M K P BRAMPTON Report · 2014-06-20 · ....M K P BRAMPTON City Report Council brampton.ca . llOWGr...
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BRAMPTON Report ....M K P City Council brampton.ca llOWGr LltV Tne Corporation of the City of Brampton Date: July 29,2011 BRAMPTA°N «Y«««. File: B64 Subject: Southwest Quadrant Renewal Plan, Request for Proposal (RFP) 2009-072 Contractual Agreements between The Corporation of the City of Brampton (City) and Dominus Construction Group (Dominus) Contact: Julian Patteson, Commissioner, Buildings and Property Management 905.874.2409 Mo Lewis, Commissioner, Financial and Information Services and Treasurer 905.874.2250 Overview: • Brampton City Council's vision for a renewed downtown is to bring together major institutional, cultural, commercial and entertainment uses, while addressing the City's long-term administrative space requirements. This revitalization would also include mixed-use forms, with a street and public realm to create pedestrian - friendly and transit supportive neighbourhoods. • On March 28, 2011, Council approved Dominus Construction Group (Dominus) as the Preferred Respondent in RFP 2009-072, the Southwest Quadrant Renewal Plan. Staff was directed to negotiate contractual agreements, referred to in the RFP as Agreement Documents, with Dominus for Phase 1 and 1a of the plan. Negotiations, Agreement Documents and key terms and conditions of ancillary documents are now complete. • Staff was also directed to present financing options for Council's consideration, that leverage private sector investment, take into account the City's financial capacity, support other Council service priorities and, above all, insulate taxpayers to the extent possible. • This report delivers on the above directives and demonstrates that partnering with Dominus will provide significant benefits to the City including: o No occupancy cost payments till 2014 o $100 million Legacy Reserve Fund remains intact o City's Triple 'A' Credit Rating is preserved o Administrative space needs satisfied o Development acts as a catalyst for future downtown revitalization o Building ownership (including retail space) is transferred to the City at end of lease term at no additional cost o Transfer of risk to private sector (construction, financing) o Nominal or no increase to the property taxpayer is achieved o Additional retail space in the downtown core will be delivered in 2014
Transcript of M K P BRAMPTON Report · 2014-06-20 · ....M K P BRAMPTON City Report Council brampton.ca . llOWGr...
BRAMPTON ReportM K P City Council bramptonca llOWGr LltV Tne Corporation of the City of Brampton
Date July 292011 BRAMPTAdegN laquoYlaquolaquolaquo File B64
Subject Southwest Quadrant Renewal Plan Request for Proposal (RFP) 2009-072 Contractual Agreements between The Corporation of the City of Brampton (City) and Dominus Construction Group (Dominus)
Contact Julian Patteson Commissioner Buildings and Property Management 9058742409
Mo Lewis Commissioner Financial and Information Services and Treasurer
9058742250
Overview
bull Brampton City Councils vision for a renewed downtown is to bring together major institutional cultural commercial and entertainment uses while addressing the Citys long-term administrative space requirements This revitalization would also include mixed-use forms with a street and public realm to create pedestrian shyfriendly and transit supportive neighbourhoods
bull On March 28 2011 Council approved Dominus Construction Group (Dominus) as the Preferred Respondent in RFP 2009-072 the Southwest Quadrant Renewal Plan Staff was directed to negotiate contractual agreements referred to in the RFP as Agreement Documents with Dominus for Phase 1 and 1a of the plan Negotiations Agreement Documents and key terms and conditions of ancillary documents are now complete
bull Staff was also directed to present financing options for Councils consideration that leverage private sector investment take into account the Citys financial capacity support other Council service priorities and above all insulate taxpayers to the extent possible
bull This report delivers on the above directives and demonstrates that partnering with Dominus will provide significant benefits to the City including
o No occupancy cost payments till 2014 o $100 million Legacy Reserve Fund remains intact o Citys Triple A Credit Rating is preserved o Administrative space needs satisfied o Development acts as a catalyst for future downtown revitalization o Building ownership (including retail space) is transferred to the City at end
of lease term at no additional cost
o Transfer of risk to private sector (construction financing) o Nominal or no increase to the property taxpayer is achieved o Additional retail space in the downtown core will be delivered in 2014
The report seeks Councils authority to execute the negotiated Agreement Documents and take the necessary steps to close the transaction Upon closing Dominus will begin Phase 1 construction of the Southwest Quadrant Renewal Plan
Staff will return to Council with a comprehensive Space Plan outlining key milestone activities timing and logistics for repatriating staff from satellite offices
Councils decisions with respect to the recommendations set out in this report will bring the process for RFP 2009-072 to a conclusion
Recommendations
1 THAT the report from Julian Patteson Commissioner of Buildingsand Property Management and Mo Lewis Commissioner of Financial and Information Services and Treasurer dated July 29 2011 titled Southwest Quadrant Renewal Plan shyRequest for Proposal (RFP) 2009-072 - Contractual Agreements between The Corporation of the City of Brampton (City) and Dominus Construction Group (Dominus) be received
2 THAT Council approve the negotiated terms and conditions between the City and Dominus for Phase 1 and 1a development of the Southwest Quadrant Renewal Plan and authorize the Mayor and Clerkto execute all primary and ancillary agreements to give effect to the transaction with content acceptable to the Commissioner of Buildings and Property Management and in a form acceptable to the City Solicitor
3 THAT for the purposes of entering into the Ground Lease in compliance with Real Estate Policy 1490 requirements for the disposal of land the City-owned land required for the development of Phase 1 and Phase 1a known municipally as 33 Queen Street West 57 Queen Street West and 41 George Street South be declared surplus to the Citys requirements
4 THAT upon closing of the transaction Dominus Construction Group may commence construction of Phase land 1a development of the Southwest Quadrant Renewal Plan
5 THAT staff incorporate the financial plan contained in this report in the 2012 Budget planning process and adjust current and forecasted spending to account for the costs of this renewal plan
6 THAT staff report back to Council with a long-term space planning strategy with project plan and timing
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Background
Brampton City Councils vision for a revitalized southwest quadrant of the downtown called for bringing together major institutional cultural commercial and entertainment uses while addressing the Citys long-term administrative space requirements The development should recognize intensive mixed-use forms with a street and public realm to create pedestrian-friendly and transit-supportive neighbourhoods
To translate this vision to a set of specific objectives Council approved the following guiding principles
Increase office adjacencies to reduce fragmentation of departments
Anticipate and accommodate future growth of the administration
Control space costs and ensure value-for-money to taxpayers
Centralize civic employees in Bramptons Historic Downtown
Contribute to the revitalization of the downtown
Ensure that Brampton is recognized as an employer of choice
Ensure an appropriate balance between public and private sector risk
To work towards this vision and achieve these guiding principles the City issued a Request for Proposal (RFP) on October 30 2009 to solicit responses from the market for a unique and creative way to deliver a revitalization of the southwest quadrant of the downtown
The intent was to select a development partner that would work with the City to meet the Citys future administrative space and deliver upon other desired elements of the Southwest Quadrant Renewal Plan
On March 28 2011 City staff recommended to Council that Dominus Construction Group be selected as the Preferred Respondent Council approved the recommendation and directed staff to proceed with negotiations of contractual agreements based on lease-to-own payments of not more than $82 million per year for 25 years This would mean that starting in 20I4 the City would pay an aggregate payment amount of not more than $205 million for facilities with an estimated project cost of $94 million
Further staff was directed to present options for Councils consideration on how this significant investment in Downtown Brampton will be financed in terms of the Citys financial capacity the long-term funding strategy and other Council service priorities
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Current Situation
Negotiation Objectives and Deliverables
A City Negotiations Steering Committeewas established to provide oversight and direction to a number of staff teams as well as subject matter experts from several technical disciplines Dominus took similar measures Through a series of several meetings the City team and Dominus team negotiated key terms and conditions for several areas of work which are outlined in this report The following agreements have been finalized including the
bull Transaction Outline (and Agreement Letter) bull Ground Lease
bull Space Lease
The following ancillary agreements have been negotiated in principle with agreement of all key terms and conditions and will be finalized before the closing of the transaction These include the
bull Major Maintenance Agreement bull Lender Direct Agreements bull Retail Management Agreement
An overview of the above agreements is provided within this report
Purpose of the Agreements
Transaction Outline
The Transaction Outline accompanied with an Agreement Letter is the overarching agreement for this project It sets out the concepts principles framework and key business terms for the contractual arrangements between the City and Dominus All other documents flow from the Transaction Outline
The Transaction Outline establishes the legal entities of the parties the scope of the phased development for the Southwest Quadrant Renewal Plan the key business terms to be detailed in the other agreements the obligations and responsibilities of the parties and the mechanisms for advancing the later stages of development
Ground Lease
The Ground Lease is the predominant lease agreement and has primacyover the Space Lease Its purpose is to allow the City to lease the Phase 1 and 1a lands to Dominusfor the construction period plus a term of 25 years Dominus in turn must construct the buildings to the Citys specifications to be complete and ready for occupancy on January 1 2014 The buildings will belong to Dominus subject to the Citys reversionary ownership interest at the end of the lease term Dominus as the tenant on the Ground Lease will pay all realty taxes utilities and other costs associated with the lands
To satisfy certain provisions of its procedural by-law for real estate transactions staff recommends that the Phase 1 and 1a lands be declared as surplus to municipal requirements giving effect to the Ground Lease provisions
Space Lease
The Space Lease stems from the Ground Lease and sets out the terms and conditions for leasing all spaces from Dominus to the City including offices police reporting station meeting rooms committee rooms retail and parking
The City will have a right to sublease the police reporting station premises and to enter into a management agreement or subleases for the retail space The Base Rent under the Space Lease is based on the cost of financing the construction of the project including the cost of constructing retail space
Major Maintenance Agreement
The City will fund major maintenance as needed through a flat annual fee paid in equal monthly installments starting at the same time as the Base Rent payments This cost is normally flowed through to the tenant in a typical operating lease scenario as part of the rent provisions The payments will be placed in a Major Maintenance Reserve to be maintained in a separate account applied at the joint direction of the City and Dominus
The Major Maintenance reserve will ensure that funds will be available for the life cycle replacements and major capital repairs It will help to buffer the City against extraordinary demand maintenance and emergency maintenance costs and ensure turnover of a building with no deferred maintenance
Dominus as the owner of the building during the lease term will maintain asset management responsibilities and charge an annual asset management fee adjusted by the Consumer Price Index and an annual performance adjustment to protect the City and require Dominus to meet established performance standards
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The estimated majormaintenance costs will be subject to Facility Condition Audits and reassessed every five years The City will retain any residual funds in the Major Maintenance Fund at the end of the lease term
Lender Direct Agreements
Dominus as the Citys business partner has been able to leverage the CitysTriple A Credit Rating stable income stream commitment and strong lease covenant into a preferred borrowing rate and beneficial terms from the capital markets To protect the Citys interests in the case of default or non-performance the City will enter into direct agreements with the construction and term loan lenders
Retail Management Agreement
The Phase 1 and 1a development will contain approximately 16334 square feet of net leasable commercial retail space
In the Dominus Final Offer submission the retail space (with an estimated value of $24 million) was to be constructed and owned by Dominus with the City having the option to buy the space at the end of the 25-year lease term During the contract negotiations however it was agreed that the transaction be revised so that the retail space would be transferred to the City at the end of the lease term at no additional cost although the annual base rent payments will remain at $82 million
As a further benefit the transaction was also amended to provide the City with a 50 share of the retail revenue
The parties will execute a retail leasing management agreement (the Retail Agreement) which will incorporate the following material terms
bull Dominus will be appointed the leasing manager of the retail space
bull Dominus will identify tenants that are consistent with a retail leasing strategy prepared by Dominus and approved by the City to seek to obtain market rents (including tenant fit up allowances and other inducements) for the Retail Space pursuant to a pre-approved leasing plan
bull All leases will be on a fully net basis (operating costs including commercial property taxes and utilities to be paid by the Tenant)
bull Tenant inducements will be funded equally by the City and Dominus and the Base Rent received from retail tenants shall be equally divided between Dominus and the City
bull Unrecovered operating costs in respect of any Retail Space shall be the Citys responsibility
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bull The term of the Agreement will be for an initial 25 years with an option to extend for an additional 25 years if not in default and
bull The Citywill have the option of buying out the remaining term of the Retail Agreement at any time during the renewal term at its then fair market value as determined by an arms-length third-party accredited appraiser selected by the City and approved by Dominus
Site Conditions
As the land owner the City has accepted responsibility for site conditions prior to beginning the ground lease with Dominus
The City acknowledges that the quality of the soil and ground water on the site may necessitate
bull the disposition of the soil and ground water through alternative means or to alternative locations and
bull additional capital costs for underground construction
Dominus will be responsible for site conditions during the term of the Ground Lease It will also be required to obtain a Record of Site Condition following excavation of the building site The City will fund Dominus costs for any incremental costs in the disposition of the soil and groundwater only if such costs exceed the costs that would be incurred for a greenfield site
Building Operation and Maintenance
The City will operate and maintain the new facility at its own cost funding operating and maintenance costs directly This in turn will achieve significant cost savings given that the City already has an assembled workforce in place to achieve economies of scale and several preventive and demand maintenance contracts achieved through the competitive tender process Since Dominus will not be performing these functions there will be no management fees associated with the services provided by the City
Operation and maintenance expenses payable or borne by the City will be made up of four components
bull operating costs (such as utilities janitorial realty taxes if any)
bull maintenance costs (such as normal maintenance replacement of items with a lifecycle of less than one year repainting repair refurbishment)
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bull major maintenance (such as replacement of roof replacement of elevator motors structural repairs re-cladding) and
bull property management and asset management
Dominus will remain responsible for asset management oversight of periodic maintenance and major maintenance as part of the asset management function The City will pay Dominus an annual asset management fee for this function
Fit-Out and Leasehold Improvements
The Space Lease will require completion and delivery of space in keeping with an agreed-upon schedule and will take into account damages for late delivery The Space Lease will include the Citys specifications for the Building and the City space the retail space and the parking
Dominus will finish the City space to the Citys specifications referenced in the Space Lease for open concept administrative space including partial fit-out beyond base building The City will provide its own leasehold improvements including furniture fixtures and equipment The City will seek competitive bids for leasehold improvements Dominus is entitled to make a bid for the work but is not entitled to perform leasehold improvements unless selected as the most cost- effective bid
These terms are in keeping with provisions in all of the Citys standard operating leases
Break Fee
The City and Dominus have negotiated Break Fee provisions covering Dominus transaction expenses prior to the August 10 2011 Council session
If for any reason Dominus and the City cannot settle all of the required definitive documents to their mutual satisfaction through good faith negotiations or if Brampton Council elects not to proceed with the signing of the Agreement Documents the City shall pay to Dominus a Break Fee to reimburse the company for its expenses in connection with this transaction The fees amount will be the total amount of bona fide
third-party costs paid by Dominus This amount would have to be supported by appropriate third-party receipts or other documentation made available for audit by the City not to exceed $350000
The above compensation will be the only compensation payable to Dominus in such an event The parties will mutually release each other elected representatives and officials (in the case of the City) directors and officers (in the case of Dominus) their respective employees agents and contractors from any and all liability of any nature or kind arising out of or in connection with the Request for Proposals or any of the settled documents
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Termination Cost
The City and Dominus also negotiated Termination Cost provisions covering the period from the August 10 2011 Council decision to the anticipated closing of the transaction on October 25 2011
If Brampton Council approves the Agreement Documents and one or more of the Conditions are not satisfied or waived by the date provided either the Cityor Dominus may terminate by giving written notice to the other party If either party elects to terminate (a) the City will pay to Dominus an amount equal to its Arms-Length Costs and (b) Dominus will assign and transfer to the City all plans specifications contracts work-in-progress and any other work product acquired by or developed by Dominus in connection with the building Arms-Length Costs must be accounted for by appropriate third-party receipts or other documentation made available for audit by the City
The compensation described here will be the only compensation payable to Dominus in such event The parties will mutually release each other elected representatives and officials (in the case of the City) directors and officers (in the case of Dominus) their respective employees agents and contractors from any and all liability of any nature or kind arising out of or in connection with the Request for Proposals or any of the settled documents
Phased Development
The City and Dominus plan a phased project comprised of the following elements
bull Phase 1 41 George Street 126398 sq ft administrative space 10545 sq ft multi-purpose meeting rooms 1496 sq ft police reporting station 10147sqft retail 446 parking spaces
bull Phase 1 a 33 Queen Street West
2507 sq ft committee rooms 6187sqft retail
bull Phase 2 20 George Street 130000 sq ft library (estimated) 360 parking spaces 4000 sq ft retail
bull Phase 3 65 Queen Street East
120000 sq ft administrative space (estimated)
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Phase 1 and 1a are firmly committed subject to Council approval and satisfaction of the conditions listed in the report prior to closing Phases 2 and 3 are optional as described below The project shall be substantially as described in the Dominus Final Offer submission dated December 9 2010 and as described in this report Minor adjustments to building areas may occur through the design development process
Phase 2 Obligations
To demonstrate its commitment to the long-term vision for the Southwest Quadrant Renewal Plan and the phased development scheme Dominus has secured the Phase 2 lands that are not owned by the City This provides the required site footprint for the Phase 2 improvements including the new central library parking and additional retail development
The option for the City and Dominus to proceed with Phase 2 development will be available for three years from commencement of the Option period If the City decides to proceed with Phase 2 it will ask Dominus to submit a proposal for Phase 2 addressing the Citys requirements and desired amenities
If the City and Dominus are unable to agree on price scope or other key terms of the Phase 2 project within a period of six months subject to any mutually agreed-upon extensions the Phase 2 Option shall be at an end The City at its option may release the Phase 2 Option earlier releasing both parties from further obligations with respect to Phase 2
Phase 3 Obligations
The City will agree to keep the Phase 3 site available until three years after the Phase 2 Option has been exercised The Phase 3 option includes the development of an additional 120000 sq ft of administrative space The remaining Phase 3 obligations are similar to those described in Phase 2
The City shall keep the Phase 3 Site available until the Phase 3 Option Expiry Date The City may at its option elect to release the Phase 3 option earlier than the Phase 3 Option Expiry Date and each of the City and Dominus will then be released from all further obligations in respect of Phase 3
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Summary of Salient Terms and Conditions of Transaction
Parties to the Transaction
Net Leasable Area (Phase 1 and 1a)
Base Rent
Ground Lease Term
Space Lease Term
Land Ownership During Ground Lease
Building Ownership During Space Lease
Reversionary Ownership Rights of Lands and Buildings
Reversionary Ownership Rights of Retail Space
Management Agreement for Retail Space
Revenue Sharing for Retail Space
Construction Class of Building
The City and Dominus Construction Group (DC) in trust for one or more special purpose entities controlled by DC to be established and without
personal liability (Dominus) As is customary practice Dominus will be completing a series of underlying transactions with institutional investors
to finance the development and construction of the Project Dominus and its affiliates however will continue to be contractually committed to perform all obligations as the private sector proponent
157283 sqft 446 parking spaces
$8209170 per year payable in equal monthly installments starting 2014
Construction Term Plus 25 Years
25 Years
Dominus
Dominus
City
City
Between City and Dominus with buyout provision after Space Lease Term Dominus sublets to retail tenants based upon City approval
50 City 50 Dominus
Class A Signature Building
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Maintenance Level of Building
Major Maintenance Reserve
Conditions Prior to October 2011 Closing (City and Dominus)
City Financial Obligations
Class A with periodic inspections by City and no deferred maintenance at Reversion
Funded by the City and controlled jointly by the City and Dominus Residual funds revert to City
Complete and up-to-date survey of the lands
Legal opinion on the quality of the Citys title to the lands Emergency accessegress TRCA approval Environmental and designated substance surveys Demolition permit Excavation permit Site Plan Approval Geotechnical report Completion of ancillary agreements Financing
Councils desire to leverage private sector investment when revitalizing the downtown led to the critical decision of issuing an RFP to search for a long-term development partner Councils objective was to find a partner that recognizes the potential of Bramptons downtown and investment in it ultimately acting as a catalyst in rejuvenating the citys core
On March 28th 2011 Council approved Dominus as its long-term development partner Council then directed staff to negotiate the terms of the Citys financial obligations to the revitalization project to
bull Secure private sector investment to construct and finance the facility
bull Commit the City to paying an occupancy cost - starting in 2014 for a 25-year term - that does not exceed $82 million annually
bull Ensure an appropriate balance between public and private sector risk
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Staff negotiations with Dominus achieved all these objectives Highlights include
bull Dominus will make the initial investment with an estimated value of $94 million
bull Beginning in 2014 the Citywill pay annual occupancy cost payments (base rent) of $82 million annually for the 25-year term
bull Dominus assumes the full responsibility for managing construction risk (such as cost overruns as a result of increases in the cost of construction materials increases in labour costs for skilled trade and construction delays)
bull Dominus is responsible for managing the normal financing risk associated with this type of project (However if a catastrophic economic event occurs similar to the 2008 Worldwide Economic Crisis the agreement requires the City to work with Dominus to manage the financial impact as it relates to this project and protect the financial interests of both parties)
Property Tax Impacts
Annual Occupancy Costs (Base Rent)
Council has been very clear in its intent to leverage private sector investment while also aiming to achieve a nominal or no additional impact to the property taxpayer
In support of these objectives and keeping in mind the Citys financial capacity and the tools available to deliver Councils priorities and service demands the following are some of the options presented to Council to fund this priority investment
1 Increase the tax rate to reflect the new building costs
2 Adjust or reallocate current or forecasted spending to reflect the new building costs
3 Cash in a portion of the Citys reserve funds to offer private sector partner an upfront contribution to offset construction costs of the new building and
4 Borrow $94 million to finance the cost of the new building and increase the property tax rate to make annual payments to repay the debt over a 25-year period
It is staffs recommendation that Option 2 be selected - adjust or reallocate existing property tax revenues over a three-year period beginning in 2012 By doing so no new property taxes are required to fund the Southwest Quadrant Renewal Plan
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The rationale for the recommendation is that the $82 million occupancy cost represents what the Citywould pay for the facilities over a 25-year period rather than having a one-time capital expenditure of $94 million both of these routes would require funding by property taxes However when deducting the $1 million per year that the City now spends to occupy leased space in Downtown Brampton on a net basis the amount to be funded over the 25-year period is actually $72 million per year to pay the annual occupancy cost (base rent)
