Downtown Eastside Economic Revitalization: Pilot Programs to Encourage Locally-Based Businesses

POLICY REPORT
SOCIAL DEVELOPMENT

Date: March 3, 2000

Author/Local: NEdelson (7444) JBarr (632-9668)

RTS No. 1117
CC File No. 8104

CS&B: March 16, 2000

TO: Standing Committee on City Services and Budgets

FROM: Vancouver Economic Development Commission and Director of Current Planning, in consultation with the Manager of Real Estate Services

SUBJECT: Downtown Eastside Economic Revitalization:

Pilot Programs to Encourage Locally-Based Businesses

RECOMMENDATIONS

A. THAT Council approve the Downtown Eastside Tenant-Improvements Assistance Program at a cost of $150,000 as outlined in this report, with the program being managed by the Manager of Real Estate Services, in consultation with the Vancouver Economic Development Commission (VEDC), Planning and representatives from the community.

AND THAT the funds be allocated in advance of Council’s approval of the Capital Spending Program for 2000 (source of funds to be the Downtown Eastside allocation in the 2000-2002 Capital Plan).

B. THAT Council approve the Downtown Eastside Lease-Subsidy Program at a cost of $150,000 as outlined in this report, with the program being managed by the Vancouver Economic Development Commission in consultation with Real Estate Services, Planning and representatives from the community.

AND THAT the VEDC and staff, in consultation with representatives from the community, report back to Council with a recommendation for approval, refusal or consideration of all grant applications for lease-subsidies for enterprises owned and managed by registered charitable institutions.

AND FURTHER THAT the funds be allocated in advance of Council’s approval of the Capital Spending Program for 2000 (source of funds to be the Downtown Eastside allocation in the 2000-2002 Capital Plan).

C. THAT the Director of Legal Services be instructed to amend the contract with the Vancouver Economic Development Commission for the 2000 fiscal year to include an additional $15,000 (including GST) as a fee for managing the Downtown Eastside Tenant-Improvements Assistance Program and the Downtown Eastside Lease-Subsidy Program and to include terms of administration satisfactory to the City Manager.

AND THAT the funds be allocated in advance of Council’s approval of the Capital Spending Program for 2000 (source of funds to be the Downtown Eastside allocation in the 2000-2002 Capital Plan).

D. THAT the Vancouver Economic Development Commission and staff, in consultation with representatives from the community, report back at least annually on the status of the Tenant-Improvements Assistance and Lease-Subsidy Programs and the businesses that have been encouraged to locate or expand in the Downtown Eastside.

CITY MANAGER AND GENERAL MANAGER’S COMMENTS

The City Manager and General Manager of Community Services support approval of the A, B, C and D.

There is no guarantee that the Tenant-Improvements Assistance Program or the Lease Subsidy Program will be successful. However, both have good potential to bring storefront businesses back to the Hastings Street area of the Downtown Eastside. The organizational structure for approvals with the involvement of the VEDC, local community, City staff, and Council is appropriate given public funds are being used, and decisions are being made within the Charter powers of the City.

COUNCIL POLICY

On July 23, 1998, Council confirmed encouraging legitimate commercial activity, reducing crime, improving housing and involving the community as key principles for City actions and planning in the Downtown Eastside.

On November 5, 1998, Council approved “A Program of Strategic Actions for the Downtown Eastside” to guide City initiatives in the area. One objective of the program is to bring businesses back to the storefronts of Hastings Street between Gore and Cambie by:

a) Instructing Community Services and Real Estate Services, in consultation with the VEDC, to report back on proposals to attract legitimate businesses to Hastings Street.

b) Committing funds as the City’s investment in attracting or developing at least one demonstration storefront business venture on Hastings Street to help draw other new businesses to the area. This should provide needed services such as a moderately priced restaurant, a grocery store, or a laundromat, as well as training and employment for low-income residents.

PURPOSE

This report seeks Council’s approval of two pilot programs designed to further Council’s plans for the economic revitalization of the Downtown Eastside by encouraging and facilitating new and expanding locally-based businesses to locate in the Downtown Eastside. The Vancouver Economic Development Commission (VEDC) and the City will coordinate the programs, in consultation with the community.

BACKGROUND

In late 1998, at the request of the City, the VEDC began work to help in the economic revitalization of the Downtown Eastside. The first phase of that work was to identify and assist in establishing new businesses along Hastings Street. During the first quarter of 1999, the VEDC met with many business people, residents, and agency members to seek out ideas for creating new businesses. It also established a network of volunteers to help local residents with business plans, long term mentorships and other assistance. In April 1999, more than 100 people participated in a workshop which generated many ideas for new enterprises and matched individuals requesting help with volunteer expertise and other resources.

