also be opportunities to pursue cost sharing from the network of community partners the City has developed to support some SEFC objectives.
All of these sources of funding are limited. While there is optimism that the accessibility and sustainability objectives included in the ODP for the Southeast False Creek neighbourhood can be achieved, choices may have to be made if this optimism does not become reality. The vision will be implemented as the neighbourhood develops - at the sub-area rezoning stage - and the issue of funding availability to achieve the components of the public infrastructure and amenity package will, therefore, have to be addressed incrementally over the development period.
In order for the ODP and the development of the first areas of this new neighbourhood to move forward, it is recommended that Council adopt the following strategies with respect to achieving the SEFC vision:
· that the public infrastructure and amenity package set out in the Southeast False Creek ODP and the Financial Plan described in this report be adopted as an overall framework for the neighbourhood;
· that , in order to provide an appropriate balance between development risk and financial risk for the City, the A100 Seismic Standard be adopted for foreshore stabilization and a "risk management" approach be adopted for soil remediation on the PEF lands;
· that the achievement of the infrastructure and amenity package be reviewed and implemented incrementally, as the sub-areas of the neighbourhood are zoned and developed over the development period;
· that the priority for the first sub-area rezoning (the Olympic Village) be to achieve the public amenity standards for public open space, community facilities, housing and childcare identified in the ODP and that staff report back at the sub-area rezoning stage with recommendation on achieving those priorities;
· that the contribution from the Property Endowment Fund be as outlined in the Financial Plan described in this report and that any further net income provide a return to the Fund on its investment in SEFC;
· that the private lands within the ODP area provide a contribution to the cost of the public infrastructure and amenity package through the payment of City-wide DCLs and CACs, with the combined levy to reflect the benefit that they will realize and that the amount be determined as part of the CD-1 rezoning process for the private lands sub-areas;
· that the development levies (City-wide DCLs and CACs) received by the City from the PEF lands and the private lands be re-invested, in full, in the public infrastructure and amenity package identified in the SEFC ODP;
· that the City actively pursue funding from senior governments, community partners and the private sector to achieve the financial, accessibility, environmental and sustainability objectives of the SEFC ODP;
· that as the community develops, the City be prepared to provide interim financing as necessary to ensure the public infrastructure and amenity package are delivered in a timely fashion.
CONCLUSION
Approval of this strategy provides Council and the community with a realistic opportunity to realize the unique neighbourhood character and amenities that are included in the Official Development Plan proposed for Southeast False Creek. It also ensures that where choices are required about the components of the vision, those decisions can be made with a timely understanding of the financial consequences to the Property Endowment Fund, the owners of the private lands and the City's other funding sources. Finally, while the expectation is that the vision for Southeast False Creek will be realized as the community develops over the next 15 to 20 years the strategy acknowledges that the role of the Property Endowment Fund is not financially open-ended and that decisions about its involvement beyond that outlined in the financial plan will require careful Council consideration.
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