Operating Costs
The Council-approved March 28 2011 report states that the annual operating costs of the new space were estimated at $21 million These operating costs are comparable regardless of who builds the building the City or the Private Sector As also mentioned the current operating cost paid by the Cityfor leased space in Downtown Brampton is $1 million per year This means that the net annual operating cost increase for the new facility is $11 million per year ($21 m -$10m = $11m) starting in 2014
In developing the Space Lease for these phases of the development the City secured the option of being able to use City staff or contracted resources to maintain and operate our facilities By doing so the City estimates that it could save as much as $300000 annually ($75 million over the 25-year term) in operating and maintenance costs
Also the Citys estimated share of the retail lease revenue of $200000 per year could be used to reduce the net increase in operating costs by as much as $200000 per year
The following table based on the most conservative scenario shows the forecasted tax funded capital spending This includes the money that staff proposes be reallocated to fund the $72 million net impact of additional occupancy costs and the $1 million in net operating costs
If the savings noted above (ie staff operating the facility and estimated revenue from Citys share of retail space) are realized they will be deducted from the $82 million shown in the following table beginning in 2014
2012 2013 2014
(Smillions) (Smillions) (Smillions) Total Amount included in
Capital Budget Forecast 20245 24352 28767
Dedicated to SWQ 2733 5466 8209
Remaining portion available to fund tax
funded capital or other 17512 18886 20558 annual Council
projectspriorities
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The Citys practice of allocating a portion of taxes from increased assessment to fund tax based capital plus the 1 capital infrastructure levy introduced in the 2011 Budget allows Council to direct resources to the SWQ Renewal Plan and still fund other Council priorities over the next three years
In addition the Citys annual capital program is no longer needed to pay for the Sandalwood Transit facility freeing up Federal gas tax funds that were dedicated to paying for the facility Therefore beginning in 2011 $24 million of Federal Gas tax funds are available annually to fund other eligible capital projects
Staff recommends that during 2012 budget deliberations Council consider a long-term funding strategy that includes using long-term debt to fund high priority projects (such as key road projects BramEast CommunityCentreLibrary Fire stations Works Yards) andor to reduce the backlog of key deferred capital projects
The strategic use of debt (similar to what is in place at the Region of Peel) will help the Citycontinue to put the necessary infrastructure in place in advance of development This would be particularly beneficial in light of fluctuations in the Citys Development Charges (DC) receipts and the current DC deficit balances For significant capital projects where a large portion is to be funded by property taxes the use of long-term debt also allows the Cityto match the costs of the facilities to those who benefit by spreading out the payments over future years so that property taxes from new residents help pay
This will be the subject of a separate report to Council at a later date this Fall
Benefits of Approving this Arrangement
Councils priorities and directives for this project have been clear from the start revitalize the downtown through private sector investment minimize risk and protect the taxpayers The agreement with Dominus achieves this and more laying the foundation for strategic financial solutions to assist Council in its city-building initiatives
If approved this arrangement would provide the following benefits
bull Full up-front construction costs would be paid by the Citys Private Sector partner signifying a significant Private Sector investment in Downtown Brampton
bull Citys $100 million Legacy Reserve Fund remains intact The existence of this Fund is a key consideration in the City retaining its Triple A Credit rating
bull Nominal or no impact to the property taxpayer is achieved
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bull Additional investments impact is managed in conjunction with other capital spending
bull The plan is affordable As the City continues to grow the costs are spread out over a larger tax base each year reducing the portion paid by each individual property taxpayer and ensuring that future residents who benefit from City services and downtown improvements share in the cost
bull Council will have flexibility to determine the amount to be allocated for repair and replacement or to cover annual debt payment increases each year from 2012 - 2014 (This is based on Council deciding to approve a long-term funding strategy during the 2012 Budget process)
bull No lease payments by the City until 2014 at which time a Council shyapproved long-term funding strategy will be in place
bull The City will set aside $27 million in 2012 and $55 million in 2013 for a total of $82 million to assist in the transition and fit-up costs associated with this project Any unused portion would be available to help plan and implement Phases 2 and 3 This is based on the above funding plan
Value-for-Money
Delivering value-for money to the City and taxpayers is a critical piece of the assessment and evaluation process staff undertakes prior to making recommendations to Council
To ensure that value-for-money will be delivered through a partnership with Dominus the City sought an independent review by Deloitte Consulting which was part of the appendices in the March 28th 2011 Council report In it Deloitte states that in their opinion the Final Offer submitted by Dominus represented sound value for money and is consistent with industry benchmarks for projects of this nature
The financing rate associated with the construction of this project is very advantageous based on comparisons completed by City staff in conjunction with financial institutions This review also confirmed that financing rates are a reflection of the Citys status as a desirable tenant with a Triple A Credit rating qualities the City continues to leverage to the benefit of taxpayers
The costs per square foot for each component of the project have been provided by Dominus to City staff Dominus deems this information as commercially sensitive and provided this information to the City for its analysis under the condition that it remains confidential
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As noted Dominus is fully responsible for the construction of the buildings at its cost The City is only responsible for making annual occupancy cost payments over the 25shyyear lease term As such the construction costs were reviewed and Citystaff is satisfied that the City will receive good value for the base rent that is required to pay for a building that it will own at the end of the lease term
The costing information provided by Dominus has been reviewed by Hanscomb Limited (Quantity Surveyors) to provide independent review of the costs Hanscomb Limited has concluded that the cost of the project is reasonable and their opinion letter is attached as Appendix A in this report
City staff also reviewed the numbers provided by Dominus on life cycle costing that will be used to determine funding for major maintenance Staff in conjunction with City Consultants concluded that the plan will ensure that adequate funds are available to carry out the repair and maintenance work required to keep the buildings in Class A condition with no deferred maintenance when the City takes over ownership of the building at the end of the lease term
Citys Advocacy Efforts - Phase 2 and Phase 3
While immediate emphasis in the downtown will be on Phase 1 and 1a Phases 2 and 3 represent the completion of Councils vision for this citys rejuvenated centre core
City staff working with Dominus as its long-term partner will monitor market conditions assess the Citys additional space requirements and report back to Council on the scope cost and timing of Phases 2 and 3 of the SWQ Renewal Plan
Staff will also report back on what other steps can or may be needed to move the additional two phases forward Some of these steps will include
bull consultation with key stakeholders including library representatives
bull government advocacy work including applying for funding from the Federal and Provincial governments and
bull leveraging additional private sector investment
Staff feels that Phase 2 is a strong candidate for P3 Canada funding The next application intake for projects under this program is expected to be in June 2012 Under this program the projects Phase 2 component could receive up to 25 funding from the Federal government
City staff is a member of a working group formed by the Municipal Finance Officers Association (MFOA) that is working to prepare another position paper asking the Province of Ontario to make amendments to the Development Charges Act 2001
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Among the requested changes being sought is the reinstatement of administrative space as an eligible category and removal of the 10 reduction for soft services Provincial approval of the requested changes would result in additional funding being available for the Phase 2- library and Phase 3 - administrative space The MFOA document is expected to be delivered to the Province for consideration priorto the October 2011 Provincial Election
Longer-Term Economic Benefits
The Council-approved March 28 2011 report states that to deliver the Dominus long-term vision for Downtown Brampton an estimated $251 million of CityPrivate Sector investment is required (Phase 1 - Sites 1 and 1a - $94 million Phase 2 - $86 million Phase 3 - $71 million) This investment would be over a number of years and serve as a catalyst to promote additional private and publicsector investment Also the plan provides much needed additional investment in downtown retail space in the first phase of the project
The investment under the Dominus solution in addition to the Citys investment to date in facilities such as Alderlea and the Rose Theatre would bring the City-initiated investment in Downtown Brampton to over $300 million
Based on information provided by the Citys Economic Development Department the multiplier effect of institutional investment is 14 times in industry sectors locally and provincially
As the Downtown market continues to grow in the years ahead this investment is another major building block in the ongoing revitalization of the Downtown Brampton serving to support existing and attract new businesses residents consumers visitors and employees to the historic Downtown
The amount and timing of this additional private sector investment is dependent on economic and market conditions and competing investment opportunities in Brampton and across the GTA
Conclusion
The Southwest Quadrant Renewal Project is an exciting opportunity to provide strategic investment in Downtown Brampton bring cultural and commercial benefits to the city while upholding the principles of smart urban planning and city building
By Council approving the recommendations contained in this report RFP2009-072 is concluded but in turn will set in motion activities that will begin renewing the downtowns southwest quadrant with construction activity scheduled to begin this fall (October 2011)
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Staff will then return to Council with a comprehensive Space Plan outlining key milestone activities timing and logistics for repatriating staff from satellite offices
The result will be that Phase 1 and 1a of this plan will provide administrative space and other Council-desired amenities such as additional parking and new retail space to the downtown core
In summary the partnership between the City and Dominus provides significant benefits to both parties as development partners including but not limited to
Benefits to Dominus Include
bull Partner with a Triple A Public Sector Tenant with a strong lease covenant bull Contribute to City building bull Achieving a safe rate of return
Benefits to the City Include
The RFPs primary objectives were achieved and RFP 2009-072 is concluded No occupancy cost payments till 2014 $100 million Legacy Reserve Fund remains intact Citys Triple A Credit Rating is preserved Administrative space needs satisfied Development acts as a catalyst for future downtown revitalization Ownership of the building (including retail space) is transferred to the City at end of lease term at additional no cost
Transfer of risk to private sector (construction financing) Councils desire for nominal or no increase to the property taxpayer is achieved Additional retail space in the downtown core will be delivered in 2014
Respectfully submitted
Julian P^ttesqn L Mo Lewis
Commissioner Commissioner
Buildings and Property Management Financial and Information Services and
Treasurer
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APPENDIX A
July 27 2011
The Corporation of the City of Brampton 2 Wellington Street West Brampton Ontario L6Y 4R2
Attention Julian Patteson MBA AACI PApp Commissioner Buildings and Property Management
Re Southwest Quadrant Renewal Plan
City of Brampton
Dear Mr Patteson
Per the Citys recent request we have reviewed documentation provided the City related to the above noted project with the intent of providing our opinion on the adequacy of the proponents bid in response to the Citys RFP 2009-072 Our review can be classified as order of magnitude or Class D in nature
Based on our discussions with the City we understand that the proponents bid of $94385 million is inclusive of all base building finishes work partial fit-out beyond base building general contractors overheads and profit ITcommssecurity head-end equipment LEED Gold certification permits- amp fees project management fees and expenses professional fees and expenses construction cost escalation and financing costs but is exclusive of site remediation the Citys leasehold improvements furniture furnishings and equipment Owners management reserve and HST Given this understanding it is our opinion that the $94385 million is fair and reasonable
For your information using the parameters noted above our range of probable project costs for this project based on an order of magnitude Class D review of the project documentation ranges between $950 and $1000 million
Yours very truly
Hanscomb Limited
Dale Panday PQS MRICS MAACE Director
Fito OOffC6VU6W CityOfBrampton CityHalExparaion tUtunaie RoviaviAHanscornti Raporu July14 raquo11Soumwost Quadrant Rantwal Plan CityOf BramptonHintoombOpinion01ProbaobPropelCo(ts_27-Jut-2011 Doc
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Hanscomb Limited
Suite 90040 Holly Street Toronto Ontario M4S 3C3
Tel 416)487-3811 Fax(416)487-5043 Email torontohanscombcom www hanscombcom
The report seeks Councils authority to execute the negotiated Agreement Documents and take the necessary steps to close the transaction Upon closing Dominus will begin Phase 1 construction of the Southwest Quadrant Renewal Plan
Staff will return to Council with a comprehensive Space Plan outlining key milestone activities timing and logistics for repatriating staff from satellite offices
Councils decisions with respect to the recommendations set out in this report will bring the process for RFP 2009-072 to a conclusion
Recommendations
1 THAT the report from Julian Patteson Commissioner of Buildingsand Property Management and Mo Lewis Commissioner of Financial and Information Services and Treasurer dated July 29 2011 titled Southwest Quadrant Renewal Plan shyRequest for Proposal (RFP) 2009-072 - Contractual Agreements between The Corporation of the City of Brampton (City) and Dominus Construction Group (Dominus) be received
2 THAT Council approve the negotiated terms and conditions between the City and Dominus for Phase 1 and 1a development of the Southwest Quadrant Renewal Plan and authorize the Mayor and Clerkto execute all primary and ancillary agreements to give effect to the transaction with content acceptable to the Commissioner of Buildings and Property Management and in a form acceptable to the City Solicitor
3 THAT for the purposes of entering into the Ground Lease in compliance with Real Estate Policy 1490 requirements for the disposal of land the City-owned land required for the development of Phase 1 and Phase 1a known municipally as 33 Queen Street West 57 Queen Street West and 41 George Street South be declared surplus to the Citys requirements
4 THAT upon closing of the transaction Dominus Construction Group may commence construction of Phase land 1a development of the Southwest Quadrant Renewal Plan
5 THAT staff incorporate the financial plan contained in this report in the 2012 Budget planning process and adjust current and forecasted spending to account for the costs of this renewal plan
6 THAT staff report back to Council with a long-term space planning strategy with project plan and timing
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Background
Brampton City Councils vision for a revitalized southwest quadrant of the downtown called for bringing together major institutional cultural commercial and entertainment uses while addressing the Citys long-term administrative space requirements The development should recognize intensive mixed-use forms with a street and public realm to create pedestrian-friendly and transit-supportive neighbourhoods
To translate this vision to a set of specific objectives Council approved the following guiding principles
Increase office adjacencies to reduce fragmentation of departments
Anticipate and accommodate future growth of the administration
Control space costs and ensure value-for-money to taxpayers
Centralize civic employees in Bramptons Historic Downtown
Contribute to the revitalization of the downtown
Ensure that Brampton is recognized as an employer of choice
Ensure an appropriate balance between public and private sector risk
To work towards this vision and achieve these guiding principles the City issued a Request for Proposal (RFP) on October 30 2009 to solicit responses from the market for a unique and creative way to deliver a revitalization of the southwest quadrant of the downtown
The intent was to select a development partner that would work with the City to meet the Citys future administrative space and deliver upon other desired elements of the Southwest Quadrant Renewal Plan
On March 28 2011 City staff recommended to Council that Dominus Construction Group be selected as the Preferred Respondent Council approved the recommendation and directed staff to proceed with negotiations of contractual agreements based on lease-to-own payments of not more than $82 million per year for 25 years This would mean that starting in 20I4 the City would pay an aggregate payment amount of not more than $205 million for facilities with an estimated project cost of $94 million
Further staff was directed to present options for Councils consideration on how this significant investment in Downtown Brampton will be financed in terms of the Citys financial capacity the long-term funding strategy and other Council service priorities
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Current Situation
Negotiation Objectives and Deliverables
A City Negotiations Steering Committeewas established to provide oversight and direction to a number of staff teams as well as subject matter experts from several technical disciplines Dominus took similar measures Through a series of several meetings the City team and Dominus team negotiated key terms and conditions for several areas of work which are outlined in this report The following agreements have been finalized including the
bull Transaction Outline (and Agreement Letter) bull Ground Lease
bull Space Lease
The following ancillary agreements have been negotiated in principle with agreement of all key terms and conditions and will be finalized before the closing of the transaction These include the
bull Major Maintenance Agreement bull Lender Direct Agreements bull Retail Management Agreement
An overview of the above agreements is provided within this report
Purpose of the Agreements
Transaction Outline
The Transaction Outline accompanied with an Agreement Letter is the overarching agreement for this project It sets out the concepts principles framework and key business terms for the contractual arrangements between the City and Dominus All other documents flow from the Transaction Outline
The Transaction Outline establishes the legal entities of the parties the scope of the phased development for the Southwest Quadrant Renewal Plan the key business terms to be detailed in the other agreements the obligations and responsibilities of the parties and the mechanisms for advancing the later stages of development
Ground Lease
The Ground Lease is the predominant lease agreement and has primacyover the Space Lease Its purpose is to allow the City to lease the Phase 1 and 1a lands to Dominusfor the construction period plus a term of 25 years Dominus in turn must construct the buildings to the Citys specifications to be complete and ready for occupancy on January 1 2014 The buildings will belong to Dominus subject to the Citys reversionary ownership interest at the end of the lease term Dominus as the tenant on the Ground Lease will pay all realty taxes utilities and other costs associated with the lands
To satisfy certain provisions of its procedural by-law for real estate transactions staff recommends that the Phase 1 and 1a lands be declared as surplus to municipal requirements giving effect to the Ground Lease provisions
Space Lease
The Space Lease stems from the Ground Lease and sets out the terms and conditions for leasing all spaces from Dominus to the City including offices police reporting station meeting rooms committee rooms retail and parking
The City will have a right to sublease the police reporting station premises and to enter into a management agreement or subleases for the retail space The Base Rent under the Space Lease is based on the cost of financing the construction of the project including the cost of constructing retail space
Major Maintenance Agreement
The City will fund major maintenance as needed through a flat annual fee paid in equal monthly installments starting at the same time as the Base Rent payments This cost is normally flowed through to the tenant in a typical operating lease scenario as part of the rent provisions The payments will be placed in a Major Maintenance Reserve to be maintained in a separate account applied at the joint direction of the City and Dominus
The Major Maintenance reserve will ensure that funds will be available for the life cycle replacements and major capital repairs It will help to buffer the City against extraordinary demand maintenance and emergency maintenance costs and ensure turnover of a building with no deferred maintenance
Dominus as the owner of the building during the lease term will maintain asset management responsibilities and charge an annual asset management fee adjusted by the Consumer Price Index and an annual performance adjustment to protect the City and require Dominus to meet established performance standards
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The estimated majormaintenance costs will be subject to Facility Condition Audits and reassessed every five years The City will retain any residual funds in the Major Maintenance Fund at the end of the lease term
Lender Direct Agreements
Dominus as the Citys business partner has been able to leverage the CitysTriple A Credit Rating stable income stream commitment and strong lease covenant into a preferred borrowing rate and beneficial terms from the capital markets To protect the Citys interests in the case of default or non-performance the City will enter into direct agreements with the construction and term loan lenders
Retail Management Agreement
The Phase 1 and 1a development will contain approximately 16334 square feet of net leasable commercial retail space
In the Dominus Final Offer submission the retail space (with an estimated value of $24 million) was to be constructed and owned by Dominus with the City having the option to buy the space at the end of the 25-year lease term During the contract negotiations however it was agreed that the transaction be revised so that the retail space would be transferred to the City at the end of the lease term at no additional cost although the annual base rent payments will remain at $82 million
As a further benefit the transaction was also amended to provide the City with a 50 share of the retail revenue
The parties will execute a retail leasing management agreement (the Retail Agreement) which will incorporate the following material terms
bull Dominus will be appointed the leasing manager of the retail space
bull Dominus will identify tenants that are consistent with a retail leasing strategy prepared by Dominus and approved by the City to seek to obtain market rents (including tenant fit up allowances and other inducements) for the Retail Space pursuant to a pre-approved leasing plan
bull All leases will be on a fully net basis (operating costs including commercial property taxes and utilities to be paid by the Tenant)
bull Tenant inducements will be funded equally by the City and Dominus and the Base Rent received from retail tenants shall be equally divided between Dominus and the City
bull Unrecovered operating costs in respect of any Retail Space shall be the Citys responsibility
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bull The term of the Agreement will be for an initial 25 years with an option to extend for an additional 25 years if not in default and
bull The Citywill have the option of buying out the remaining term of the Retail Agreement at any time during the renewal term at its then fair market value as determined by an arms-length third-party accredited appraiser selected by the City and approved by Dominus
Site Conditions
As the land owner the City has accepted responsibility for site conditions prior to beginning the ground lease with Dominus
The City acknowledges that the quality of the soil and ground water on the site may necessitate
bull the disposition of the soil and ground water through alternative means or to alternative locations and
bull additional capital costs for underground construction
Dominus will be responsible for site conditions during the term of the Ground Lease It will also be required to obtain a Record of Site Condition following excavation of the building site The City will fund Dominus costs for any incremental costs in the disposition of the soil and groundwater only if such costs exceed the costs that would be incurred for a greenfield site
Building Operation and Maintenance
The City will operate and maintain the new facility at its own cost funding operating and maintenance costs directly This in turn will achieve significant cost savings given that the City already has an assembled workforce in place to achieve economies of scale and several preventive and demand maintenance contracts achieved through the competitive tender process Since Dominus will not be performing these functions there will be no management fees associated with the services provided by the City
Operation and maintenance expenses payable or borne by the City will be made up of four components
bull operating costs (such as utilities janitorial realty taxes if any)
bull maintenance costs (such as normal maintenance replacement of items with a lifecycle of less than one year repainting repair refurbishment)
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bull major maintenance (such as replacement of roof replacement of elevator motors structural repairs re-cladding) and
bull property management and asset management
Dominus will remain responsible for asset management oversight of periodic maintenance and major maintenance as part of the asset management function The City will pay Dominus an annual asset management fee for this function
Fit-Out and Leasehold Improvements
The Space Lease will require completion and delivery of space in keeping with an agreed-upon schedule and will take into account damages for late delivery The Space Lease will include the Citys specifications for the Building and the City space the retail space and the parking
Dominus will finish the City space to the Citys specifications referenced in the Space Lease for open concept administrative space including partial fit-out beyond base building The City will provide its own leasehold improvements including furniture fixtures and equipment The City will seek competitive bids for leasehold improvements Dominus is entitled to make a bid for the work but is not entitled to perform leasehold improvements unless selected as the most cost- effective bid
These terms are in keeping with provisions in all of the Citys standard operating leases
Break Fee
The City and Dominus have negotiated Break Fee provisions covering Dominus transaction expenses prior to the August 10 2011 Council session
If for any reason Dominus and the City cannot settle all of the required definitive documents to their mutual satisfaction through good faith negotiations or if Brampton Council elects not to proceed with the signing of the Agreement Documents the City shall pay to Dominus a Break Fee to reimburse the company for its expenses in connection with this transaction The fees amount will be the total amount of bona fide