In July 1999, Council confirmed the Commission’s lead role on behalf of the City in working with the three levels of government and the public to develop and implement the start of a Downtown Eastside Economic Revitalization Strategy by December 2000. One of the initial actions is to facilitate and encourage new locally-based small businesses to locate in the Downtown Eastside through a variety of initiatives, including the two pilot programs described in this report, namely the Tenant-Improvements Assistance Program and the Lease-Subsidy Program.

PROCESS AND PRINCIPLES

For an enterprise to be eligible for either pilot program, it must first be determined by the VEDC that the business has a well-developed business plan demonstrating economic self-sufficiency by the end of its third year of operation. The business plan will then be presented

to a Business Assistance Review Committee (the “Review Committee”) established by the VEDC to provide advice on the program and to determine whether the particular business proposals meet the program criteria.

The Review Committee will include representatives from the VEDC Commissioners, Downtown Eastside residents, local business people and City staff. It will meet as required, and at least quarterly, to issue proposal calls for new applications, to review applications and to assess the progress of the enterprises participating in the programs. The Review Committee will evaluate applications based upon, including without limitation the following criteria:

1. Location: The business should be located on Hastings Street between Cambie and Gore or be no more than ½ block away from that section of Hastings Street on streets that cross Hastings Street. In the case of proposals which do not meet this criterion, but which show significant job creation potential for residents of the area, the Review Committee may exercise some flexibility in making its recommendations to the City.

2. Premises: The business must be in a storefront street-level commercial space. Lease rates should be at or below market for the location and condition of the premises. This will prevent the program from artificially inflating commercial rents in the area.

3. Type of business: The business must be a commercial enterprise that provides goods or services in a storefront operation. The business must not be involved in, or be seen to support illegal activity.

4. Non-competing: The business must not be in direct competition with another Downtown Eastside business, unless it can be demonstrated that there is adequate market demand to accommodate a new establishment, without adversely affecting existing legitimate businesses.

5. Community benefits: The business must directly support the Downtown Eastside community by providing employment or training opportunities for Downtown Eastside residents. Preference will be given to firms which are owned by local residents.

TENANT-IMPROVEMENTS ASSISTANCE PROGRAM

The objective of the Tenant-Improvements Assistance Program is to improve and rehabilitate the Downtown Eastside by encouraging and facilitating the establishment or expansion of several locally-based businesses. Pursuant to this program, the City will lease commercial
space in the Downtown Eastside, perform any needed tenant improvements and then sublease the premises to those enterprises recommended by the VEDC and approved by Council. The sublease will be at appropriate market rent and on terms intended to recover all of the City’s lease and tenant improvement costs over the term of the sublease. Since this program does not involve a grant by Council, but instead the entering of a landlord and tenant business relationship between the City and the participating enterprise, the entities which are eligible to participate in this program can be both privately owned for-profit businesses and charitable institutions.

Once a proposal has been reviewed and approved by the Review Committee, Real Estate Services will report to Council seeking authority to lease the premises, to carry out needed improvements and Council’s endorsement of the terms of the sub-lease by the City to the applicant business. Through this program, the City will be encouraging and facilitating new businesses in the Downtown Eastside by identifying appropriate sites, negotiating with private landlords, using the City’s expertise in design, securing needed permits and in efficiently carrying out needed tenant improvements and paying all the costs thereof. In addition, the terms of the sublease will provide the participating business entity time to repay the cost of the tenant improvements on a pro-rated basis.

Council should be aware that by approving this program, the City does expose itself to risks in that the City will be liable under each lease it enters into for the rent for the term of the lease, and for any damage to the premises or other costs and damages related to the City’s sub-tenant’s use and occupation of the premises. In addition, if the sub-tenant business should fail prior to the end of the term of the City’s lease of the premises, the City will be responsible for all future lease payments until the end of the City’s lease with the head-landlord unless another sub-tenant is found, and will likely not be able to recover the cost of the tenant improvements made to the premises.

LEASE-SUBSIDY PILOT PROGRAM

The objective of the Lease-Subsidy Program is to improve and rehabilitate the Downtown Eastside by encouraging and facilitating the establishment or expansion of several locally-based businesses which are owned and managed by registered charitable institutions.Pursuant to section 206.(1) (a) of the Charter, the City can provide grants to any charitable institution.

