ADMINISTRATIVE REPORT

Date: December 24, 1997

CC File No. 1602

TO: Vancouver City Council

FROM: Director of Finance

SUBJECT: Transfer of the Former VanCity Building to Capital Fund

RECOMMENDATION

THAT Council approve the financing for the transfer of the former VanCity building from the PEF to the Capital Fund as set out within this report.

GENERAL MANAGER'S COMMENTS

The General Manager of Corporate Services RECOMMENDS approval of the foregoing.

COUNCIL POLICY

On May 8, 1997 Council resolved that the former VanCity building be transferred from the PEF to the Capital fund under an appropriate compensation package to be determined by the Director of Finance and reported back to Council for approval.

PURPOSE

This report recommends a financing plan for the transfer of the former VanCity Building (now the 10th Avenue Annex) from the PEF to the Capital fund.

BACKGROUND

In 1993, the City purchased the office building (VanCity) at the corner of 10th Avenue and Cambie. At the time of the purchase, consideration was given to relocating the Health Department to that location, as well as using other space to meet requirements for civic departments. However, given that the building was primarily occupied by commercial tenants and space planning for civic departments was not complete, the purchase was funded through the Property Endowment Fund. As a PEF holding, the building has continued to be treated under the policies of the PEF, with all tenants - both commercial and City - paying market rent for the space occupied.

As space planning for civic departments continued, it was decided to utilize the majority of the building for civic purposes, with the VanCity Credit Union operations continuing on the ground floor. On May 8, 1997, Council approved the transfer of the building from the PEF to the Capital Fund and adopted a plan to relocate several departments with offsite offices to this location. The major impact of this transaction is that the civic operations occupying space in the building will not be required to pay rent for the space they occupy, generating savings for the annual Operating Budget. However, in order to complete the transfer of the building, funds have to be identified to compensate the PEF.

DISCUSSION

1. VanCity Building

The VanCity building consists of 73,000 gross square feet of office and retail space. The Capital Fund will receive 66,000 sq ft of office space while the PEF will retain 7,000 sq ft of retail space which is currently leased, as well as the parking area. At this point in time the City is using approximately 19,000 sq ft and it is anticipated that departments moving from City Square in 1998 will need an additional 33,000 sq ft.

Space Allocation 10th Avenue Annex

Area (sq ft)

	Current	Proposed
Capital Fund
Human Resources (Training)	2,440	2,440
Planning	5,230	5,230
Engineering - Water Design	3,720	3,720
Law	7,370	7,370
Housing & Properties		12,395
Engineering - Solid Waste		1,000
Cultural Affairs		1,410
Social Planning		5,000
Information Technology		13,150
Vacant Office	47,240	14,285
Total Capital Fund	66,000	66,000
PEF
VanCity Savings	5,700	5,700
Sandwich Tree	1,300	1,300
Total PEF	7,000	7,000
Total Building	73,000	73,000

2. Transfer of Buildings

a. Capital Fund Purchase of VanCity Building - $8.8 million

The market value of the office component of the VanCity building is $8.8 million. The remainder of the building which is leased out to private interests and the parking garage will remain in the PEF, where they will generate an economic return.

b. Capital Fund Sale of Health Buildings - $6.2 million

In the May 1997 report it was recommended that the PEF be compensated by the transfer of the three City-owned Health units (1060 West 8th avenue, 2610 Victoria Drive, and 6405 Knight Street) from the Capital fund to the PEF. These buildings are presently leased, at nominal rents, to the Vancouver Health Board, with the leases expiring on December 31, 1999. After that date, the VHB have the option of either paying full market rent for the site, or securing new accommodation.

The difference between the purchase and the sales proceeds amounts to $2.6 million. It is recommended that this shortfall be financed through a interest-bearing short term loan from the PEF.

3. Financing of PEF Loan

The departments currently situated at the VanCity building are paying rent to the PEF. Once the building is transferred to the Capital fund, these rental charges can be used to pay for the department’s share of operating costs with the balance being used to pay the loan from the PEF.

Similarly the departments at City Square who will be moving to VanCity are incurring rental costs. As each department moves to VanCity, the rental costs can be used to pay for the department’s share of operating costs with the balance being used to pay the loan from the PEF.

Net Operating Budget Savings	Annual Estimates
Operating Budget Savings
Rent: City departments at VanCity	$ 432,000
Rent: City departments at City Square	537,000
Total Savings	$ 969,000
VanCity Costs
Parking Costs	$ 27,000
Operating Costs	396,000
Total Costs	423,000
Net Savings to pay PEF Loan	$ 546,000

It is estimated that once all of the departments have moved in to VanCity from City Square, it will take approximately five years to pay off the loan from the PEF.

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(c) 1997 City of Vancouver