third-party costs paid by Dominus This amount would have to be supported by appropriate third-party receipts or other documentation made available for audit by the City not to exceed $350000
The above compensation will be the only compensation payable to Dominus in such an event The parties will mutually release each other elected representatives and officials (in the case of the City) directors and officers (in the case of Dominus) their respective employees agents and contractors from any and all liability of any nature or kind arising out of or in connection with the Request for Proposals or any of the settled documents
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Termination Cost
The City and Dominus also negotiated Termination Cost provisions covering the period from the August 10 2011 Council decision to the anticipated closing of the transaction on October 25 2011
If Brampton Council approves the Agreement Documents and one or more of the Conditions are not satisfied or waived by the date provided either the Cityor Dominus may terminate by giving written notice to the other party If either party elects to terminate (a) the City will pay to Dominus an amount equal to its Arms-Length Costs and (b) Dominus will assign and transfer to the City all plans specifications contracts work-in-progress and any other work product acquired by or developed by Dominus in connection with the building Arms-Length Costs must be accounted for by appropriate third-party receipts or other documentation made available for audit by the City
The compensation described here will be the only compensation payable to Dominus in such event The parties will mutually release each other elected representatives and officials (in the case of the City) directors and officers (in the case of Dominus) their respective employees agents and contractors from any and all liability of any nature or kind arising out of or in connection with the Request for Proposals or any of the settled documents
Phased Development
The City and Dominus plan a phased project comprised of the following elements
bull Phase 1 41 George Street 126398 sq ft administrative space 10545 sq ft multi-purpose meeting rooms 1496 sq ft police reporting station 10147sqft retail 446 parking spaces
bull Phase 1 a 33 Queen Street West
2507 sq ft committee rooms 6187sqft retail
bull Phase 2 20 George Street 130000 sq ft library (estimated) 360 parking spaces 4000 sq ft retail
bull Phase 3 65 Queen Street East
120000 sq ft administrative space (estimated)
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Phase 1 and 1a are firmly committed subject to Council approval and satisfaction of the conditions listed in the report prior to closing Phases 2 and 3 are optional as described below The project shall be substantially as described in the Dominus Final Offer submission dated December 9 2010 and as described in this report Minor adjustments to building areas may occur through the design development process
Phase 2 Obligations
To demonstrate its commitment to the long-term vision for the Southwest Quadrant Renewal Plan and the phased development scheme Dominus has secured the Phase 2 lands that are not owned by the City This provides the required site footprint for the Phase 2 improvements including the new central library parking and additional retail development
The option for the City and Dominus to proceed with Phase 2 development will be available for three years from commencement of the Option period If the City decides to proceed with Phase 2 it will ask Dominus to submit a proposal for Phase 2 addressing the Citys requirements and desired amenities
If the City and Dominus are unable to agree on price scope or other key terms of the Phase 2 project within a period of six months subject to any mutually agreed-upon extensions the Phase 2 Option shall be at an end The City at its option may release the Phase 2 Option earlier releasing both parties from further obligations with respect to Phase 2
Phase 3 Obligations
The City will agree to keep the Phase 3 site available until three years after the Phase 2 Option has been exercised The Phase 3 option includes the development of an additional 120000 sq ft of administrative space The remaining Phase 3 obligations are similar to those described in Phase 2
The City shall keep the Phase 3 Site available until the Phase 3 Option Expiry Date The City may at its option elect to release the Phase 3 option earlier than the Phase 3 Option Expiry Date and each of the City and Dominus will then be released from all further obligations in respect of Phase 3
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Summary of Salient Terms and Conditions of Transaction
Parties to the Transaction
Net Leasable Area (Phase 1 and 1a)
Base Rent
Ground Lease Term
Space Lease Term
Land Ownership During Ground Lease
Building Ownership During Space Lease
Reversionary Ownership Rights of Lands and Buildings
Reversionary Ownership Rights of Retail Space
Management Agreement for Retail Space
Revenue Sharing for Retail Space
Construction Class of Building
The City and Dominus Construction Group (DC) in trust for one or more special purpose entities controlled by DC to be established and without
personal liability (Dominus) As is customary practice Dominus will be completing a series of underlying transactions with institutional investors
to finance the development and construction of the Project Dominus and its affiliates however will continue to be contractually committed to perform all obligations as the private sector proponent
157283 sqft 446 parking spaces
$8209170 per year payable in equal monthly installments starting 2014
Construction Term Plus 25 Years
25 Years
Dominus
Dominus
City
City
Between City and Dominus with buyout provision after Space Lease Term Dominus sublets to retail tenants based upon City approval
50 City 50 Dominus
Class A Signature Building
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Maintenance Level of Building
Major Maintenance Reserve
Conditions Prior to October 2011 Closing (City and Dominus)
City Financial Obligations
Class A with periodic inspections by City and no deferred maintenance at Reversion
Funded by the City and controlled jointly by the City and Dominus Residual funds revert to City
Complete and up-to-date survey of the lands
Legal opinion on the quality of the Citys title to the lands Emergency accessegress TRCA approval Environmental and designated substance surveys Demolition permit Excavation permit Site Plan Approval Geotechnical report Completion of ancillary agreements Financing
Councils desire to leverage private sector investment when revitalizing the downtown led to the critical decision of issuing an RFP to search for a long-term development partner Councils objective was to find a partner that recognizes the potential of Bramptons downtown and investment in it ultimately acting as a catalyst in rejuvenating the citys core
On March 28th 2011 Council approved Dominus as its long-term development partner Council then directed staff to negotiate the terms of the Citys financial obligations to the revitalization project to
bull Secure private sector investment to construct and finance the facility
bull Commit the City to paying an occupancy cost - starting in 2014 for a 25-year term - that does not exceed $82 million annually
bull Ensure an appropriate balance between public and private sector risk
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Staff negotiations with Dominus achieved all these objectives Highlights include
bull Dominus will make the initial investment with an estimated value of $94 million
bull Beginning in 2014 the Citywill pay annual occupancy cost payments (base rent) of $82 million annually for the 25-year term
bull Dominus assumes the full responsibility for managing construction risk (such as cost overruns as a result of increases in the cost of construction materials increases in labour costs for skilled trade and construction delays)
bull Dominus is responsible for managing the normal financing risk associated with this type of project (However if a catastrophic economic event occurs similar to the 2008 Worldwide Economic Crisis the agreement requires the City to work with Dominus to manage the financial impact as it relates to this project and protect the financial interests of both parties)
Property Tax Impacts
Annual Occupancy Costs (Base Rent)
Council has been very clear in its intent to leverage private sector investment while also aiming to achieve a nominal or no additional impact to the property taxpayer
In support of these objectives and keeping in mind the Citys financial capacity and the tools available to deliver Councils priorities and service demands the following are some of the options presented to Council to fund this priority investment
1 Increase the tax rate to reflect the new building costs
2 Adjust or reallocate current or forecasted spending to reflect the new building costs
3 Cash in a portion of the Citys reserve funds to offer private sector partner an upfront contribution to offset construction costs of the new building and
4 Borrow $94 million to finance the cost of the new building and increase the property tax rate to make annual payments to repay the debt over a 25-year period
It is staffs recommendation that Option 2 be selected - adjust or reallocate existing property tax revenues over a three-year period beginning in 2012 By doing so no new property taxes are required to fund the Southwest Quadrant Renewal Plan
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The rationale for the recommendation is that the $82 million occupancy cost represents what the Citywould pay for the facilities over a 25-year period rather than having a one-time capital expenditure of $94 million both of these routes would require funding by property taxes However when deducting the $1 million per year that the City now spends to occupy leased space in Downtown Brampton on a net basis the amount to be funded over the 25-year period is actually $72 million per year to pay the annual occupancy cost (base rent)
Operating Costs
The Council-approved March 28 2011 report states that the annual operating costs of the new space were estimated at $21 million These operating costs are comparable regardless of who builds the building the City or the Private Sector As also mentioned the current operating cost paid by the Cityfor leased space in Downtown Brampton is $1 million per year This means that the net annual operating cost increase for the new facility is $11 million per year ($21 m -$10m = $11m) starting in 2014
In developing the Space Lease for these phases of the development the City secured the option of being able to use City staff or contracted resources to maintain and operate our facilities By doing so the City estimates that it could save as much as $300000 annually ($75 million over the 25-year term) in operating and maintenance costs
Also the Citys estimated share of the retail lease revenue of $200000 per year could be used to reduce the net increase in operating costs by as much as $200000 per year
The following table based on the most conservative scenario shows the forecasted tax funded capital spending This includes the money that staff proposes be reallocated to fund the $72 million net impact of additional occupancy costs and the $1 million in net operating costs
If the savings noted above (ie staff operating the facility and estimated revenue from Citys share of retail space) are realized they will be deducted from the $82 million shown in the following table beginning in 2014
2012 2013 2014
(Smillions) (Smillions) (Smillions) Total Amount included in
Capital Budget Forecast 20245 24352 28767
Dedicated to SWQ 2733 5466 8209
Remaining portion available to fund tax
funded capital or other 17512 18886 20558 annual Council
projectspriorities
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The Citys practice of allocating a portion of taxes from increased assessment to fund tax based capital plus the 1 capital infrastructure levy introduced in the 2011 Budget allows Council to direct resources to the SWQ Renewal Plan and still fund other Council priorities over the next three years
In addition the Citys annual capital program is no longer needed to pay for the Sandalwood Transit facility freeing up Federal gas tax funds that were dedicated to paying for the facility Therefore beginning in 2011 $24 million of Federal Gas tax funds are available annually to fund other eligible capital projects
Staff recommends that during 2012 budget deliberations Council consider a long-term funding strategy that includes using long-term debt to fund high priority projects (such as key road projects BramEast CommunityCentreLibrary Fire stations Works Yards) andor to reduce the backlog of key deferred capital projects
The strategic use of debt (similar to what is in place at the Region of Peel) will help the Citycontinue to put the necessary infrastructure in place in advance of development This would be particularly beneficial in light of fluctuations in the Citys Development Charges (DC) receipts and the current DC deficit balances For significant capital projects where a large portion is to be funded by property taxes the use of long-term debt also allows the Cityto match the costs of the facilities to those who benefit by spreading out the payments over future years so that property taxes from new residents help pay
This will be the subject of a separate report to Council at a later date this Fall
Benefits of Approving this Arrangement
Councils priorities and directives for this project have been clear from the start revitalize the downtown through private sector investment minimize risk and protect the taxpayers The agreement with Dominus achieves this and more laying the foundation for strategic financial solutions to assist Council in its city-building initiatives
If approved this arrangement would provide the following benefits
bull Full up-front construction costs would be paid by the Citys Private Sector partner signifying a significant Private Sector investment in Downtown Brampton
bull Citys $100 million Legacy Reserve Fund remains intact The existence of this Fund is a key consideration in the City retaining its Triple A Credit rating
bull Nominal or no impact to the property taxpayer is achieved
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bull Additional investments impact is managed in conjunction with other capital spending
bull The plan is affordable As the City continues to grow the costs are spread out over a larger tax base each year reducing the portion paid by each individual property taxpayer and ensuring that future residents who benefit from City services and downtown improvements share in the cost
bull Council will have flexibility to determine the amount to be allocated for repair and replacement or to cover annual debt payment increases each year from 2012 - 2014 (This is based on Council deciding to approve a long-term funding strategy during the 2012 Budget process)
bull No lease payments by the City until 2014 at which time a Council shyapproved long-term funding strategy will be in place
bull The City will set aside $27 million in 2012 and $55 million in 2013 for a total of $82 million to assist in the transition and fit-up costs associated with this project Any unused portion would be available to help plan and implement Phases 2 and 3 This is based on the above funding plan
Value-for-Money
Delivering value-for money to the City and taxpayers is a critical piece of the assessment and evaluation process staff undertakes prior to making recommendations to Council
To ensure that value-for-money will be delivered through a partnership with Dominus the City sought an independent review by Deloitte Consulting which was part of the appendices in the March 28th 2011 Council report In it Deloitte states that in their opinion the Final Offer submitted by Dominus represented sound value for money and is consistent with industry benchmarks for projects of this nature
The financing rate associated with the construction of this project is very advantageous based on comparisons completed by City staff in conjunction with financial institutions This review also confirmed that financing rates are a reflection of the Citys status as a desirable tenant with a Triple A Credit rating qualities the City continues to leverage to the benefit of taxpayers
The costs per square foot for each component of the project have been provided by Dominus to City staff Dominus deems this information as commercially sensitive and provided this information to the City for its analysis under the condition that it remains confidential
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As noted Dominus is fully responsible for the construction of the buildings at its cost The City is only responsible for making annual occupancy cost payments over the 25shyyear lease term As such the construction costs were reviewed and Citystaff is satisfied that the City will receive good value for the base rent that is required to pay for a building that it will own at the end of the lease term
The costing information provided by Dominus has been reviewed by Hanscomb Limited (Quantity Surveyors) to provide independent review of the costs Hanscomb Limited has concluded that the cost of the project is reasonable and their opinion letter is attached as Appendix A in this report
City staff also reviewed the numbers provided by Dominus on life cycle costing that will be used to determine funding for major maintenance Staff in conjunction with City Consultants concluded that the plan will ensure that adequate funds are available to carry out the repair and maintenance work required to keep the buildings in Class A condition with no deferred maintenance when the City takes over ownership of the building at the end of the lease term
Citys Advocacy Efforts - Phase 2 and Phase 3
While immediate emphasis in the downtown will be on Phase 1 and 1a Phases 2 and 3 represent the completion of Councils vision for this citys rejuvenated centre core
City staff working with Dominus as its long-term partner will monitor market conditions assess the Citys additional space requirements and report back to Council on the scope cost and timing of Phases 2 and 3 of the SWQ Renewal Plan
Staff will also report back on what other steps can or may be needed to move the additional two phases forward Some of these steps will include
bull consultation with key stakeholders including library representatives
bull government advocacy work including applying for funding from the Federal and Provincial governments and
bull leveraging additional private sector investment
Staff feels that Phase 2 is a strong candidate for P3 Canada funding The next application intake for projects under this program is expected to be in June 2012 Under this program the projects Phase 2 component could receive up to 25 funding from the Federal government
City staff is a member of a working group formed by the Municipal Finance Officers Association (MFOA) that is working to prepare another position paper asking the Province of Ontario to make amendments to the Development Charges Act 2001
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Among the requested changes being sought is the reinstatement of administrative space as an eligible category and removal of the 10 reduction for soft services Provincial approval of the requested changes would result in additional funding being available for the Phase 2- library and Phase 3 - administrative space The MFOA document is expected to be delivered to the Province for consideration priorto the October 2011 Provincial Election
Longer-Term Economic Benefits
The Council-approved March 28 2011 report states that to deliver the Dominus long-term vision for Downtown Brampton an estimated $251 million of CityPrivate Sector investment is required (Phase 1 - Sites 1 and 1a - $94 million Phase 2 - $86 million Phase 3 - $71 million) This investment would be over a number of years and serve as a catalyst to promote additional private and publicsector investment Also the plan provides much needed additional investment in downtown retail space in the first phase of the project
The investment under the Dominus solution in addition to the Citys investment to date in facilities such as Alderlea and the Rose Theatre would bring the City-initiated investment in Downtown Brampton to over $300 million
Based on information provided by the Citys Economic Development Department the multiplier effect of institutional investment is 14 times in industry sectors locally and provincially
As the Downtown market continues to grow in the years ahead this investment is another major building block in the ongoing revitalization of the Downtown Brampton serving to support existing and attract new businesses residents consumers visitors and employees to the historic Downtown
The amount and timing of this additional private sector investment is dependent on economic and market conditions and competing investment opportunities in Brampton and across the GTA
Conclusion
The Southwest Quadrant Renewal Project is an exciting opportunity to provide strategic investment in Downtown Brampton bring cultural and commercial benefits to the city while upholding the principles of smart urban planning and city building
By Council approving the recommendations contained in this report RFP2009-072 is concluded but in turn will set in motion activities that will begin renewing the downtowns southwest quadrant with construction activity scheduled to begin this fall (October 2011)
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Staff will then return to Council with a comprehensive Space Plan outlining key milestone activities timing and logistics for repatriating staff from satellite offices
The result will be that Phase 1 and 1a of this plan will provide administrative space and other Council-desired amenities such as additional parking and new retail space to the downtown core
In summary the partnership between the City and Dominus provides significant benefits to both parties as development partners including but not limited to
Benefits to Dominus Include
bull Partner with a Triple A Public Sector Tenant with a strong lease covenant bull Contribute to City building bull Achieving a safe rate of return
Benefits to the City Include
The RFPs primary objectives were achieved and RFP 2009-072 is concluded No occupancy cost payments till 2014 $100 million Legacy Reserve Fund remains intact Citys Triple A Credit Rating is preserved Administrative space needs satisfied Development acts as a catalyst for future downtown revitalization Ownership of the building (including retail space) is transferred to the City at end of lease term at additional no cost
Transfer of risk to private sector (construction financing) Councils desire for nominal or no increase to the property taxpayer is achieved Additional retail space in the downtown core will be delivered in 2014
Respectfully submitted
Julian P^ttesqn L Mo Lewis
Commissioner Commissioner
Buildings and Property Management Financial and Information Services and
Treasurer
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APPENDIX A
July 27 2011
The Corporation of the City of Brampton 2 Wellington Street West Brampton Ontario L6Y 4R2
Attention Julian Patteson MBA AACI PApp Commissioner Buildings and Property Management
Re Southwest Quadrant Renewal Plan
City of Brampton
Dear Mr Patteson
Per the Citys recent request we have reviewed documentation provided the City related to the above noted project with the intent of providing our opinion on the adequacy of the proponents bid in response to the Citys RFP 2009-072 Our review can be classified as order of magnitude or Class D in nature
Based on our discussions with the City we understand that the proponents bid of $94385 million is inclusive of all base building finishes work partial fit-out beyond base building general contractors overheads and profit ITcommssecurity head-end equipment LEED Gold certification permits- amp fees project management fees and expenses professional fees and expenses construction cost escalation and financing costs but is exclusive of site remediation the Citys leasehold improvements furniture furnishings and equipment Owners management reserve and HST Given this understanding it is our opinion that the $94385 million is fair and reasonable
For your information using the parameters noted above our range of probable project costs for this project based on an order of magnitude Class D review of the project documentation ranges between $950 and $1000 million
Yours very truly
Hanscomb Limited
Dale Panday PQS MRICS MAACE Director
Fito OOffC6VU6W CityOfBrampton CityHalExparaion tUtunaie RoviaviAHanscornti Raporu July14 raquo11Soumwost Quadrant Rantwal Plan CityOf BramptonHintoombOpinion01ProbaobPropelCo(ts_27-Jut-2011 Doc
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Hanscomb Limited
Suite 90040 Holly Street Toronto Ontario M4S 3C3
Tel 416)487-3811 Fax(416)487-5043 Email torontohanscombcom www hanscombcom
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Background
Brampton City Councils vision for a revitalized southwest quadrant of the downtown called for bringing together major institutional cultural commercial and entertainment uses while addressing the Citys long-term administrative space requirements The development should recognize intensive mixed-use forms with a street and public realm to create pedestrian-friendly and transit-supportive neighbourhoods
To translate this vision to a set of specific objectives Council approved the following guiding principles
Increase office adjacencies to reduce fragmentation of departments
Anticipate and accommodate future growth of the administration
Control space costs and ensure value-for-money to taxpayers
Centralize civic employees in Bramptons Historic Downtown
Contribute to the revitalization of the downtown
Ensure that Brampton is recognized as an employer of choice
Ensure an appropriate balance between public and private sector risk
To work towards this vision and achieve these guiding principles the City issued a Request for Proposal (RFP) on October 30 2009 to solicit responses from the market for a unique and creative way to deliver a revitalization of the southwest quadrant of the downtown
The intent was to select a development partner that would work with the City to meet the Citys future administrative space and deliver upon other desired elements of the Southwest Quadrant Renewal Plan
On March 28 2011 City staff recommended to Council that Dominus Construction Group be selected as the Preferred Respondent Council approved the recommendation and directed staff to proceed with negotiations of contractual agreements based on lease-to-own payments of not more than $82 million per year for 25 years This would mean that starting in 20I4 the City would pay an aggregate payment amount of not more than $205 million for facilities with an estimated project cost of $94 million
Further staff was directed to present options for Councils consideration on how this significant investment in Downtown Brampton will be financed in terms of the Citys financial capacity the long-term funding strategy and other Council service priorities
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Current Situation
Negotiation Objectives and Deliverables
A City Negotiations Steering Committeewas established to provide oversight and direction to a number of staff teams as well as subject matter experts from several technical disciplines Dominus took similar measures Through a series of several meetings the City team and Dominus team negotiated key terms and conditions for several areas of work which are outlined in this report The following agreements have been finalized including the
bull Transaction Outline (and Agreement Letter) bull Ground Lease
bull Space Lease
The following ancillary agreements have been negotiated in principle with agreement of all key terms and conditions and will be finalized before the closing of the transaction These include the
bull Major Maintenance Agreement bull Lender Direct Agreements bull Retail Management Agreement
An overview of the above agreements is provided within this report
Purpose of the Agreements
Transaction Outline
The Transaction Outline accompanied with an Agreement Letter is the overarching agreement for this project It sets out the concepts principles framework and key business terms for the contractual arrangements between the City and Dominus All other documents flow from the Transaction Outline
The Transaction Outline establishes the legal entities of the parties the scope of the phased development for the Southwest Quadrant Renewal Plan the key business terms to be detailed in the other agreements the obligations and responsibilities of the parties and the mechanisms for advancing the later stages of development
Ground Lease
The Ground Lease is the predominant lease agreement and has primacyover the Space Lease Its purpose is to allow the City to lease the Phase 1 and 1a lands to Dominusfor the construction period plus a term of 25 years Dominus in turn must construct the buildings to the Citys specifications to be complete and ready for occupancy on January 1 2014 The buildings will belong to Dominus subject to the Citys reversionary ownership interest at the end of the lease term Dominus as the tenant on the Ground Lease will pay all realty taxes utilities and other costs associated with the lands