The program would involve the following steps:

a. A charitable institution would apply for a lease subsidy and go through the screening process of the VEDC and the Business Review Committee. If the application is supported by the Business Review Committee, it would be reported by the VEDC and staff to Council for approval of a grant;

b. A charitable institution, approved by Council to receive a grant would lease commercial space from a landlord in the Downtown Eastside. Neither the City nor the VEDC would enter into any agreement with the landlord;

c. Satisfying the criteria mentioned previously in the report, the charitable institution would be required to pay the rent to the landlord, pursuant to its lease and submit rent receipts to the VEDC and seek reimbursement of a portion of the rent (i.e. the lease subsidy), based on the following formula:

Year 1 of operation – 75% of the lease to a maximum of $3,000/month
Year 2 of operation – 50% of the lease to a maximum of $2,000/month

Year 3 of operation – 25% of the lease to a maximum of $1,000/month;

d. The VEDC, on being satisfied that the charitable institution paid its rent, maintained its charitable status, and was otherwise not in default under the lease, would reimburse the charitable institution, on a periodic basis, based upon those grant monies received by the VEDC from the City for such purposes; and

e. Any grant monies not used by the VEDC for such purpose would be refunded to the City on demand.

Common Concerns Laundromat

One of the many proposals discussed at the workshop in April 1999 was for the “Clothes Encounters” Laundromat. It was submitted by Common Concerns, a community-based non-profit society and registered charity. Since then, Common Concerns has worked intensively with VEDC staff and volunteers, as well as experts from the industry, to develop a complete business plan and to identify potential sites and detailed design. VEDC staff has concluded that this project is viable and should be considered for a Lease-Subsidy as quickly as possible. As a result, this proposal may be brought forward for consideration in advance of other applications.

EVALUATION OF THE PROGRAMS

The Business Assistance Review Committee will provide a report to the VEDC within 30 days following the end of each quarter. This will be forwarded to Council for information and include the amount of funds expended and committed to date, the status of each business taking part in the programs and any recommendations to modify the program. The VEDC, in consultation with City staff, will fully evaluate the program on an annual basis and report its findings to Council.

FINANCIAL IMPLICATIONS

The anticipated expenditures to undertake the pilot programs to encourage several businesses to start up or expand is $300,000, plus about $15,000 per year for administration of the programs. Recommendation C provides for the administrative fee for the first year. Administrative fees for subsequent years will be addressed as part of the VEDC’s annual business plans. It is recommended that funding for these pilot programs be provided from the $2.5 million allocation for Downtown Eastside Revitalization included in the 2000 - 2002 Capital Plan. Approval of this funding in advance commits Council to approving this project as part of the Capital from Revenue allocation in the 2000 Operating Budget. The VEDC may supplement the programs with funds from other sources.

The Tenant-Improvements Assistance Program may operate on a cost-recovery basis. As a result, the program, if successful, should generate revenue which can subsequently provide assistance to additional businesses. There is, however, a risk that, if any participating business fails, the City will be forced to suffer a loss equal to the cost of any outstanding tenant improvements made and the lease costs for the term of any leases entered into that are not repaid by the business entity that fails or by a subsequent sub-tenant.

The Lease-Subsidy Program involves grants made by Council and is thus not intended to be operated on a cost-recovery basis. The program, however, presents no long term financial risk to the City since it is the participating business that will be responsible for signing the lease and paying the rent. If a business fails, the City cannot be held liable, and will make no further rent subsidy payments.

PUBLIC COMMENTS

The concept of encouraging new or expanding businesses to locate in the Downtown Eastside was initially presented to Council in the summer of 1998 and approved in principle in November 1998 as part of the Program of Strategic Actions. It was also discussed in early 1999 in the VEDC’s meetings with residents, agencies and businesses last winter which culminated in the April 1999 workshop and in several recent meetings with business people.

Generally there is support for the City and other levels of government to take measures to encourage new businesses in the Downtown Eastside and interest has been expressed in the Lease-Subsidy Program. However, a number of business people have indicated that they are experiencing financial difficulties and until the impacts of crime and the illegal drug trade are reduced that it will be very difficult to carry out legitimate business and that it may be premature to attempt to attract new enterprises at this time.

CONCLUSION

It is very difficult for legitimate businesses to succeed under current conditions in the Downtown Eastside. The proposed pilot programs are two of many initiatives intended to address the complex and inter-related issues facing the area. They are starting points for the Downtown Eastside Economic Revitalization Strategy, which is anticipated to include an array of supports for existing, as well as new businesses.

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