To satisfy certain provisions of its procedural by-law for real estate transactions staff recommends that the Phase 1 and 1a lands be declared as surplus to municipal requirements giving effect to the Ground Lease provisions
Space Lease
The Space Lease stems from the Ground Lease and sets out the terms and conditions for leasing all spaces from Dominus to the City including offices police reporting station meeting rooms committee rooms retail and parking
The City will have a right to sublease the police reporting station premises and to enter into a management agreement or subleases for the retail space The Base Rent under the Space Lease is based on the cost of financing the construction of the project including the cost of constructing retail space
Major Maintenance Agreement
The City will fund major maintenance as needed through a flat annual fee paid in equal monthly installments starting at the same time as the Base Rent payments This cost is normally flowed through to the tenant in a typical operating lease scenario as part of the rent provisions The payments will be placed in a Major Maintenance Reserve to be maintained in a separate account applied at the joint direction of the City and Dominus
The Major Maintenance reserve will ensure that funds will be available for the life cycle replacements and major capital repairs It will help to buffer the City against extraordinary demand maintenance and emergency maintenance costs and ensure turnover of a building with no deferred maintenance
Dominus as the owner of the building during the lease term will maintain asset management responsibilities and charge an annual asset management fee adjusted by the Consumer Price Index and an annual performance adjustment to protect the City and require Dominus to meet established performance standards
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The estimated majormaintenance costs will be subject to Facility Condition Audits and reassessed every five years The City will retain any residual funds in the Major Maintenance Fund at the end of the lease term
Lender Direct Agreements
Dominus as the Citys business partner has been able to leverage the CitysTriple A Credit Rating stable income stream commitment and strong lease covenant into a preferred borrowing rate and beneficial terms from the capital markets To protect the Citys interests in the case of default or non-performance the City will enter into direct agreements with the construction and term loan lenders
Retail Management Agreement
The Phase 1 and 1a development will contain approximately 16334 square feet of net leasable commercial retail space
In the Dominus Final Offer submission the retail space (with an estimated value of $24 million) was to be constructed and owned by Dominus with the City having the option to buy the space at the end of the 25-year lease term During the contract negotiations however it was agreed that the transaction be revised so that the retail space would be transferred to the City at the end of the lease term at no additional cost although the annual base rent payments will remain at $82 million
As a further benefit the transaction was also amended to provide the City with a 50 share of the retail revenue
The parties will execute a retail leasing management agreement (the Retail Agreement) which will incorporate the following material terms
bull Dominus will be appointed the leasing manager of the retail space
bull Dominus will identify tenants that are consistent with a retail leasing strategy prepared by Dominus and approved by the City to seek to obtain market rents (including tenant fit up allowances and other inducements) for the Retail Space pursuant to a pre-approved leasing plan
bull All leases will be on a fully net basis (operating costs including commercial property taxes and utilities to be paid by the Tenant)
bull Tenant inducements will be funded equally by the City and Dominus and the Base Rent received from retail tenants shall be equally divided between Dominus and the City
bull Unrecovered operating costs in respect of any Retail Space shall be the Citys responsibility
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bull The term of the Agreement will be for an initial 25 years with an option to extend for an additional 25 years if not in default and
bull The Citywill have the option of buying out the remaining term of the Retail Agreement at any time during the renewal term at its then fair market value as determined by an arms-length third-party accredited appraiser selected by the City and approved by Dominus
Site Conditions
As the land owner the City has accepted responsibility for site conditions prior to beginning the ground lease with Dominus
The City acknowledges that the quality of the soil and ground water on the site may necessitate
bull the disposition of the soil and ground water through alternative means or to alternative locations and
bull additional capital costs for underground construction
Dominus will be responsible for site conditions during the term of the Ground Lease It will also be required to obtain a Record of Site Condition following excavation of the building site The City will fund Dominus costs for any incremental costs in the disposition of the soil and groundwater only if such costs exceed the costs that would be incurred for a greenfield site
Building Operation and Maintenance
The City will operate and maintain the new facility at its own cost funding operating and maintenance costs directly This in turn will achieve significant cost savings given that the City already has an assembled workforce in place to achieve economies of scale and several preventive and demand maintenance contracts achieved through the competitive tender process Since Dominus will not be performing these functions there will be no management fees associated with the services provided by the City
Operation and maintenance expenses payable or borne by the City will be made up of four components
bull operating costs (such as utilities janitorial realty taxes if any)
bull maintenance costs (such as normal maintenance replacement of items with a lifecycle of less than one year repainting repair refurbishment)
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bull major maintenance (such as replacement of roof replacement of elevator motors structural repairs re-cladding) and
bull property management and asset management
Dominus will remain responsible for asset management oversight of periodic maintenance and major maintenance as part of the asset management function The City will pay Dominus an annual asset management fee for this function
Fit-Out and Leasehold Improvements
The Space Lease will require completion and delivery of space in keeping with an agreed-upon schedule and will take into account damages for late delivery The Space Lease will include the Citys specifications for the Building and the City space the retail space and the parking
Dominus will finish the City space to the Citys specifications referenced in the Space Lease for open concept administrative space including partial fit-out beyond base building The City will provide its own leasehold improvements including furniture fixtures and equipment The City will seek competitive bids for leasehold improvements Dominus is entitled to make a bid for the work but is not entitled to perform leasehold improvements unless selected as the most cost- effective bid
These terms are in keeping with provisions in all of the Citys standard operating leases
Break Fee
The City and Dominus have negotiated Break Fee provisions covering Dominus transaction expenses prior to the August 10 2011 Council session
If for any reason Dominus and the City cannot settle all of the required definitive documents to their mutual satisfaction through good faith negotiations or if Brampton Council elects not to proceed with the signing of the Agreement Documents the City shall pay to Dominus a Break Fee to reimburse the company for its expenses in connection with this transaction The fees amount will be the total amount of bona fide
third-party costs paid by Dominus This amount would have to be supported by appropriate third-party receipts or other documentation made available for audit by the City not to exceed $350000
The above compensation will be the only compensation payable to Dominus in such an event The parties will mutually release each other elected representatives and officials (in the case of the City) directors and officers (in the case of Dominus) their respective employees agents and contractors from any and all liability of any nature or kind arising out of or in connection with the Request for Proposals or any of the settled documents
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Termination Cost
The City and Dominus also negotiated Termination Cost provisions covering the period from the August 10 2011 Council decision to the anticipated closing of the transaction on October 25 2011
If Brampton Council approves the Agreement Documents and one or more of the Conditions are not satisfied or waived by the date provided either the Cityor Dominus may terminate by giving written notice to the other party If either party elects to terminate (a) the City will pay to Dominus an amount equal to its Arms-Length Costs and (b) Dominus will assign and transfer to the City all plans specifications contracts work-in-progress and any other work product acquired by or developed by Dominus in connection with the building Arms-Length Costs must be accounted for by appropriate third-party receipts or other documentation made available for audit by the City
The compensation described here will be the only compensation payable to Dominus in such event The parties will mutually release each other elected representatives and officials (in the case of the City) directors and officers (in the case of Dominus) their respective employees agents and contractors from any and all liability of any nature or kind arising out of or in connection with the Request for Proposals or any of the settled documents
Phased Development
The City and Dominus plan a phased project comprised of the following elements
bull Phase 1 41 George Street 126398 sq ft administrative space 10545 sq ft multi-purpose meeting rooms 1496 sq ft police reporting station 10147sqft retail 446 parking spaces
bull Phase 1 a 33 Queen Street West
2507 sq ft committee rooms 6187sqft retail
bull Phase 2 20 George Street 130000 sq ft library (estimated) 360 parking spaces 4000 sq ft retail
bull Phase 3 65 Queen Street East
120000 sq ft administrative space (estimated)
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Phase 1 and 1a are firmly committed subject to Council approval and satisfaction of the conditions listed in the report prior to closing Phases 2 and 3 are optional as described below The project shall be substantially as described in the Dominus Final Offer submission dated December 9 2010 and as described in this report Minor adjustments to building areas may occur through the design development process
Phase 2 Obligations
To demonstrate its commitment to the long-term vision for the Southwest Quadrant Renewal Plan and the phased development scheme Dominus has secured the Phase 2 lands that are not owned by the City This provides the required site footprint for the Phase 2 improvements including the new central library parking and additional retail development
The option for the City and Dominus to proceed with Phase 2 development will be available for three years from commencement of the Option period If the City decides to proceed with Phase 2 it will ask Dominus to submit a proposal for Phase 2 addressing the Citys requirements and desired amenities
If the City and Dominus are unable to agree on price scope or other key terms of the Phase 2 project within a period of six months subject to any mutually agreed-upon extensions the Phase 2 Option shall be at an end The City at its option may release the Phase 2 Option earlier releasing both parties from further obligations with respect to Phase 2
Phase 3 Obligations
The City will agree to keep the Phase 3 site available until three years after the Phase 2 Option has been exercised The Phase 3 option includes the development of an additional 120000 sq ft of administrative space The remaining Phase 3 obligations are similar to those described in Phase 2
The City shall keep the Phase 3 Site available until the Phase 3 Option Expiry Date The City may at its option elect to release the Phase 3 option earlier than the Phase 3 Option Expiry Date and each of the City and Dominus will then be released from all further obligations in respect of Phase 3
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Summary of Salient Terms and Conditions of Transaction
Parties to the Transaction
Net Leasable Area (Phase 1 and 1a)
Base Rent
Ground Lease Term
Space Lease Term
Land Ownership During Ground Lease
Building Ownership During Space Lease
Reversionary Ownership Rights of Lands and Buildings
Reversionary Ownership Rights of Retail Space
Management Agreement for Retail Space
Revenue Sharing for Retail Space
Construction Class of Building
The City and Dominus Construction Group (DC) in trust for one or more special purpose entities controlled by DC to be established and without
personal liability (Dominus) As is customary practice Dominus will be completing a series of underlying transactions with institutional investors
to finance the development and construction of the Project Dominus and its affiliates however will continue to be contractually committed to perform all obligations as the private sector proponent
157283 sqft 446 parking spaces
$8209170 per year payable in equal monthly installments starting 2014
Construction Term Plus 25 Years
25 Years
Dominus
Dominus
City
City
Between City and Dominus with buyout provision after Space Lease Term Dominus sublets to retail tenants based upon City approval
50 City 50 Dominus
Class A Signature Building
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Maintenance Level of Building
Major Maintenance Reserve
Conditions Prior to October 2011 Closing (City and Dominus)
City Financial Obligations
Class A with periodic inspections by City and no deferred maintenance at Reversion
Funded by the City and controlled jointly by the City and Dominus Residual funds revert to City
Complete and up-to-date survey of the lands
Legal opinion on the quality of the Citys title to the lands Emergency accessegress TRCA approval Environmental and designated substance surveys Demolition permit Excavation permit Site Plan Approval Geotechnical report Completion of ancillary agreements Financing
Councils desire to leverage private sector investment when revitalizing the downtown led to the critical decision of issuing an RFP to search for a long-term development partner Councils objective was to find a partner that recognizes the potential of Bramptons downtown and investment in it ultimately acting as a catalyst in rejuvenating the citys core
On March 28th 2011 Council approved Dominus as its long-term development partner Council then directed staff to negotiate the terms of the Citys financial obligations to the revitalization project to
bull Secure private sector investment to construct and finance the facility
bull Commit the City to paying an occupancy cost - starting in 2014 for a 25-year term - that does not exceed $82 million annually
bull Ensure an appropriate balance between public and private sector risk
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Staff negotiations with Dominus achieved all these objectives Highlights include
bull Dominus will make the initial investment with an estimated value of $94 million
bull Beginning in 2014 the Citywill pay annual occupancy cost payments (base rent) of $82 million annually for the 25-year term
bull Dominus assumes the full responsibility for managing construction risk (such as cost overruns as a result of increases in the cost of construction materials increases in labour costs for skilled trade and construction delays)
bull Dominus is responsible for managing the normal financing risk associated with this type of project (However if a catastrophic economic event occurs similar to the 2008 Worldwide Economic Crisis the agreement requires the City to work with Dominus to manage the financial impact as it relates to this project and protect the financial interests of both parties)
Property Tax Impacts
Annual Occupancy Costs (Base Rent)
Council has been very clear in its intent to leverage private sector investment while also aiming to achieve a nominal or no additional impact to the property taxpayer
In support of these objectives and keeping in mind the Citys financial capacity and the tools available to deliver Councils priorities and service demands the following are some of the options presented to Council to fund this priority investment
1 Increase the tax rate to reflect the new building costs
2 Adjust or reallocate current or forecasted spending to reflect the new building costs
3 Cash in a portion of the Citys reserve funds to offer private sector partner an upfront contribution to offset construction costs of the new building and
4 Borrow $94 million to finance the cost of the new building and increase the property tax rate to make annual payments to repay the debt over a 25-year period
It is staffs recommendation that Option 2 be selected - adjust or reallocate existing property tax revenues over a three-year period beginning in 2012 By doing so no new property taxes are required to fund the Southwest Quadrant Renewal Plan
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The rationale for the recommendation is that the $82 million occupancy cost represents what the Citywould pay for the facilities over a 25-year period rather than having a one-time capital expenditure of $94 million both of these routes would require funding by property taxes However when deducting the $1 million per year that the City now spends to occupy leased space in Downtown Brampton on a net basis the amount to be funded over the 25-year period is actually $72 million per year to pay the annual occupancy cost (base rent)
Operating Costs
The Council-approved March 28 2011 report states that the annual operating costs of the new space were estimated at $21 million These operating costs are comparable regardless of who builds the building the City or the Private Sector As also mentioned the current operating cost paid by the Cityfor leased space in Downtown Brampton is $1 million per year This means that the net annual operating cost increase for the new facility is $11 million per year ($21 m -$10m = $11m) starting in 2014
In developing the Space Lease for these phases of the development the City secured the option of being able to use City staff or contracted resources to maintain and operate our facilities By doing so the City estimates that it could save as much as $300000 annually ($75 million over the 25-year term) in operating and maintenance costs
Also the Citys estimated share of the retail lease revenue of $200000 per year could be used to reduce the net increase in operating costs by as much as $200000 per year
The following table based on the most conservative scenario shows the forecasted tax funded capital spending This includes the money that staff proposes be reallocated to fund the $72 million net impact of additional occupancy costs and the $1 million in net operating costs
If the savings noted above (ie staff operating the facility and estimated revenue from Citys share of retail space) are realized they will be deducted from the $82 million shown in the following table beginning in 2014
2012 2013 2014
(Smillions) (Smillions) (Smillions) Total Amount included in
Capital Budget Forecast 20245 24352 28767
Dedicated to SWQ 2733 5466 8209
Remaining portion available to fund tax
funded capital or other 17512 18886 20558 annual Council
projectspriorities
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The Citys practice of allocating a portion of taxes from increased assessment to fund tax based capital plus the 1 capital infrastructure levy introduced in the 2011 Budget allows Council to direct resources to the SWQ Renewal Plan and still fund other Council priorities over the next three years
In addition the Citys annual capital program is no longer needed to pay for the Sandalwood Transit facility freeing up Federal gas tax funds that were dedicated to paying for the facility Therefore beginning in 2011 $24 million of Federal Gas tax funds are available annually to fund other eligible capital projects
Staff recommends that during 2012 budget deliberations Council consider a long-term funding strategy that includes using long-term debt to fund high priority projects (such as key road projects BramEast CommunityCentreLibrary Fire stations Works Yards) andor to reduce the backlog of key deferred capital projects
The strategic use of debt (similar to what is in place at the Region of Peel) will help the Citycontinue to put the necessary infrastructure in place in advance of development This would be particularly beneficial in light of fluctuations in the Citys Development Charges (DC) receipts and the current DC deficit balances For significant capital projects where a large portion is to be funded by property taxes the use of long-term debt also allows the Cityto match the costs of the facilities to those who benefit by spreading out the payments over future years so that property taxes from new residents help pay
This will be the subject of a separate report to Council at a later date this Fall
Benefits of Approving this Arrangement
Councils priorities and directives for this project have been clear from the start revitalize the downtown through private sector investment minimize risk and protect the taxpayers The agreement with Dominus achieves this and more laying the foundation for strategic financial solutions to assist Council in its city-building initiatives
If approved this arrangement would provide the following benefits
bull Full up-front construction costs would be paid by the Citys Private Sector partner signifying a significant Private Sector investment in Downtown Brampton
bull Citys $100 million Legacy Reserve Fund remains intact The existence of this Fund is a key consideration in the City retaining its Triple A Credit rating
bull Nominal or no impact to the property taxpayer is achieved
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bull Additional investments impact is managed in conjunction with other capital spending
bull The plan is affordable As the City continues to grow the costs are spread out over a larger tax base each year reducing the portion paid by each individual property taxpayer and ensuring that future residents who benefit from City services and downtown improvements share in the cost
bull Council will have flexibility to determine the amount to be allocated for repair and replacement or to cover annual debt payment increases each year from 2012 - 2014 (This is based on Council deciding to approve a long-term funding strategy during the 2012 Budget process)
bull No lease payments by the City until 2014 at which time a Council shyapproved long-term funding strategy will be in place
bull The City will set aside $27 million in 2012 and $55 million in 2013 for a total of $82 million to assist in the transition and fit-up costs associated with this project Any unused portion would be available to help plan and implement Phases 2 and 3 This is based on the above funding plan
Value-for-Money
Delivering value-for money to the City and taxpayers is a critical piece of the assessment and evaluation process staff undertakes prior to making recommendations to Council
To ensure that value-for-money will be delivered through a partnership with Dominus the City sought an independent review by Deloitte Consulting which was part of the appendices in the March 28th 2011 Council report In it Deloitte states that in their opinion the Final Offer submitted by Dominus represented sound value for money and is consistent with industry benchmarks for projects of this nature
The financing rate associated with the construction of this project is very advantageous based on comparisons completed by City staff in conjunction with financial institutions This review also confirmed that financing rates are a reflection of the Citys status as a desirable tenant with a Triple A Credit rating qualities the City continues to leverage to the benefit of taxpayers
The costs per square foot for each component of the project have been provided by Dominus to City staff Dominus deems this information as commercially sensitive and provided this information to the City for its analysis under the condition that it remains confidential
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As noted Dominus is fully responsible for the construction of the buildings at its cost The City is only responsible for making annual occupancy cost payments over the 25shyyear lease term As such the construction costs were reviewed and Citystaff is satisfied that the City will receive good value for the base rent that is required to pay for a building that it will own at the end of the lease term
The costing information provided by Dominus has been reviewed by Hanscomb Limited (Quantity Surveyors) to provide independent review of the costs Hanscomb Limited has concluded that the cost of the project is reasonable and their opinion letter is attached as Appendix A in this report
City staff also reviewed the numbers provided by Dominus on life cycle costing that will be used to determine funding for major maintenance Staff in conjunction with City Consultants concluded that the plan will ensure that adequate funds are available to carry out the repair and maintenance work required to keep the buildings in Class A condition with no deferred maintenance when the City takes over ownership of the building at the end of the lease term
Citys Advocacy Efforts - Phase 2 and Phase 3
While immediate emphasis in the downtown will be on Phase 1 and 1a Phases 2 and 3 represent the completion of Councils vision for this citys rejuvenated centre core
City staff working with Dominus as its long-term partner will monitor market conditions assess the Citys additional space requirements and report back to Council on the scope cost and timing of Phases 2 and 3 of the SWQ Renewal Plan
Staff will also report back on what other steps can or may be needed to move the additional two phases forward Some of these steps will include
bull consultation with key stakeholders including library representatives
bull government advocacy work including applying for funding from the Federal and Provincial governments and
bull leveraging additional private sector investment
Staff feels that Phase 2 is a strong candidate for P3 Canada funding The next application intake for projects under this program is expected to be in June 2012 Under this program the projects Phase 2 component could receive up to 25 funding from the Federal government
City staff is a member of a working group formed by the Municipal Finance Officers Association (MFOA) that is working to prepare another position paper asking the Province of Ontario to make amendments to the Development Charges Act 2001
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Among the requested changes being sought is the reinstatement of administrative space as an eligible category and removal of the 10 reduction for soft services Provincial approval of the requested changes would result in additional funding being available for the Phase 2- library and Phase 3 - administrative space The MFOA document is expected to be delivered to the Province for consideration priorto the October 2011 Provincial Election
Longer-Term Economic Benefits
The Council-approved March 28 2011 report states that to deliver the Dominus long-term vision for Downtown Brampton an estimated $251 million of CityPrivate Sector investment is required (Phase 1 - Sites 1 and 1a - $94 million Phase 2 - $86 million Phase 3 - $71 million) This investment would be over a number of years and serve as a catalyst to promote additional private and publicsector investment Also the plan provides much needed additional investment in downtown retail space in the first phase of the project
The investment under the Dominus solution in addition to the Citys investment to date in facilities such as Alderlea and the Rose Theatre would bring the City-initiated investment in Downtown Brampton to over $300 million
Based on information provided by the Citys Economic Development Department the multiplier effect of institutional investment is 14 times in industry sectors locally and provincially
As the Downtown market continues to grow in the years ahead this investment is another major building block in the ongoing revitalization of the Downtown Brampton serving to support existing and attract new businesses residents consumers visitors and employees to the historic Downtown
The amount and timing of this additional private sector investment is dependent on economic and market conditions and competing investment opportunities in Brampton and across the GTA
Conclusion
The Southwest Quadrant Renewal Project is an exciting opportunity to provide strategic investment in Downtown Brampton bring cultural and commercial benefits to the city while upholding the principles of smart urban planning and city building
By Council approving the recommendations contained in this report RFP2009-072 is concluded but in turn will set in motion activities that will begin renewing the downtowns southwest quadrant with construction activity scheduled to begin this fall (October 2011)
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Staff will then return to Council with a comprehensive Space Plan outlining key milestone activities timing and logistics for repatriating staff from satellite offices
The result will be that Phase 1 and 1a of this plan will provide administrative space and other Council-desired amenities such as additional parking and new retail space to the downtown core
In summary the partnership between the City and Dominus provides significant benefits to both parties as development partners including but not limited to
Benefits to Dominus Include
bull Partner with a Triple A Public Sector Tenant with a strong lease covenant bull Contribute to City building bull Achieving a safe rate of return
Benefits to the City Include
The RFPs primary objectives were achieved and RFP 2009-072 is concluded No occupancy cost payments till 2014 $100 million Legacy Reserve Fund remains intact Citys Triple A Credit Rating is preserved Administrative space needs satisfied Development acts as a catalyst for future downtown revitalization Ownership of the building (including retail space) is transferred to the City at end of lease term at additional no cost
Transfer of risk to private sector (construction financing) Councils desire for nominal or no increase to the property taxpayer is achieved Additional retail space in the downtown core will be delivered in 2014
Respectfully submitted
Julian P^ttesqn L Mo Lewis
Commissioner Commissioner
Buildings and Property Management Financial and Information Services and
Treasurer
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APPENDIX A
July 27 2011
The Corporation of the City of Brampton 2 Wellington Street West Brampton Ontario L6Y 4R2
Attention Julian Patteson MBA AACI PApp Commissioner Buildings and Property Management
Re Southwest Quadrant Renewal Plan
City of Brampton
Dear Mr Patteson
Per the Citys recent request we have reviewed documentation provided the City related to the above noted project with the intent of providing our opinion on the adequacy of the proponents bid in response to the Citys RFP 2009-072 Our review can be classified as order of magnitude or Class D in nature
Based on our discussions with the City we understand that the proponents bid of $94385 million is inclusive of all base building finishes work partial fit-out beyond base building general contractors overheads and profit ITcommssecurity head-end equipment LEED Gold certification permits- amp fees project management fees and expenses professional fees and expenses construction cost escalation and financing costs but is exclusive of site remediation the Citys leasehold improvements furniture furnishings and equipment Owners management reserve and HST Given this understanding it is our opinion that the $94385 million is fair and reasonable
For your information using the parameters noted above our range of probable project costs for this project based on an order of magnitude Class D review of the project documentation ranges between $950 and $1000 million
Yours very truly
Hanscomb Limited
Dale Panday PQS MRICS MAACE Director
Fito OOffC6VU6W CityOfBrampton CityHalExparaion tUtunaie RoviaviAHanscornti Raporu July14 raquo11Soumwost Quadrant Rantwal Plan CityOf BramptonHintoombOpinion01ProbaobPropelCo(ts_27-Jut-2011 Doc
oanrupj
Hanscomb Limited
Suite 90040 Holly Street Toronto Ontario M4S 3C3
Tel 416)487-3811 Fax(416)487-5043 Email torontohanscombcom www hanscombcom
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Current Situation
Negotiation Objectives and Deliverables
A City Negotiations Steering Committeewas established to provide oversight and direction to a number of staff teams as well as subject matter experts from several technical disciplines Dominus took similar measures Through a series of several meetings the City team and Dominus team negotiated key terms and conditions for several areas of work which are outlined in this report The following agreements have been finalized including the
bull Transaction Outline (and Agreement Letter) bull Ground Lease
bull Space Lease
The following ancillary agreements have been negotiated in principle with agreement of all key terms and conditions and will be finalized before the closing of the transaction These include the
bull Major Maintenance Agreement bull Lender Direct Agreements bull Retail Management Agreement
An overview of the above agreements is provided within this report
Purpose of the Agreements
Transaction Outline
The Transaction Outline accompanied with an Agreement Letter is the overarching agreement for this project It sets out the concepts principles framework and key business terms for the contractual arrangements between the City and Dominus All other documents flow from the Transaction Outline
The Transaction Outline establishes the legal entities of the parties the scope of the phased development for the Southwest Quadrant Renewal Plan the key business terms to be detailed in the other agreements the obligations and responsibilities of the parties and the mechanisms for advancing the later stages of development
Ground Lease
The Ground Lease is the predominant lease agreement and has primacyover the Space Lease Its purpose is to allow the City to lease the Phase 1 and 1a lands to Dominusfor the construction period plus a term of 25 years Dominus in turn must construct the buildings to the Citys specifications to be complete and ready for occupancy on January 1 2014 The buildings will belong to Dominus subject to the Citys reversionary ownership interest at the end of the lease term Dominus as the tenant on the Ground Lease will pay all realty taxes utilities and other costs associated with the lands
To satisfy certain provisions of its procedural by-law for real estate transactions staff recommends that the Phase 1 and 1a lands be declared as surplus to municipal requirements giving effect to the Ground Lease provisions
Space Lease
The Space Lease stems from the Ground Lease and sets out the terms and conditions for leasing all spaces from Dominus to the City including offices police reporting station meeting rooms committee rooms retail and parking
The City will have a right to sublease the police reporting station premises and to enter into a management agreement or subleases for the retail space The Base Rent under the Space Lease is based on the cost of financing the construction of the project including the cost of constructing retail space
Major Maintenance Agreement
The City will fund major maintenance as needed through a flat annual fee paid in equal monthly installments starting at the same time as the Base Rent payments This cost is normally flowed through to the tenant in a typical operating lease scenario as part of the rent provisions The payments will be placed in a Major Maintenance Reserve to be maintained in a separate account applied at the joint direction of the City and Dominus
The Major Maintenance reserve will ensure that funds will be available for the life cycle replacements and major capital repairs It will help to buffer the City against extraordinary demand maintenance and emergency maintenance costs and ensure turnover of a building with no deferred maintenance
Dominus as the owner of the building during the lease term will maintain asset management responsibilities and charge an annual asset management fee adjusted by the Consumer Price Index and an annual performance adjustment to protect the City and require Dominus to meet established performance standards
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The estimated majormaintenance costs will be subject to Facility Condition Audits and reassessed every five years The City will retain any residual funds in the Major Maintenance Fund at the end of the lease term
Lender Direct Agreements
Dominus as the Citys business partner has been able to leverage the CitysTriple A Credit Rating stable income stream commitment and strong lease covenant into a preferred borrowing rate and beneficial terms from the capital markets To protect the Citys interests in the case of default or non-performance the City will enter into direct agreements with the construction and term loan lenders
Retail Management Agreement
The Phase 1 and 1a development will contain approximately 16334 square feet of net leasable commercial retail space
In the Dominus Final Offer submission the retail space (with an estimated value of $24 million) was to be constructed and owned by Dominus with the City having the option to buy the space at the end of the 25-year lease term During the contract negotiations however it was agreed that the transaction be revised so that the retail space would be transferred to the City at the end of the lease term at no additional cost although the annual base rent payments will remain at $82 million
As a further benefit the transaction was also amended to provide the City with a 50 share of the retail revenue
The parties will execute a retail leasing management agreement (the Retail Agreement) which will incorporate the following material terms
bull Dominus will be appointed the leasing manager of the retail space
bull Dominus will identify tenants that are consistent with a retail leasing strategy prepared by Dominus and approved by the City to seek to obtain market rents (including tenant fit up allowances and other inducements) for the Retail Space pursuant to a pre-approved leasing plan
bull All leases will be on a fully net basis (operating costs including commercial property taxes and utilities to be paid by the Tenant)
bull Tenant inducements will be funded equally by the City and Dominus and the Base Rent received from retail tenants shall be equally divided between Dominus and the City
bull Unrecovered operating costs in respect of any Retail Space shall be the Citys responsibility
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bull The term of the Agreement will be for an initial 25 years with an option to extend for an additional 25 years if not in default and
bull The Citywill have the option of buying out the remaining term of the Retail Agreement at any time during the renewal term at its then fair market value as determined by an arms-length third-party accredited appraiser selected by the City and approved by Dominus
Site Conditions
As the land owner the City has accepted responsibility for site conditions prior to beginning the ground lease with Dominus
The City acknowledges that the quality of the soil and ground water on the site may necessitate
bull the disposition of the soil and ground water through alternative means or to alternative locations and
bull additional capital costs for underground construction
Dominus will be responsible for site conditions during the term of the Ground Lease It will also be required to obtain a Record of Site Condition following excavation of the building site The City will fund Dominus costs for any incremental costs in the disposition of the soil and groundwater only if such costs exceed the costs that would be incurred for a greenfield site
Building Operation and Maintenance
The City will operate and maintain the new facility at its own cost funding operating and maintenance costs directly This in turn will achieve significant cost savings given that the City already has an assembled workforce in place to achieve economies of scale and several preventive and demand maintenance contracts achieved through the competitive tender process Since Dominus will not be performing these functions there will be no management fees associated with the services provided by the City
Operation and maintenance expenses payable or borne by the City will be made up of four components
bull operating costs (such as utilities janitorial realty taxes if any)
bull maintenance costs (such as normal maintenance replacement of items with a lifecycle of less than one year repainting repair refurbishment)
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bull major maintenance (such as replacement of roof replacement of elevator motors structural repairs re-cladding) and
bull property management and asset management
Dominus will remain responsible for asset management oversight of periodic maintenance and major maintenance as part of the asset management function The City will pay Dominus an annual asset management fee for this function
Fit-Out and Leasehold Improvements
The Space Lease will require completion and delivery of space in keeping with an agreed-upon schedule and will take into account damages for late delivery The Space Lease will include the Citys specifications for the Building and the City space the retail space and the parking
Dominus will finish the City space to the Citys specifications referenced in the Space Lease for open concept administrative space including partial fit-out beyond base building The City will provide its own leasehold improvements including furniture fixtures and equipment The City will seek competitive bids for leasehold improvements Dominus is entitled to make a bid for the work but is not entitled to perform leasehold improvements unless selected as the most cost- effective bid
These terms are in keeping with provisions in all of the Citys standard operating leases
Break Fee
The City and Dominus have negotiated Break Fee provisions covering Dominus transaction expenses prior to the August 10 2011 Council session
If for any reason Dominus and the City cannot settle all of the required definitive documents to their mutual satisfaction through good faith negotiations or if Brampton Council elects not to proceed with the signing of the Agreement Documents the City shall pay to Dominus a Break Fee to reimburse the company for its expenses in connection with this transaction The fees amount will be the total amount of bona fide
third-party costs paid by Dominus This amount would have to be supported by appropriate third-party receipts or other documentation made available for audit by the City not to exceed $350000
The above compensation will be the only compensation payable to Dominus in such an event The parties will mutually release each other elected representatives and officials (in the case of the City) directors and officers (in the case of Dominus) their respective employees agents and contractors from any and all liability of any nature or kind arising out of or in connection with the Request for Proposals or any of the settled documents
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Termination Cost
The City and Dominus also negotiated Termination Cost provisions covering the period from the August 10 2011 Council decision to the anticipated closing of the transaction on October 25 2011
If Brampton Council approves the Agreement Documents and one or more of the Conditions are not satisfied or waived by the date provided either the Cityor Dominus may terminate by giving written notice to the other party If either party elects to terminate (a) the City will pay to Dominus an amount equal to its Arms-Length Costs and (b) Dominus will assign and transfer to the City all plans specifications contracts work-in-progress and any other work product acquired by or developed by Dominus in connection with the building Arms-Length Costs must be accounted for by appropriate third-party receipts or other documentation made available for audit by the City
The compensation described here will be the only compensation payable to Dominus in such event The parties will mutually release each other elected representatives and officials (in the case of the City) directors and officers (in the case of Dominus) their respective employees agents and contractors from any and all liability of any nature or kind arising out of or in connection with the Request for Proposals or any of the settled documents
Phased Development
The City and Dominus plan a phased project comprised of the following elements
bull Phase 1 41 George Street 126398 sq ft administrative space 10545 sq ft multi-purpose meeting rooms 1496 sq ft police reporting station 10147sqft retail 446 parking spaces
bull Phase 1 a 33 Queen Street West
2507 sq ft committee rooms 6187sqft retail
bull Phase 2 20 George Street 130000 sq ft library (estimated) 360 parking spaces 4000 sq ft retail
bull Phase 3 65 Queen Street East
120000 sq ft administrative space (estimated)
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Phase 1 and 1a are firmly committed subject to Council approval and satisfaction of the conditions listed in the report prior to closing Phases 2 and 3 are optional as described below The project shall be substantially as described in the Dominus Final Offer submission dated December 9 2010 and as described in this report Minor adjustments to building areas may occur through the design development process
Phase 2 Obligations
To demonstrate its commitment to the long-term vision for the Southwest Quadrant Renewal Plan and the phased development scheme Dominus has secured the Phase 2 lands that are not owned by the City This provides the required site footprint for the Phase 2 improvements including the new central library parking and additional retail development
The option for the City and Dominus to proceed with Phase 2 development will be available for three years from commencement of the Option period If the City decides to proceed with Phase 2 it will ask Dominus to submit a proposal for Phase 2 addressing the Citys requirements and desired amenities
If the City and Dominus are unable to agree on price scope or other key terms of the Phase 2 project within a period of six months subject to any mutually agreed-upon extensions the Phase 2 Option shall be at an end The City at its option may release the Phase 2 Option earlier releasing both parties from further obligations with respect to Phase 2
Phase 3 Obligations
The City will agree to keep the Phase 3 site available until three years after the Phase 2 Option has been exercised The Phase 3 option includes the development of an additional 120000 sq ft of administrative space The remaining Phase 3 obligations are similar to those described in Phase 2
The City shall keep the Phase 3 Site available until the Phase 3 Option Expiry Date The City may at its option elect to release the Phase 3 option earlier than the Phase 3 Option Expiry Date and each of the City and Dominus will then be released from all further obligations in respect of Phase 3
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Summary of Salient Terms and Conditions of Transaction
Parties to the Transaction
Net Leasable Area (Phase 1 and 1a)
Base Rent
Ground Lease Term
Space Lease Term
Land Ownership During Ground Lease
Building Ownership During Space Lease
Reversionary Ownership Rights of Lands and Buildings
Reversionary Ownership Rights of Retail Space
Management Agreement for Retail Space
Revenue Sharing for Retail Space
Construction Class of Building
The City and Dominus Construction Group (DC) in trust for one or more special purpose entities controlled by DC to be established and without
personal liability (Dominus) As is customary practice Dominus will be completing a series of underlying transactions with institutional investors
to finance the development and construction of the Project Dominus and its affiliates however will continue to be contractually committed to perform all obligations as the private sector proponent
157283 sqft 446 parking spaces
$8209170 per year payable in equal monthly installments starting 2014
Construction Term Plus 25 Years
25 Years
Dominus
Dominus
City
City
Between City and Dominus with buyout provision after Space Lease Term Dominus sublets to retail tenants based upon City approval
50 City 50 Dominus
Class A Signature Building
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Maintenance Level of Building
Major Maintenance Reserve
Conditions Prior to October 2011 Closing (City and Dominus)
City Financial Obligations
Class A with periodic inspections by City and no deferred maintenance at Reversion
Funded by the City and controlled jointly by the City and Dominus Residual funds revert to City
Complete and up-to-date survey of the lands
Legal opinion on the quality of the Citys title to the lands Emergency accessegress TRCA approval Environmental and designated substance surveys Demolition permit Excavation permit Site Plan Approval Geotechnical report Completion of ancillary agreements Financing
Councils desire to leverage private sector investment when revitalizing the downtown led to the critical decision of issuing an RFP to search for a long-term development partner Councils objective was to find a partner that recognizes the potential of Bramptons downtown and investment in it ultimately acting as a catalyst in rejuvenating the citys core
On March 28th 2011 Council approved Dominus as its long-term development partner Council then directed staff to negotiate the terms of the Citys financial obligations to the revitalization project to
bull Secure private sector investment to construct and finance the facility
bull Commit the City to paying an occupancy cost - starting in 2014 for a 25-year term - that does not exceed $82 million annually
bull Ensure an appropriate balance between public and private sector risk
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Staff negotiations with Dominus achieved all these objectives Highlights include
bull Dominus will make the initial investment with an estimated value of $94 million
bull Beginning in 2014 the Citywill pay annual occupancy cost payments (base rent) of $82 million annually for the 25-year term
bull Dominus assumes the full responsibility for managing construction risk (such as cost overruns as a result of increases in the cost of construction materials increases in labour costs for skilled trade and construction delays)
bull Dominus is responsible for managing the normal financing risk associated with this type of project (However if a catastrophic economic event occurs similar to the 2008 Worldwide Economic Crisis the agreement requires the City to work with Dominus to manage the financial impact as it relates to this project and protect the financial interests of both parties)
Property Tax Impacts
Annual Occupancy Costs (Base Rent)
Council has been very clear in its intent to leverage private sector investment while also aiming to achieve a nominal or no additional impact to the property taxpayer
In support of these objectives and keeping in mind the Citys financial capacity and the tools available to deliver Councils priorities and service demands the following are some of the options presented to Council to fund this priority investment
1 Increase the tax rate to reflect the new building costs
2 Adjust or reallocate current or forecasted spending to reflect the new building costs
3 Cash in a portion of the Citys reserve funds to offer private sector partner an upfront contribution to offset construction costs of the new building and
4 Borrow $94 million to finance the cost of the new building and increase the property tax rate to make annual payments to repay the debt over a 25-year period
It is staffs recommendation that Option 2 be selected - adjust or reallocate existing property tax revenues over a three-year period beginning in 2012 By doing so no new property taxes are required to fund the Southwest Quadrant Renewal Plan
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The rationale for the recommendation is that the $82 million occupancy cost represents what the Citywould pay for the facilities over a 25-year period rather than having a one-time capital expenditure of $94 million both of these routes would require funding by property taxes However when deducting the $1 million per year that the City now spends to occupy leased space in Downtown Brampton on a net basis the amount to be funded over the 25-year period is actually $72 million per year to pay the annual occupancy cost (base rent)
Operating Costs
The Council-approved March 28 2011 report states that the annual operating costs of the new space were estimated at $21 million These operating costs are comparable regardless of who builds the building the City or the Private Sector As also mentioned the current operating cost paid by the Cityfor leased space in Downtown Brampton is $1 million per year This means that the net annual operating cost increase for the new facility is $11 million per year ($21 m -$10m = $11m) starting in 2014
In developing the Space Lease for these phases of the development the City secured the option of being able to use City staff or contracted resources to maintain and operate our facilities By doing so the City estimates that it could save as much as $300000 annually ($75 million over the 25-year term) in operating and maintenance costs
Also the Citys estimated share of the retail lease revenue of $200000 per year could be used to reduce the net increase in operating costs by as much as $200000 per year
The following table based on the most conservative scenario shows the forecasted tax funded capital spending This includes the money that staff proposes be reallocated to fund the $72 million net impact of additional occupancy costs and the $1 million in net operating costs
If the savings noted above (ie staff operating the facility and estimated revenue from Citys share of retail space) are realized they will be deducted from the $82 million shown in the following table beginning in 2014
2012 2013 2014
(Smillions) (Smillions) (Smillions) Total Amount included in
Capital Budget Forecast 20245 24352 28767
Dedicated to SWQ 2733 5466 8209
Remaining portion available to fund tax
funded capital or other 17512 18886 20558 annual Council
projectspriorities
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The Citys practice of allocating a portion of taxes from increased assessment to fund tax based capital plus the 1 capital infrastructure levy introduced in the 2011 Budget allows Council to direct resources to the SWQ Renewal Plan and still fund other Council priorities over the next three years
In addition the Citys annual capital program is no longer needed to pay for the Sandalwood Transit facility freeing up Federal gas tax funds that were dedicated to paying for the facility Therefore beginning in 2011 $24 million of Federal Gas tax funds are available annually to fund other eligible capital projects
Staff recommends that during 2012 budget deliberations Council consider a long-term funding strategy that includes using long-term debt to fund high priority projects (such as key road projects BramEast CommunityCentreLibrary Fire stations Works Yards) andor to reduce the backlog of key deferred capital projects
The strategic use of debt (similar to what is in place at the Region of Peel) will help the Citycontinue to put the necessary infrastructure in place in advance of development This would be particularly beneficial in light of fluctuations in the Citys Development Charges (DC) receipts and the current DC deficit balances For significant capital projects where a large portion is to be funded by property taxes the use of long-term debt also allows the Cityto match the costs of the facilities to those who benefit by spreading out the payments over future years so that property taxes from new residents help pay
This will be the subject of a separate report to Council at a later date this Fall
Benefits of Approving this Arrangement
Councils priorities and directives for this project have been clear from the start revitalize the downtown through private sector investment minimize risk and protect the taxpayers The agreement with Dominus achieves this and more laying the foundation for strategic financial solutions to assist Council in its city-building initiatives
If approved this arrangement would provide the following benefits
bull Full up-front construction costs would be paid by the Citys Private Sector partner signifying a significant Private Sector investment in Downtown Brampton
bull Citys $100 million Legacy Reserve Fund remains intact The existence of this Fund is a key consideration in the City retaining its Triple A Credit rating
bull Nominal or no impact to the property taxpayer is achieved
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bull Additional investments impact is managed in conjunction with other capital spending
bull The plan is affordable As the City continues to grow the costs are spread out over a larger tax base each year reducing the portion paid by each individual property taxpayer and ensuring that future residents who benefit from City services and downtown improvements share in the cost
bull Council will have flexibility to determine the amount to be allocated for repair and replacement or to cover annual debt payment increases each year from 2012 - 2014 (This is based on Council deciding to approve a long-term funding strategy during the 2012 Budget process)
bull No lease payments by the City until 2014 at which time a Council shyapproved long-term funding strategy will be in place
bull The City will set aside $27 million in 2012 and $55 million in 2013 for a total of $82 million to assist in the transition and fit-up costs associated with this project Any unused portion would be available to help plan and implement Phases 2 and 3 This is based on the above funding plan
Value-for-Money
Delivering value-for money to the City and taxpayers is a critical piece of the assessment and evaluation process staff undertakes prior to making recommendations to Council
To ensure that value-for-money will be delivered through a partnership with Dominus the City sought an independent review by Deloitte Consulting which was part of the appendices in the March 28th 2011 Council report In it Deloitte states that in their opinion the Final Offer submitted by Dominus represented sound value for money and is consistent with industry benchmarks for projects of this nature
The financing rate associated with the construction of this project is very advantageous based on comparisons completed by City staff in conjunction with financial institutions This review also confirmed that financing rates are a reflection of the Citys status as a desirable tenant with a Triple A Credit rating qualities the City continues to leverage to the benefit of taxpayers
The costs per square foot for each component of the project have been provided by Dominus to City staff Dominus deems this information as commercially sensitive and provided this information to the City for its analysis under the condition that it remains confidential
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As noted Dominus is fully responsible for the construction of the buildings at its cost The City is only responsible for making annual occupancy cost payments over the 25shyyear lease term As such the construction costs were reviewed and Citystaff is satisfied that the City will receive good value for the base rent that is required to pay for a building that it will own at the end of the lease term
The costing information provided by Dominus has been reviewed by Hanscomb Limited (Quantity Surveyors) to provide independent review of the costs Hanscomb Limited has concluded that the cost of the project is reasonable and their opinion letter is attached as Appendix A in this report
City staff also reviewed the numbers provided by Dominus on life cycle costing that will be used to determine funding for major maintenance Staff in conjunction with City Consultants concluded that the plan will ensure that adequate funds are available to carry out the repair and maintenance work required to keep the buildings in Class A condition with no deferred maintenance when the City takes over ownership of the building at the end of the lease term
Citys Advocacy Efforts - Phase 2 and Phase 3
While immediate emphasis in the downtown will be on Phase 1 and 1a Phases 2 and 3 represent the completion of Councils vision for this citys rejuvenated centre core
City staff working with Dominus as its long-term partner will monitor market conditions assess the Citys additional space requirements and report back to Council on the scope cost and timing of Phases 2 and 3 of the SWQ Renewal Plan
Staff will also report back on what other steps can or may be needed to move the additional two phases forward Some of these steps will include
bull consultation with key stakeholders including library representatives
bull government advocacy work including applying for funding from the Federal and Provincial governments and
bull leveraging additional private sector investment
Staff feels that Phase 2 is a strong candidate for P3 Canada funding The next application intake for projects under this program is expected to be in June 2012 Under this program the projects Phase 2 component could receive up to 25 funding from the Federal government
City staff is a member of a working group formed by the Municipal Finance Officers Association (MFOA) that is working to prepare another position paper asking the Province of Ontario to make amendments to the Development Charges Act 2001
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Among the requested changes being sought is the reinstatement of administrative space as an eligible category and removal of the 10 reduction for soft services Provincial approval of the requested changes would result in additional funding being available for the Phase 2- library and Phase 3 - administrative space The MFOA document is expected to be delivered to the Province for consideration priorto the October 2011 Provincial Election
Longer-Term Economic Benefits
The Council-approved March 28 2011 report states that to deliver the Dominus long-term vision for Downtown Brampton an estimated $251 million of CityPrivate Sector investment is required (Phase 1 - Sites 1 and 1a - $94 million Phase 2 - $86 million Phase 3 - $71 million) This investment would be over a number of years and serve as a catalyst to promote additional private and publicsector investment Also the plan provides much needed additional investment in downtown retail space in the first phase of the project
The investment under the Dominus solution in addition to the Citys investment to date in facilities such as Alderlea and the Rose Theatre would bring the City-initiated investment in Downtown Brampton to over $300 million
Based on information provided by the Citys Economic Development Department the multiplier effect of institutional investment is 14 times in industry sectors locally and provincially
As the Downtown market continues to grow in the years ahead this investment is another major building block in the ongoing revitalization of the Downtown Brampton serving to support existing and attract new businesses residents consumers visitors and employees to the historic Downtown
The amount and timing of this additional private sector investment is dependent on economic and market conditions and competing investment opportunities in Brampton and across the GTA
Conclusion
The Southwest Quadrant Renewal Project is an exciting opportunity to provide strategic investment in Downtown Brampton bring cultural and commercial benefits to the city while upholding the principles of smart urban planning and city building
By Council approving the recommendations contained in this report RFP2009-072 is concluded but in turn will set in motion activities that will begin renewing the downtowns southwest quadrant with construction activity scheduled to begin this fall (October 2011)
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Staff will then return to Council with a comprehensive Space Plan outlining key milestone activities timing and logistics for repatriating staff from satellite offices
The result will be that Phase 1 and 1a of this plan will provide administrative space and other Council-desired amenities such as additional parking and new retail space to the downtown core
In summary the partnership between the City and Dominus provides significant benefits to both parties as development partners including but not limited to
Benefits to Dominus Include
bull Partner with a Triple A Public Sector Tenant with a strong lease covenant bull Contribute to City building bull Achieving a safe rate of return
Benefits to the City Include
The RFPs primary objectives were achieved and RFP 2009-072 is concluded No occupancy cost payments till 2014 $100 million Legacy Reserve Fund remains intact Citys Triple A Credit Rating is preserved Administrative space needs satisfied Development acts as a catalyst for future downtown revitalization Ownership of the building (including retail space) is transferred to the City at end of lease term at additional no cost
Transfer of risk to private sector (construction financing) Councils desire for nominal or no increase to the property taxpayer is achieved Additional retail space in the downtown core will be delivered in 2014
Respectfully submitted
Julian P^ttesqn L Mo Lewis
Commissioner Commissioner
Buildings and Property Management Financial and Information Services and
Treasurer
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APPENDIX A
July 27 2011
The Corporation of the City of Brampton 2 Wellington Street West Brampton Ontario L6Y 4R2
Attention Julian Patteson MBA AACI PApp Commissioner Buildings and Property Management
Re Southwest Quadrant Renewal Plan
City of Brampton
Dear Mr Patteson
Per the Citys recent request we have reviewed documentation provided the City related to the above noted project with the intent of providing our opinion on the adequacy of the proponents bid in response to the Citys RFP 2009-072 Our review can be classified as order of magnitude or Class D in nature
Based on our discussions with the City we understand that the proponents bid of $94385 million is inclusive of all base building finishes work partial fit-out beyond base building general contractors overheads and profit ITcommssecurity head-end equipment LEED Gold certification permits- amp fees project management fees and expenses professional fees and expenses construction cost escalation and financing costs but is exclusive of site remediation the Citys leasehold improvements furniture furnishings and equipment Owners management reserve and HST Given this understanding it is our opinion that the $94385 million is fair and reasonable
For your information using the parameters noted above our range of probable project costs for this project based on an order of magnitude Class D review of the project documentation ranges between $950 and $1000 million
Yours very truly
Hanscomb Limited
Dale Panday PQS MRICS MAACE Director
Fito OOffC6VU6W CityOfBrampton CityHalExparaion tUtunaie RoviaviAHanscornti Raporu July14 raquo11Soumwost Quadrant Rantwal Plan CityOf BramptonHintoombOpinion01ProbaobPropelCo(ts_27-Jut-2011 Doc
oanrupj
Hanscomb Limited
Suite 90040 Holly Street Toronto Ontario M4S 3C3
Tel 416)487-3811 Fax(416)487-5043 Email torontohanscombcom www hanscombcom
Ground Lease
The Ground Lease is the predominant lease agreement and has primacyover the Space Lease Its purpose is to allow the City to lease the Phase 1 and 1a lands to Dominusfor the construction period plus a term of 25 years Dominus in turn must construct the buildings to the Citys specifications to be complete and ready for occupancy on January 1 2014 The buildings will belong to Dominus subject to the Citys reversionary ownership interest at the end of the lease term Dominus as the tenant on the Ground Lease will pay all realty taxes utilities and other costs associated with the lands
To satisfy certain provisions of its procedural by-law for real estate transactions staff recommends that the Phase 1 and 1a lands be declared as surplus to municipal requirements giving effect to the Ground Lease provisions
Space Lease
The Space Lease stems from the Ground Lease and sets out the terms and conditions for leasing all spaces from Dominus to the City including offices police reporting station meeting rooms committee rooms retail and parking
The City will have a right to sublease the police reporting station premises and to enter into a management agreement or subleases for the retail space The Base Rent under the Space Lease is based on the cost of financing the construction of the project including the cost of constructing retail space
Major Maintenance Agreement
The City will fund major maintenance as needed through a flat annual fee paid in equal monthly installments starting at the same time as the Base Rent payments This cost is normally flowed through to the tenant in a typical operating lease scenario as part of the rent provisions The payments will be placed in a Major Maintenance Reserve to be maintained in a separate account applied at the joint direction of the City and Dominus
The Major Maintenance reserve will ensure that funds will be available for the life cycle replacements and major capital repairs It will help to buffer the City against extraordinary demand maintenance and emergency maintenance costs and ensure turnover of a building with no deferred maintenance
Dominus as the owner of the building during the lease term will maintain asset management responsibilities and charge an annual asset management fee adjusted by the Consumer Price Index and an annual performance adjustment to protect the City and require Dominus to meet established performance standards
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The estimated majormaintenance costs will be subject to Facility Condition Audits and reassessed every five years The City will retain any residual funds in the Major Maintenance Fund at the end of the lease term
Lender Direct Agreements
Dominus as the Citys business partner has been able to leverage the CitysTriple A Credit Rating stable income stream commitment and strong lease covenant into a preferred borrowing rate and beneficial terms from the capital markets To protect the Citys interests in the case of default or non-performance the City will enter into direct agreements with the construction and term loan lenders
Retail Management Agreement
The Phase 1 and 1a development will contain approximately 16334 square feet of net leasable commercial retail space
In the Dominus Final Offer submission the retail space (with an estimated value of $24 million) was to be constructed and owned by Dominus with the City having the option to buy the space at the end of the 25-year lease term During the contract negotiations however it was agreed that the transaction be revised so that the retail space would be transferred to the City at the end of the lease term at no additional cost although the annual base rent payments will remain at $82 million
As a further benefit the transaction was also amended to provide the City with a 50 share of the retail revenue
The parties will execute a retail leasing management agreement (the Retail Agreement) which will incorporate the following material terms
bull Dominus will be appointed the leasing manager of the retail space
bull Dominus will identify tenants that are consistent with a retail leasing strategy prepared by Dominus and approved by the City to seek to obtain market rents (including tenant fit up allowances and other inducements) for the Retail Space pursuant to a pre-approved leasing plan
bull All leases will be on a fully net basis (operating costs including commercial property taxes and utilities to be paid by the Tenant)
bull Tenant inducements will be funded equally by the City and Dominus and the Base Rent received from retail tenants shall be equally divided between Dominus and the City
bull Unrecovered operating costs in respect of any Retail Space shall be the Citys responsibility
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bull The term of the Agreement will be for an initial 25 years with an option to extend for an additional 25 years if not in default and
bull The Citywill have the option of buying out the remaining term of the Retail Agreement at any time during the renewal term at its then fair market value as determined by an arms-length third-party accredited appraiser selected by the City and approved by Dominus
Site Conditions
As the land owner the City has accepted responsibility for site conditions prior to beginning the ground lease with Dominus
The City acknowledges that the quality of the soil and ground water on the site may necessitate
bull the disposition of the soil and ground water through alternative means or to alternative locations and
bull additional capital costs for underground construction
Dominus will be responsible for site conditions during the term of the Ground Lease It will also be required to obtain a Record of Site Condition following excavation of the building site The City will fund Dominus costs for any incremental costs in the disposition of the soil and groundwater only if such costs exceed the costs that would be incurred for a greenfield site
Building Operation and Maintenance
The City will operate and maintain the new facility at its own cost funding operating and maintenance costs directly This in turn will achieve significant cost savings given that the City already has an assembled workforce in place to achieve economies of scale and several preventive and demand maintenance contracts achieved through the competitive tender process Since Dominus will not be performing these functions there will be no management fees associated with the services provided by the City
Operation and maintenance expenses payable or borne by the City will be made up of four components
bull operating costs (such as utilities janitorial realty taxes if any)
bull maintenance costs (such as normal maintenance replacement of items with a lifecycle of less than one year repainting repair refurbishment)
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bull major maintenance (such as replacement of roof replacement of elevator motors structural repairs re-cladding) and
bull property management and asset management
Dominus will remain responsible for asset management oversight of periodic maintenance and major maintenance as part of the asset management function The City will pay Dominus an annual asset management fee for this function
Fit-Out and Leasehold Improvements
The Space Lease will require completion and delivery of space in keeping with an agreed-upon schedule and will take into account damages for late delivery The Space Lease will include the Citys specifications for the Building and the City space the retail space and the parking
Dominus will finish the City space to the Citys specifications referenced in the Space Lease for open concept administrative space including partial fit-out beyond base building The City will provide its own leasehold improvements including furniture fixtures and equipment The City will seek competitive bids for leasehold improvements Dominus is entitled to make a bid for the work but is not entitled to perform leasehold improvements unless selected as the most cost- effective bid
These terms are in keeping with provisions in all of the Citys standard operating leases
Break Fee
The City and Dominus have negotiated Break Fee provisions covering Dominus transaction expenses prior to the August 10 2011 Council session
If for any reason Dominus and the City cannot settle all of the required definitive documents to their mutual satisfaction through good faith negotiations or if Brampton Council elects not to proceed with the signing of the Agreement Documents the City shall pay to Dominus a Break Fee to reimburse the company for its expenses in connection with this transaction The fees amount will be the total amount of bona fide
third-party costs paid by Dominus This amount would have to be supported by appropriate third-party receipts or other documentation made available for audit by the City not to exceed $350000
The above compensation will be the only compensation payable to Dominus in such an event The parties will mutually release each other elected representatives and officials (in the case of the City) directors and officers (in the case of Dominus) their respective employees agents and contractors from any and all liability of any nature or kind arising out of or in connection with the Request for Proposals or any of the settled documents
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Termination Cost
The City and Dominus also negotiated Termination Cost provisions covering the period from the August 10 2011 Council decision to the anticipated closing of the transaction on October 25 2011
If Brampton Council approves the Agreement Documents and one or more of the Conditions are not satisfied or waived by the date provided either the Cityor Dominus may terminate by giving written notice to the other party If either party elects to terminate (a) the City will pay to Dominus an amount equal to its Arms-Length Costs and (b) Dominus will assign and transfer to the City all plans specifications contracts work-in-progress and any other work product acquired by or developed by Dominus in connection with the building Arms-Length Costs must be accounted for by appropriate third-party receipts or other documentation made available for audit by the City
The compensation described here will be the only compensation payable to Dominus in such event The parties will mutually release each other elected representatives and officials (in the case of the City) directors and officers (in the case of Dominus) their respective employees agents and contractors from any and all liability of any nature or kind arising out of or in connection with the Request for Proposals or any of the settled documents
Phased Development
The City and Dominus plan a phased project comprised of the following elements
bull Phase 1 41 George Street 126398 sq ft administrative space 10545 sq ft multi-purpose meeting rooms 1496 sq ft police reporting station 10147sqft retail 446 parking spaces
bull Phase 1 a 33 Queen Street West
2507 sq ft committee rooms 6187sqft retail
bull Phase 2 20 George Street 130000 sq ft library (estimated) 360 parking spaces 4000 sq ft retail
bull Phase 3 65 Queen Street East
120000 sq ft administrative space (estimated)
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Phase 1 and 1a are firmly committed subject to Council approval and satisfaction of the conditions listed in the report prior to closing Phases 2 and 3 are optional as described below The project shall be substantially as described in the Dominus Final Offer submission dated December 9 2010 and as described in this report Minor adjustments to building areas may occur through the design development process
Phase 2 Obligations
To demonstrate its commitment to the long-term vision for the Southwest Quadrant Renewal Plan and the phased development scheme Dominus has secured the Phase 2 lands that are not owned by the City This provides the required site footprint for the Phase 2 improvements including the new central library parking and additional retail development
The option for the City and Dominus to proceed with Phase 2 development will be available for three years from commencement of the Option period If the City decides to proceed with Phase 2 it will ask Dominus to submit a proposal for Phase 2 addressing the Citys requirements and desired amenities
If the City and Dominus are unable to agree on price scope or other key terms of the Phase 2 project within a period of six months subject to any mutually agreed-upon extensions the Phase 2 Option shall be at an end The City at its option may release the Phase 2 Option earlier releasing both parties from further obligations with respect to Phase 2
Phase 3 Obligations
The City will agree to keep the Phase 3 site available until three years after the Phase 2 Option has been exercised The Phase 3 option includes the development of an additional 120000 sq ft of administrative space The remaining Phase 3 obligations are similar to those described in Phase 2
The City shall keep the Phase 3 Site available until the Phase 3 Option Expiry Date The City may at its option elect to release the Phase 3 option earlier than the Phase 3 Option Expiry Date and each of the City and Dominus will then be released from all further obligations in respect of Phase 3
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Summary of Salient Terms and Conditions of Transaction
Parties to the Transaction
Net Leasable Area (Phase 1 and 1a)
Base Rent
Ground Lease Term
Space Lease Term
Land Ownership During Ground Lease
Building Ownership During Space Lease
Reversionary Ownership Rights of Lands and Buildings
Reversionary Ownership Rights of Retail Space
Management Agreement for Retail Space
Revenue Sharing for Retail Space
Construction Class of Building
The City and Dominus Construction Group (DC) in trust for one or more special purpose entities controlled by DC to be established and without
personal liability (Dominus) As is customary practice Dominus will be completing a series of underlying transactions with institutional investors
to finance the development and construction of the Project Dominus and its affiliates however will continue to be contractually committed to perform all obligations as the private sector proponent
157283 sqft 446 parking spaces
$8209170 per year payable in equal monthly installments starting 2014
Construction Term Plus 25 Years
25 Years
Dominus
Dominus
City
City
Between City and Dominus with buyout provision after Space Lease Term Dominus sublets to retail tenants based upon City approval
50 City 50 Dominus
Class A Signature Building
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Maintenance Level of Building
Major Maintenance Reserve
Conditions Prior to October 2011 Closing (City and Dominus)
City Financial Obligations
Class A with periodic inspections by City and no deferred maintenance at Reversion
Funded by the City and controlled jointly by the City and Dominus Residual funds revert to City
Complete and up-to-date survey of the lands
Legal opinion on the quality of the Citys title to the lands Emergency accessegress TRCA approval Environmental and designated substance surveys Demolition permit Excavation permit Site Plan Approval Geotechnical report Completion of ancillary agreements Financing
Councils desire to leverage private sector investment when revitalizing the downtown led to the critical decision of issuing an RFP to search for a long-term development partner Councils objective was to find a partner that recognizes the potential of Bramptons downtown and investment in it ultimately acting as a catalyst in rejuvenating the citys core
On March 28th 2011 Council approved Dominus as its long-term development partner Council then directed staff to negotiate the terms of the Citys financial obligations to the revitalization project to
bull Secure private sector investment to construct and finance the facility
bull Commit the City to paying an occupancy cost - starting in 2014 for a 25-year term - that does not exceed $82 million annually
bull Ensure an appropriate balance between public and private sector risk
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Staff negotiations with Dominus achieved all these objectives Highlights include
bull Dominus will make the initial investment with an estimated value of $94 million
bull Beginning in 2014 the Citywill pay annual occupancy cost payments (base rent) of $82 million annually for the 25-year term
bull Dominus assumes the full responsibility for managing construction risk (such as cost overruns as a result of increases in the cost of construction materials increases in labour costs for skilled trade and construction delays)
bull Dominus is responsible for managing the normal financing risk associated with this type of project (However if a catastrophic economic event occurs similar to the 2008 Worldwide Economic Crisis the agreement requires the City to work with Dominus to manage the financial impact as it relates to this project and protect the financial interests of both parties)
Property Tax Impacts
Annual Occupancy Costs (Base Rent)
Council has been very clear in its intent to leverage private sector investment while also aiming to achieve a nominal or no additional impact to the property taxpayer
In support of these objectives and keeping in mind the Citys financial capacity and the tools available to deliver Councils priorities and service demands the following are some of the options presented to Council to fund this priority investment
1 Increase the tax rate to reflect the new building costs
2 Adjust or reallocate current or forecasted spending to reflect the new building costs
3 Cash in a portion of the Citys reserve funds to offer private sector partner an upfront contribution to offset construction costs of the new building and
4 Borrow $94 million to finance the cost of the new building and increase the property tax rate to make annual payments to repay the debt over a 25-year period
It is staffs recommendation that Option 2 be selected - adjust or reallocate existing property tax revenues over a three-year period beginning in 2012 By doing so no new property taxes are required to fund the Southwest Quadrant Renewal Plan
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The rationale for the recommendation is that the $82 million occupancy cost represents what the Citywould pay for the facilities over a 25-year period rather than having a one-time capital expenditure of $94 million both of these routes would require funding by property taxes However when deducting the $1 million per year that the City now spends to occupy leased space in Downtown Brampton on a net basis the amount to be funded over the 25-year period is actually $72 million per year to pay the annual occupancy cost (base rent)
Operating Costs
The Council-approved March 28 2011 report states that the annual operating costs of the new space were estimated at $21 million These operating costs are comparable regardless of who builds the building the City or the Private Sector As also mentioned the current operating cost paid by the Cityfor leased space in Downtown Brampton is $1 million per year This means that the net annual operating cost increase for the new facility is $11 million per year ($21 m -$10m = $11m) starting in 2014
In developing the Space Lease for these phases of the development the City secured the option of being able to use City staff or contracted resources to maintain and operate our facilities By doing so the City estimates that it could save as much as $300000 annually ($75 million over the 25-year term) in operating and maintenance costs
Also the Citys estimated share of the retail lease revenue of $200000 per year could be used to reduce the net increase in operating costs by as much as $200000 per year
The following table based on the most conservative scenario shows the forecasted tax funded capital spending This includes the money that staff proposes be reallocated to fund the $72 million net impact of additional occupancy costs and the $1 million in net operating costs
If the savings noted above (ie staff operating the facility and estimated revenue from Citys share of retail space) are realized they will be deducted from the $82 million shown in the following table beginning in 2014
2012 2013 2014
(Smillions) (Smillions) (Smillions) Total Amount included in
Capital Budget Forecast 20245 24352 28767
Dedicated to SWQ 2733 5466 8209
Remaining portion available to fund tax
funded capital or other 17512 18886 20558 annual Council
projectspriorities
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The Citys practice of allocating a portion of taxes from increased assessment to fund tax based capital plus the 1 capital infrastructure levy introduced in the 2011 Budget allows Council to direct resources to the SWQ Renewal Plan and still fund other Council priorities over the next three years
In addition the Citys annual capital program is no longer needed to pay for the Sandalwood Transit facility freeing up Federal gas tax funds that were dedicated to paying for the facility Therefore beginning in 2011 $24 million of Federal Gas tax funds are available annually to fund other eligible capital projects
Staff recommends that during 2012 budget deliberations Council consider a long-term funding strategy that includes using long-term debt to fund high priority projects (such as key road projects BramEast CommunityCentreLibrary Fire stations Works Yards) andor to reduce the backlog of key deferred capital projects
The strategic use of debt (similar to what is in place at the Region of Peel) will help the Citycontinue to put the necessary infrastructure in place in advance of development This would be particularly beneficial in light of fluctuations in the Citys Development Charges (DC) receipts and the current DC deficit balances For significant capital projects where a large portion is to be funded by property taxes the use of long-term debt also allows the Cityto match the costs of the facilities to those who benefit by spreading out the payments over future years so that property taxes from new residents help pay
This will be the subject of a separate report to Council at a later date this Fall
Benefits of Approving this Arrangement
Councils priorities and directives for this project have been clear from the start revitalize the downtown through private sector investment minimize risk and protect the taxpayers The agreement with Dominus achieves this and more laying the foundation for strategic financial solutions to assist Council in its city-building initiatives
If approved this arrangement would provide the following benefits
bull Full up-front construction costs would be paid by the Citys Private Sector partner signifying a significant Private Sector investment in Downtown Brampton
bull Citys $100 million Legacy Reserve Fund remains intact The existence of this Fund is a key consideration in the City retaining its Triple A Credit rating
bull Nominal or no impact to the property taxpayer is achieved
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bull Additional investments impact is managed in conjunction with other capital spending
bull The plan is affordable As the City continues to grow the costs are spread out over a larger tax base each year reducing the portion paid by each individual property taxpayer and ensuring that future residents who benefit from City services and downtown improvements share in the cost
bull Council will have flexibility to determine the amount to be allocated for repair and replacement or to cover annual debt payment increases each year from 2012 - 2014 (This is based on Council deciding to approve a long-term funding strategy during the 2012 Budget process)
bull No lease payments by the City until 2014 at which time a Council shyapproved long-term funding strategy will be in place
bull The City will set aside $27 million in 2012 and $55 million in 2013 for a total of $82 million to assist in the transition and fit-up costs associated with this project Any unused portion would be available to help plan and implement Phases 2 and 3 This is based on the above funding plan
Value-for-Money
Delivering value-for money to the City and taxpayers is a critical piece of the assessment and evaluation process staff undertakes prior to making recommendations to Council
To ensure that value-for-money will be delivered through a partnership with Dominus the City sought an independent review by Deloitte Consulting which was part of the appendices in the March 28th 2011 Council report In it Deloitte states that in their opinion the Final Offer submitted by Dominus represented sound value for money and is consistent with industry benchmarks for projects of this nature
The financing rate associated with the construction of this project is very advantageous based on comparisons completed by City staff in conjunction with financial institutions This review also confirmed that financing rates are a reflection of the Citys status as a desirable tenant with a Triple A Credit rating qualities the City continues to leverage to the benefit of taxpayers
The costs per square foot for each component of the project have been provided by Dominus to City staff Dominus deems this information as commercially sensitive and provided this information to the City for its analysis under the condition that it remains confidential
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As noted Dominus is fully responsible for the construction of the buildings at its cost The City is only responsible for making annual occupancy cost payments over the 25shyyear lease term As such the construction costs were reviewed and Citystaff is satisfied that the City will receive good value for the base rent that is required to pay for a building that it will own at the end of the lease term
The costing information provided by Dominus has been reviewed by Hanscomb Limited (Quantity Surveyors) to provide independent review of the costs Hanscomb Limited has concluded that the cost of the project is reasonable and their opinion letter is attached as Appendix A in this report
City staff also reviewed the numbers provided by Dominus on life cycle costing that will be used to determine funding for major maintenance Staff in conjunction with City Consultants concluded that the plan will ensure that adequate funds are available to carry out the repair and maintenance work required to keep the buildings in Class A condition with no deferred maintenance when the City takes over ownership of the building at the end of the lease term
Citys Advocacy Efforts - Phase 2 and Phase 3
While immediate emphasis in the downtown will be on Phase 1 and 1a Phases 2 and 3 represent the completion of Councils vision for this citys rejuvenated centre core
City staff working with Dominus as its long-term partner will monitor market conditions assess the Citys additional space requirements and report back to Council on the scope cost and timing of Phases 2 and 3 of the SWQ Renewal Plan
Staff will also report back on what other steps can or may be needed to move the additional two phases forward Some of these steps will include
bull consultation with key stakeholders including library representatives
bull government advocacy work including applying for funding from the Federal and Provincial governments and
bull leveraging additional private sector investment
Staff feels that Phase 2 is a strong candidate for P3 Canada funding The next application intake for projects under this program is expected to be in June 2012 Under this program the projects Phase 2 component could receive up to 25 funding from the Federal government
City staff is a member of a working group formed by the Municipal Finance Officers Association (MFOA) that is working to prepare another position paper asking the Province of Ontario to make amendments to the Development Charges Act 2001
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Among the requested changes being sought is the reinstatement of administrative space as an eligible category and removal of the 10 reduction for soft services Provincial approval of the requested changes would result in additional funding being available for the Phase 2- library and Phase 3 - administrative space The MFOA document is expected to be delivered to the Province for consideration priorto the October 2011 Provincial Election
Longer-Term Economic Benefits
The Council-approved March 28 2011 report states that to deliver the Dominus long-term vision for Downtown Brampton an estimated $251 million of CityPrivate Sector investment is required (Phase 1 - Sites 1 and 1a - $94 million Phase 2 - $86 million Phase 3 - $71 million) This investment would be over a number of years and serve as a catalyst to promote additional private and publicsector investment Also the plan provides much needed additional investment in downtown retail space in the first phase of the project
The investment under the Dominus solution in addition to the Citys investment to date in facilities such as Alderlea and the Rose Theatre would bring the City-initiated investment in Downtown Brampton to over $300 million
Based on information provided by the Citys Economic Development Department the multiplier effect of institutional investment is 14 times in industry sectors locally and provincially
As the Downtown market continues to grow in the years ahead this investment is another major building block in the ongoing revitalization of the Downtown Brampton serving to support existing and attract new businesses residents consumers visitors and employees to the historic Downtown
The amount and timing of this additional private sector investment is dependent on economic and market conditions and competing investment opportunities in Brampton and across the GTA
Conclusion
The Southwest Quadrant Renewal Project is an exciting opportunity to provide strategic investment in Downtown Brampton bring cultural and commercial benefits to the city while upholding the principles of smart urban planning and city building
By Council approving the recommendations contained in this report RFP2009-072 is concluded but in turn will set in motion activities that will begin renewing the downtowns southwest quadrant with construction activity scheduled to begin this fall (October 2011)
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Staff will then return to Council with a comprehensive Space Plan outlining key milestone activities timing and logistics for repatriating staff from satellite offices
The result will be that Phase 1 and 1a of this plan will provide administrative space and other Council-desired amenities such as additional parking and new retail space to the downtown core
In summary the partnership between the City and Dominus provides significant benefits to both parties as development partners including but not limited to
Benefits to Dominus Include
bull Partner with a Triple A Public Sector Tenant with a strong lease covenant bull Contribute to City building bull Achieving a safe rate of return
Benefits to the City Include
The RFPs primary objectives were achieved and RFP 2009-072 is concluded No occupancy cost payments till 2014 $100 million Legacy Reserve Fund remains intact Citys Triple A Credit Rating is preserved Administrative space needs satisfied Development acts as a catalyst for future downtown revitalization Ownership of the building (including retail space) is transferred to the City at end of lease term at additional no cost
Transfer of risk to private sector (construction financing) Councils desire for nominal or no increase to the property taxpayer is achieved Additional retail space in the downtown core will be delivered in 2014
Respectfully submitted
Julian P^ttesqn L Mo Lewis
Commissioner Commissioner
Buildings and Property Management Financial and Information Services and
Treasurer
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APPENDIX A
July 27 2011
The Corporation of the City of Brampton 2 Wellington Street West Brampton Ontario L6Y 4R2
Attention Julian Patteson MBA AACI PApp Commissioner Buildings and Property Management
Re Southwest Quadrant Renewal Plan
City of Brampton
Dear Mr Patteson
Per the Citys recent request we have reviewed documentation provided the City related to the above noted project with the intent of providing our opinion on the adequacy of the proponents bid in response to the Citys RFP 2009-072 Our review can be classified as order of magnitude or Class D in nature
Based on our discussions with the City we understand that the proponents bid of $94385 million is inclusive of all base building finishes work partial fit-out beyond base building general contractors overheads and profit ITcommssecurity head-end equipment LEED Gold certification permits- amp fees project management fees and expenses professional fees and expenses construction cost escalation and financing costs but is exclusive of site remediation the Citys leasehold improvements furniture furnishings and equipment Owners management reserve and HST Given this understanding it is our opinion that the $94385 million is fair and reasonable
For your information using the parameters noted above our range of probable project costs for this project based on an order of magnitude Class D review of the project documentation ranges between $950 and $1000 million
Yours very truly
Hanscomb Limited
Dale Panday PQS MRICS MAACE Director
Fito OOffC6VU6W CityOfBrampton CityHalExparaion tUtunaie RoviaviAHanscornti Raporu July14 raquo11Soumwost Quadrant Rantwal Plan CityOf BramptonHintoombOpinion01ProbaobPropelCo(ts_27-Jut-2011 Doc
oanrupj
Hanscomb Limited
Suite 90040 Holly Street Toronto Ontario M4S 3C3
Tel 416)487-3811 Fax(416)487-5043 Email torontohanscombcom www hanscombcom
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The estimated majormaintenance costs will be subject to Facility Condition Audits and reassessed every five years The City will retain any residual funds in the Major Maintenance Fund at the end of the lease term
Lender Direct Agreements
Dominus as the Citys business partner has been able to leverage the CitysTriple A Credit Rating stable income stream commitment and strong lease covenant into a preferred borrowing rate and beneficial terms from the capital markets To protect the Citys interests in the case of default or non-performance the City will enter into direct agreements with the construction and term loan lenders
Retail Management Agreement
The Phase 1 and 1a development will contain approximately 16334 square feet of net leasable commercial retail space
In the Dominus Final Offer submission the retail space (with an estimated value of $24 million) was to be constructed and owned by Dominus with the City having the option to buy the space at the end of the 25-year lease term During the contract negotiations however it was agreed that the transaction be revised so that the retail space would be transferred to the City at the end of the lease term at no additional cost although the annual base rent payments will remain at $82 million
As a further benefit the transaction was also amended to provide the City with a 50 share of the retail revenue
The parties will execute a retail leasing management agreement (the Retail Agreement) which will incorporate the following material terms
bull Dominus will be appointed the leasing manager of the retail space
bull Dominus will identify tenants that are consistent with a retail leasing strategy prepared by Dominus and approved by the City to seek to obtain market rents (including tenant fit up allowances and other inducements) for the Retail Space pursuant to a pre-approved leasing plan
bull All leases will be on a fully net basis (operating costs including commercial property taxes and utilities to be paid by the Tenant)
bull Tenant inducements will be funded equally by the City and Dominus and the Base Rent received from retail tenants shall be equally divided between Dominus and the City
bull Unrecovered operating costs in respect of any Retail Space shall be the Citys responsibility
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bull The term of the Agreement will be for an initial 25 years with an option to extend for an additional 25 years if not in default and
bull The Citywill have the option of buying out the remaining term of the Retail Agreement at any time during the renewal term at its then fair market value as determined by an arms-length third-party accredited appraiser selected by the City and approved by Dominus
Site Conditions
As the land owner the City has accepted responsibility for site conditions prior to beginning the ground lease with Dominus
The City acknowledges that the quality of the soil and ground water on the site may necessitate
bull the disposition of the soil and ground water through alternative means or to alternative locations and
bull additional capital costs for underground construction
Dominus will be responsible for site conditions during the term of the Ground Lease It will also be required to obtain a Record of Site Condition following excavation of the building site The City will fund Dominus costs for any incremental costs in the disposition of the soil and groundwater only if such costs exceed the costs that would be incurred for a greenfield site
Building Operation and Maintenance
The City will operate and maintain the new facility at its own cost funding operating and maintenance costs directly This in turn will achieve significant cost savings given that the City already has an assembled workforce in place to achieve economies of scale and several preventive and demand maintenance contracts achieved through the competitive tender process Since Dominus will not be performing these functions there will be no management fees associated with the services provided by the City
Operation and maintenance expenses payable or borne by the City will be made up of four components
bull operating costs (such as utilities janitorial realty taxes if any)
bull maintenance costs (such as normal maintenance replacement of items with a lifecycle of less than one year repainting repair refurbishment)
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bull major maintenance (such as replacement of roof replacement of elevator motors structural repairs re-cladding) and
bull property management and asset management
Dominus will remain responsible for asset management oversight of periodic maintenance and major maintenance as part of the asset management function The City will pay Dominus an annual asset management fee for this function
Fit-Out and Leasehold Improvements
The Space Lease will require completion and delivery of space in keeping with an agreed-upon schedule and will take into account damages for late delivery The Space Lease will include the Citys specifications for the Building and the City space the retail space and the parking
Dominus will finish the City space to the Citys specifications referenced in the Space Lease for open concept administrative space including partial fit-out beyond base building The City will provide its own leasehold improvements including furniture fixtures and equipment The City will seek competitive bids for leasehold improvements Dominus is entitled to make a bid for the work but is not entitled to perform leasehold improvements unless selected as the most cost- effective bid
These terms are in keeping with provisions in all of the Citys standard operating leases
Break Fee
The City and Dominus have negotiated Break Fee provisions covering Dominus transaction expenses prior to the August 10 2011 Council session
If for any reason Dominus and the City cannot settle all of the required definitive documents to their mutual satisfaction through good faith negotiations or if Brampton Council elects not to proceed with the signing of the Agreement Documents the City shall pay to Dominus a Break Fee to reimburse the company for its expenses in connection with this transaction The fees amount will be the total amount of bona fide
third-party costs paid by Dominus This amount would have to be supported by appropriate third-party receipts or other documentation made available for audit by the City not to exceed $350000
The above compensation will be the only compensation payable to Dominus in such an event The parties will mutually release each other elected representatives and officials (in the case of the City) directors and officers (in the case of Dominus) their respective employees agents and contractors from any and all liability of any nature or kind arising out of or in connection with the Request for Proposals or any of the settled documents
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Termination Cost
The City and Dominus also negotiated Termination Cost provisions covering the period from the August 10 2011 Council decision to the anticipated closing of the transaction on October 25 2011
If Brampton Council approves the Agreement Documents and one or more of the Conditions are not satisfied or waived by the date provided either the Cityor Dominus may terminate by giving written notice to the other party If either party elects to terminate (a) the City will pay to Dominus an amount equal to its Arms-Length Costs and (b) Dominus will assign and transfer to the City all plans specifications contracts work-in-progress and any other work product acquired by or developed by Dominus in connection with the building Arms-Length Costs must be accounted for by appropriate third-party receipts or other documentation made available for audit by the City
The compensation described here will be the only compensation payable to Dominus in such event The parties will mutually release each other elected representatives and officials (in the case of the City) directors and officers (in the case of Dominus) their respective employees agents and contractors from any and all liability of any nature or kind arising out of or in connection with the Request for Proposals or any of the settled documents
Phased Development
The City and Dominus plan a phased project comprised of the following elements
bull Phase 1 41 George Street 126398 sq ft administrative space 10545 sq ft multi-purpose meeting rooms 1496 sq ft police reporting station 10147sqft retail 446 parking spaces
bull Phase 1 a 33 Queen Street West
2507 sq ft committee rooms 6187sqft retail
bull Phase 2 20 George Street 130000 sq ft library (estimated) 360 parking spaces 4000 sq ft retail
bull Phase 3 65 Queen Street East
120000 sq ft administrative space (estimated)
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Phase 1 and 1a are firmly committed subject to Council approval and satisfaction of the conditions listed in the report prior to closing Phases 2 and 3 are optional as described below The project shall be substantially as described in the Dominus Final Offer submission dated December 9 2010 and as described in this report Minor adjustments to building areas may occur through the design development process
Phase 2 Obligations
To demonstrate its commitment to the long-term vision for the Southwest Quadrant Renewal Plan and the phased development scheme Dominus has secured the Phase 2 lands that are not owned by the City This provides the required site footprint for the Phase 2 improvements including the new central library parking and additional retail development
The option for the City and Dominus to proceed with Phase 2 development will be available for three years from commencement of the Option period If the City decides to proceed with Phase 2 it will ask Dominus to submit a proposal for Phase 2 addressing the Citys requirements and desired amenities
If the City and Dominus are unable to agree on price scope or other key terms of the Phase 2 project within a period of six months subject to any mutually agreed-upon extensions the Phase 2 Option shall be at an end The City at its option may release the Phase 2 Option earlier releasing both parties from further obligations with respect to Phase 2
Phase 3 Obligations
The City will agree to keep the Phase 3 site available until three years after the Phase 2 Option has been exercised The Phase 3 option includes the development of an additional 120000 sq ft of administrative space The remaining Phase 3 obligations are similar to those described in Phase 2
The City shall keep the Phase 3 Site available until the Phase 3 Option Expiry Date The City may at its option elect to release the Phase 3 option earlier than the Phase 3 Option Expiry Date and each of the City and Dominus will then be released from all further obligations in respect of Phase 3
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Summary of Salient Terms and Conditions of Transaction
Parties to the Transaction
Net Leasable Area (Phase 1 and 1a)
Base Rent
Ground Lease Term
Space Lease Term
Land Ownership During Ground Lease
Building Ownership During Space Lease
Reversionary Ownership Rights of Lands and Buildings
Reversionary Ownership Rights of Retail Space
Management Agreement for Retail Space
Revenue Sharing for Retail Space
Construction Class of Building
The City and Dominus Construction Group (DC) in trust for one or more special purpose entities controlled by DC to be established and without
personal liability (Dominus) As is customary practice Dominus will be completing a series of underlying transactions with institutional investors
to finance the development and construction of the Project Dominus and its affiliates however will continue to be contractually committed to perform all obligations as the private sector proponent
157283 sqft 446 parking spaces
$8209170 per year payable in equal monthly installments starting 2014
Construction Term Plus 25 Years
25 Years
Dominus
Dominus
City
City
Between City and Dominus with buyout provision after Space Lease Term Dominus sublets to retail tenants based upon City approval
50 City 50 Dominus
Class A Signature Building
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Maintenance Level of Building
Major Maintenance Reserve
Conditions Prior to October 2011 Closing (City and Dominus)
City Financial Obligations
Class A with periodic inspections by City and no deferred maintenance at Reversion
Funded by the City and controlled jointly by the City and Dominus Residual funds revert to City
Complete and up-to-date survey of the lands
Legal opinion on the quality of the Citys title to the lands Emergency accessegress TRCA approval Environmental and designated substance surveys Demolition permit Excavation permit Site Plan Approval Geotechnical report Completion of ancillary agreements Financing
Councils desire to leverage private sector investment when revitalizing the downtown led to the critical decision of issuing an RFP to search for a long-term development partner Councils objective was to find a partner that recognizes the potential of Bramptons downtown and investment in it ultimately acting as a catalyst in rejuvenating the citys core
On March 28th 2011 Council approved Dominus as its long-term development partner Council then directed staff to negotiate the terms of the Citys financial obligations to the revitalization project to
bull Secure private sector investment to construct and finance the facility
bull Commit the City to paying an occupancy cost - starting in 2014 for a 25-year term - that does not exceed $82 million annually
bull Ensure an appropriate balance between public and private sector risk
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Staff negotiations with Dominus achieved all these objectives Highlights include
bull Dominus will make the initial investment with an estimated value of $94 million
bull Beginning in 2014 the Citywill pay annual occupancy cost payments (base rent) of $82 million annually for the 25-year term
bull Dominus assumes the full responsibility for managing construction risk (such as cost overruns as a result of increases in the cost of construction materials increases in labour costs for skilled trade and construction delays)
bull Dominus is responsible for managing the normal financing risk associated with this type of project (However if a catastrophic economic event occurs similar to the 2008 Worldwide Economic Crisis the agreement requires the City to work with Dominus to manage the financial impact as it relates to this project and protect the financial interests of both parties)
Property Tax Impacts
Annual Occupancy Costs (Base Rent)
Council has been very clear in its intent to leverage private sector investment while also aiming to achieve a nominal or no additional impact to the property taxpayer
In support of these objectives and keeping in mind the Citys financial capacity and the tools available to deliver Councils priorities and service demands the following are some of the options presented to Council to fund this priority investment
1 Increase the tax rate to reflect the new building costs
2 Adjust or reallocate current or forecasted spending to reflect the new building costs
3 Cash in a portion of the Citys reserve funds to offer private sector partner an upfront contribution to offset construction costs of the new building and
4 Borrow $94 million to finance the cost of the new building and increase the property tax rate to make annual payments to repay the debt over a 25-year period
It is staffs recommendation that Option 2 be selected - adjust or reallocate existing property tax revenues over a three-year period beginning in 2012 By doing so no new property taxes are required to fund the Southwest Quadrant Renewal Plan
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The rationale for the recommendation is that the $82 million occupancy cost represents what the Citywould pay for the facilities over a 25-year period rather than having a one-time capital expenditure of $94 million both of these routes would require funding by property taxes However when deducting the $1 million per year that the City now spends to occupy leased space in Downtown Brampton on a net basis the amount to be funded over the 25-year period is actually $72 million per year to pay the annual occupancy cost (base rent)
Operating Costs
The Council-approved March 28 2011 report states that the annual operating costs of the new space were estimated at $21 million These operating costs are comparable regardless of who builds the building the City or the Private Sector As also mentioned the current operating cost paid by the Cityfor leased space in Downtown Brampton is $1 million per year This means that the net annual operating cost increase for the new facility is $11 million per year ($21 m -$10m = $11m) starting in 2014
In developing the Space Lease for these phases of the development the City secured the option of being able to use City staff or contracted resources to maintain and operate our facilities By doing so the City estimates that it could save as much as $300000 annually ($75 million over the 25-year term) in operating and maintenance costs
Also the Citys estimated share of the retail lease revenue of $200000 per year could be used to reduce the net increase in operating costs by as much as $200000 per year
The following table based on the most conservative scenario shows the forecasted tax funded capital spending This includes the money that staff proposes be reallocated to fund the $72 million net impact of additional occupancy costs and the $1 million in net operating costs
If the savings noted above (ie staff operating the facility and estimated revenue from Citys share of retail space) are realized they will be deducted from the $82 million shown in the following table beginning in 2014
2012 2013 2014
(Smillions) (Smillions) (Smillions) Total Amount included in
Capital Budget Forecast 20245 24352 28767
Dedicated to SWQ 2733 5466 8209
Remaining portion available to fund tax
funded capital or other 17512 18886 20558 annual Council
projectspriorities
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The Citys practice of allocating a portion of taxes from increased assessment to fund tax based capital plus the 1 capital infrastructure levy introduced in the 2011 Budget allows Council to direct resources to the SWQ Renewal Plan and still fund other Council priorities over the next three years
In addition the Citys annual capital program is no longer needed to pay for the Sandalwood Transit facility freeing up Federal gas tax funds that were dedicated to paying for the facility Therefore beginning in 2011 $24 million of Federal Gas tax funds are available annually to fund other eligible capital projects
Staff recommends that during 2012 budget deliberations Council consider a long-term funding strategy that includes using long-term debt to fund high priority projects (such as key road projects BramEast CommunityCentreLibrary Fire stations Works Yards) andor to reduce the backlog of key deferred capital projects
The strategic use of debt (similar to what is in place at the Region of Peel) will help the Citycontinue to put the necessary infrastructure in place in advance of development This would be particularly beneficial in light of fluctuations in the Citys Development Charges (DC) receipts and the current DC deficit balances For significant capital projects where a large portion is to be funded by property taxes the use of long-term debt also allows the Cityto match the costs of the facilities to those who benefit by spreading out the payments over future years so that property taxes from new residents help pay
This will be the subject of a separate report to Council at a later date this Fall
Benefits of Approving this Arrangement
Councils priorities and directives for this project have been clear from the start revitalize the downtown through private sector investment minimize risk and protect the taxpayers The agreement with Dominus achieves this and more laying the foundation for strategic financial solutions to assist Council in its city-building initiatives
If approved this arrangement would provide the following benefits
bull Full up-front construction costs would be paid by the Citys Private Sector partner signifying a significant Private Sector investment in Downtown Brampton
bull Citys $100 million Legacy Reserve Fund remains intact The existence of this Fund is a key consideration in the City retaining its Triple A Credit rating
bull Nominal or no impact to the property taxpayer is achieved
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bull Additional investments impact is managed in conjunction with other capital spending
bull The plan is affordable As the City continues to grow the costs are spread out over a larger tax base each year reducing the portion paid by each individual property taxpayer and ensuring that future residents who benefit from City services and downtown improvements share in the cost
bull Council will have flexibility to determine the amount to be allocated for repair and replacement or to cover annual debt payment increases each year from 2012 - 2014 (This is based on Council deciding to approve a long-term funding strategy during the 2012 Budget process)
bull No lease payments by the City until 2014 at which time a Council shyapproved long-term funding strategy will be in place
bull The City will set aside $27 million in 2012 and $55 million in 2013 for a total of $82 million to assist in the transition and fit-up costs associated with this project Any unused portion would be available to help plan and implement Phases 2 and 3 This is based on the above funding plan
Value-for-Money
Delivering value-for money to the City and taxpayers is a critical piece of the assessment and evaluation process staff undertakes prior to making recommendations to Council
To ensure that value-for-money will be delivered through a partnership with Dominus the City sought an independent review by Deloitte Consulting which was part of the appendices in the March 28th 2011 Council report In it Deloitte states that in their opinion the Final Offer submitted by Dominus represented sound value for money and is consistent with industry benchmarks for projects of this nature
The financing rate associated with the construction of this project is very advantageous based on comparisons completed by City staff in conjunction with financial institutions This review also confirmed that financing rates are a reflection of the Citys status as a desirable tenant with a Triple A Credit rating qualities the City continues to leverage to the benefit of taxpayers
The costs per square foot for each component of the project have been provided by Dominus to City staff Dominus deems this information as commercially sensitive and provided this information to the City for its analysis under the condition that it remains confidential
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As noted Dominus is fully responsible for the construction of the buildings at its cost The City is only responsible for making annual occupancy cost payments over the 25shyyear lease term As such the construction costs were reviewed and Citystaff is satisfied that the City will receive good value for the base rent that is required to pay for a building that it will own at the end of the lease term
The costing information provided by Dominus has been reviewed by Hanscomb Limited (Quantity Surveyors) to provide independent review of the costs Hanscomb Limited has concluded that the cost of the project is reasonable and their opinion letter is attached as Appendix A in this report
City staff also reviewed the numbers provided by Dominus on life cycle costing that will be used to determine funding for major maintenance Staff in conjunction with City Consultants concluded that the plan will ensure that adequate funds are available to carry out the repair and maintenance work required to keep the buildings in Class A condition with no deferred maintenance when the City takes over ownership of the building at the end of the lease term
Citys Advocacy Efforts - Phase 2 and Phase 3
While immediate emphasis in the downtown will be on Phase 1 and 1a Phases 2 and 3 represent the completion of Councils vision for this citys rejuvenated centre core
City staff working with Dominus as its long-term partner will monitor market conditions assess the Citys additional space requirements and report back to Council on the scope cost and timing of Phases 2 and 3 of the SWQ Renewal Plan
Staff will also report back on what other steps can or may be needed to move the additional two phases forward Some of these steps will include
bull consultation with key stakeholders including library representatives
bull government advocacy work including applying for funding from the Federal and Provincial governments and
bull leveraging additional private sector investment
Staff feels that Phase 2 is a strong candidate for P3 Canada funding The next application intake for projects under this program is expected to be in June 2012 Under this program the projects Phase 2 component could receive up to 25 funding from the Federal government
City staff is a member of a working group formed by the Municipal Finance Officers Association (MFOA) that is working to prepare another position paper asking the Province of Ontario to make amendments to the Development Charges Act 2001
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Among the requested changes being sought is the reinstatement of administrative space as an eligible category and removal of the 10 reduction for soft services Provincial approval of the requested changes would result in additional funding being available for the Phase 2- library and Phase 3 - administrative space The MFOA document is expected to be delivered to the Province for consideration priorto the October 2011 Provincial Election
Longer-Term Economic Benefits
The Council-approved March 28 2011 report states that to deliver the Dominus long-term vision for Downtown Brampton an estimated $251 million of CityPrivate Sector investment is required (Phase 1 - Sites 1 and 1a - $94 million Phase 2 - $86 million Phase 3 - $71 million) This investment would be over a number of years and serve as a catalyst to promote additional private and publicsector investment Also the plan provides much needed additional investment in downtown retail space in the first phase of the project
The investment under the Dominus solution in addition to the Citys investment to date in facilities such as Alderlea and the Rose Theatre would bring the City-initiated investment in Downtown Brampton to over $300 million
Based on information provided by the Citys Economic Development Department the multiplier effect of institutional investment is 14 times in industry sectors locally and provincially
As the Downtown market continues to grow in the years ahead this investment is another major building block in the ongoing revitalization of the Downtown Brampton serving to support existing and attract new businesses residents consumers visitors and employees to the historic Downtown
The amount and timing of this additional private sector investment is dependent on economic and market conditions and competing investment opportunities in Brampton and across the GTA
Conclusion
The Southwest Quadrant Renewal Project is an exciting opportunity to provide strategic investment in Downtown Brampton bring cultural and commercial benefits to the city while upholding the principles of smart urban planning and city building
By Council approving the recommendations contained in this report RFP2009-072 is concluded but in turn will set in motion activities that will begin renewing the downtowns southwest quadrant with construction activity scheduled to begin this fall (October 2011)
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Staff will then return to Council with a comprehensive Space Plan outlining key milestone activities timing and logistics for repatriating staff from satellite offices
The result will be that Phase 1 and 1a of this plan will provide administrative space and other Council-desired amenities such as additional parking and new retail space to the downtown core
In summary the partnership between the City and Dominus provides significant benefits to both parties as development partners including but not limited to
Benefits to Dominus Include
bull Partner with a Triple A Public Sector Tenant with a strong lease covenant bull Contribute to City building bull Achieving a safe rate of return
Benefits to the City Include
The RFPs primary objectives were achieved and RFP 2009-072 is concluded No occupancy cost payments till 2014 $100 million Legacy Reserve Fund remains intact Citys Triple A Credit Rating is preserved Administrative space needs satisfied Development acts as a catalyst for future downtown revitalization Ownership of the building (including retail space) is transferred to the City at end of lease term at additional no cost
Transfer of risk to private sector (construction financing) Councils desire for nominal or no increase to the property taxpayer is achieved Additional retail space in the downtown core will be delivered in 2014
Respectfully submitted
Julian P^ttesqn L Mo Lewis
Commissioner Commissioner
Buildings and Property Management Financial and Information Services and
Treasurer
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APPENDIX A
July 27 2011
The Corporation of the City of Brampton 2 Wellington Street West Brampton Ontario L6Y 4R2
Attention Julian Patteson MBA AACI PApp Commissioner Buildings and Property Management
Re Southwest Quadrant Renewal Plan
City of Brampton
Dear Mr Patteson
Per the Citys recent request we have reviewed documentation provided the City related to the above noted project with the intent of providing our opinion on the adequacy of the proponents bid in response to the Citys RFP 2009-072 Our review can be classified as order of magnitude or Class D in nature
Based on our discussions with the City we understand that the proponents bid of $94385 million is inclusive of all base building finishes work partial fit-out beyond base building general contractors overheads and profit ITcommssecurity head-end equipment LEED Gold certification permits- amp fees project management fees and expenses professional fees and expenses construction cost escalation and financing costs but is exclusive of site remediation the Citys leasehold improvements furniture furnishings and equipment Owners management reserve and HST Given this understanding it is our opinion that the $94385 million is fair and reasonable
For your information using the parameters noted above our range of probable project costs for this project based on an order of magnitude Class D review of the project documentation ranges between $950 and $1000 million
Yours very truly
Hanscomb Limited
Dale Panday PQS MRICS MAACE Director
Fito OOffC6VU6W CityOfBrampton CityHalExparaion tUtunaie RoviaviAHanscornti Raporu July14 raquo11Soumwost Quadrant Rantwal Plan CityOf BramptonHintoombOpinion01ProbaobPropelCo(ts_27-Jut-2011 Doc
oanrupj
Hanscomb Limited
Suite 90040 Holly Street Toronto Ontario M4S 3C3
Tel 416)487-3811 Fax(416)487-5043 Email torontohanscombcom www hanscombcom
TT-4--7
bull The term of the Agreement will be for an initial 25 years with an option to extend for an additional 25 years if not in default and
bull The Citywill have the option of buying out the remaining term of the Retail Agreement at any time during the renewal term at its then fair market value as determined by an arms-length third-party accredited appraiser selected by the City and approved by Dominus
Site Conditions
As the land owner the City has accepted responsibility for site conditions prior to beginning the ground lease with Dominus
The City acknowledges that the quality of the soil and ground water on the site may necessitate
bull the disposition of the soil and ground water through alternative means or to alternative locations and
bull additional capital costs for underground construction
Dominus will be responsible for site conditions during the term of the Ground Lease It will also be required to obtain a Record of Site Condition following excavation of the building site The City will fund Dominus costs for any incremental costs in the disposition of the soil and groundwater only if such costs exceed the costs that would be incurred for a greenfield site
Building Operation and Maintenance
The City will operate and maintain the new facility at its own cost funding operating and maintenance costs directly This in turn will achieve significant cost savings given that the City already has an assembled workforce in place to achieve economies of scale and several preventive and demand maintenance contracts achieved through the competitive tender process Since Dominus will not be performing these functions there will be no management fees associated with the services provided by the City
Operation and maintenance expenses payable or borne by the City will be made up of four components
bull operating costs (such as utilities janitorial realty taxes if any)
bull maintenance costs (such as normal maintenance replacement of items with a lifecycle of less than one year repainting repair refurbishment)
Tl-H-
bull major maintenance (such as replacement of roof replacement of elevator motors structural repairs re-cladding) and
bull property management and asset management
Dominus will remain responsible for asset management oversight of periodic maintenance and major maintenance as part of the asset management function The City will pay Dominus an annual asset management fee for this function
Fit-Out and Leasehold Improvements
The Space Lease will require completion and delivery of space in keeping with an agreed-upon schedule and will take into account damages for late delivery The Space Lease will include the Citys specifications for the Building and the City space the retail space and the parking
Dominus will finish the City space to the Citys specifications referenced in the Space Lease for open concept administrative space including partial fit-out beyond base building The City will provide its own leasehold improvements including furniture fixtures and equipment The City will seek competitive bids for leasehold improvements Dominus is entitled to make a bid for the work but is not entitled to perform leasehold improvements unless selected as the most cost- effective bid
These terms are in keeping with provisions in all of the Citys standard operating leases
Break Fee
The City and Dominus have negotiated Break Fee provisions covering Dominus transaction expenses prior to the August 10 2011 Council session
If for any reason Dominus and the City cannot settle all of the required definitive documents to their mutual satisfaction through good faith negotiations or if Brampton Council elects not to proceed with the signing of the Agreement Documents the City shall pay to Dominus a Break Fee to reimburse the company for its expenses in connection with this transaction The fees amount will be the total amount of bona fide
third-party costs paid by Dominus This amount would have to be supported by appropriate third-party receipts or other documentation made available for audit by the City not to exceed $350000
The above compensation will be the only compensation payable to Dominus in such an event The parties will mutually release each other elected representatives and officials (in the case of the City) directors and officers (in the case of Dominus) their respective employees agents and contractors from any and all liability of any nature or kind arising out of or in connection with the Request for Proposals or any of the settled documents
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Termination Cost
The City and Dominus also negotiated Termination Cost provisions covering the period from the August 10 2011 Council decision to the anticipated closing of the transaction on October 25 2011
If Brampton Council approves the Agreement Documents and one or more of the Conditions are not satisfied or waived by the date provided either the Cityor Dominus may terminate by giving written notice to the other party If either party elects to terminate (a) the City will pay to Dominus an amount equal to its Arms-Length Costs and (b) Dominus will assign and transfer to the City all plans specifications contracts work-in-progress and any other work product acquired by or developed by Dominus in connection with the building Arms-Length Costs must be accounted for by appropriate third-party receipts or other documentation made available for audit by the City
The compensation described here will be the only compensation payable to Dominus in such event The parties will mutually release each other elected representatives and officials (in the case of the City) directors and officers (in the case of Dominus) their respective employees agents and contractors from any and all liability of any nature or kind arising out of or in connection with the Request for Proposals or any of the settled documents
Phased Development
The City and Dominus plan a phased project comprised of the following elements
bull Phase 1 41 George Street 126398 sq ft administrative space 10545 sq ft multi-purpose meeting rooms 1496 sq ft police reporting station 10147sqft retail 446 parking spaces
bull Phase 1 a 33 Queen Street West
2507 sq ft committee rooms 6187sqft retail
bull Phase 2 20 George Street 130000 sq ft library (estimated) 360 parking spaces 4000 sq ft retail
bull Phase 3 65 Queen Street East
120000 sq ft administrative space (estimated)
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Phase 1 and 1a are firmly committed subject to Council approval and satisfaction of the conditions listed in the report prior to closing Phases 2 and 3 are optional as described below The project shall be substantially as described in the Dominus Final Offer submission dated December 9 2010 and as described in this report Minor adjustments to building areas may occur through the design development process
Phase 2 Obligations
To demonstrate its commitment to the long-term vision for the Southwest Quadrant Renewal Plan and the phased development scheme Dominus has secured the Phase 2 lands that are not owned by the City This provides the required site footprint for the Phase 2 improvements including the new central library parking and additional retail development
The option for the City and Dominus to proceed with Phase 2 development will be available for three years from commencement of the Option period If the City decides to proceed with Phase 2 it will ask Dominus to submit a proposal for Phase 2 addressing the Citys requirements and desired amenities
If the City and Dominus are unable to agree on price scope or other key terms of the Phase 2 project within a period of six months subject to any mutually agreed-upon extensions the Phase 2 Option shall be at an end The City at its option may release the Phase 2 Option earlier releasing both parties from further obligations with respect to Phase 2
Phase 3 Obligations
The City will agree to keep the Phase 3 site available until three years after the Phase 2 Option has been exercised The Phase 3 option includes the development of an additional 120000 sq ft of administrative space The remaining Phase 3 obligations are similar to those described in Phase 2
The City shall keep the Phase 3 Site available until the Phase 3 Option Expiry Date The City may at its option elect to release the Phase 3 option earlier than the Phase 3 Option Expiry Date and each of the City and Dominus will then be released from all further obligations in respect of Phase 3
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Summary of Salient Terms and Conditions of Transaction
Parties to the Transaction
Net Leasable Area (Phase 1 and 1a)
Base Rent
Ground Lease Term
Space Lease Term
Land Ownership During Ground Lease
Building Ownership During Space Lease
Reversionary Ownership Rights of Lands and Buildings
Reversionary Ownership Rights of Retail Space
Management Agreement for Retail Space
Revenue Sharing for Retail Space
Construction Class of Building
The City and Dominus Construction Group (DC) in trust for one or more special purpose entities controlled by DC to be established and without
personal liability (Dominus) As is customary practice Dominus will be completing a series of underlying transactions with institutional investors
to finance the development and construction of the Project Dominus and its affiliates however will continue to be contractually committed to perform all obligations as the private sector proponent
157283 sqft 446 parking spaces
$8209170 per year payable in equal monthly installments starting 2014
Construction Term Plus 25 Years
25 Years
Dominus
Dominus
City
City
Between City and Dominus with buyout provision after Space Lease Term Dominus sublets to retail tenants based upon City approval
50 City 50 Dominus
Class A Signature Building
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Maintenance Level of Building
Major Maintenance Reserve
Conditions Prior to October 2011 Closing (City and Dominus)
City Financial Obligations
Class A with periodic inspections by City and no deferred maintenance at Reversion
Funded by the City and controlled jointly by the City and Dominus Residual funds revert to City
Complete and up-to-date survey of the lands
Legal opinion on the quality of the Citys title to the lands Emergency accessegress TRCA approval Environmental and designated substance surveys Demolition permit Excavation permit Site Plan Approval Geotechnical report Completion of ancillary agreements Financing
Councils desire to leverage private sector investment when revitalizing the downtown led to the critical decision of issuing an RFP to search for a long-term development partner Councils objective was to find a partner that recognizes the potential of Bramptons downtown and investment in it ultimately acting as a catalyst in rejuvenating the citys core
On March 28th 2011 Council approved Dominus as its long-term development partner Council then directed staff to negotiate the terms of the Citys financial obligations to the revitalization project to
bull Secure private sector investment to construct and finance the facility
bull Commit the City to paying an occupancy cost - starting in 2014 for a 25-year term - that does not exceed $82 million annually
bull Ensure an appropriate balance between public and private sector risk
12
Staff negotiations with Dominus achieved all these objectives Highlights include
bull Dominus will make the initial investment with an estimated value of $94 million
bull Beginning in 2014 the Citywill pay annual occupancy cost payments (base rent) of $82 million annually for the 25-year term
bull Dominus assumes the full responsibility for managing construction risk (such as cost overruns as a result of increases in the cost of construction materials increases in labour costs for skilled trade and construction delays)
bull Dominus is responsible for managing the normal financing risk associated with this type of project (However if a catastrophic economic event occurs similar to the 2008 Worldwide Economic Crisis the agreement requires the City to work with Dominus to manage the financial impact as it relates to this project and protect the financial interests of both parties)
Property Tax Impacts
Annual Occupancy Costs (Base Rent)
Council has been very clear in its intent to leverage private sector investment while also aiming to achieve a nominal or no additional impact to the property taxpayer
In support of these objectives and keeping in mind the Citys financial capacity and the tools available to deliver Councils priorities and service demands the following are some of the options presented to Council to fund this priority investment
1 Increase the tax rate to reflect the new building costs
2 Adjust or reallocate current or forecasted spending to reflect the new building costs
3 Cash in a portion of the Citys reserve funds to offer private sector partner an upfront contribution to offset construction costs of the new building and
4 Borrow $94 million to finance the cost of the new building and increase the property tax rate to make annual payments to repay the debt over a 25-year period
It is staffs recommendation that Option 2 be selected - adjust or reallocate existing property tax revenues over a three-year period beginning in 2012 By doing so no new property taxes are required to fund the Southwest Quadrant Renewal Plan
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The rationale for the recommendation is that the $82 million occupancy cost represents what the Citywould pay for the facilities over a 25-year period rather than having a one-time capital expenditure of $94 million both of these routes would require funding by property taxes However when deducting the $1 million per year that the City now spends to occupy leased space in Downtown Brampton on a net basis the amount to be funded over the 25-year period is actually $72 million per year to pay the annual occupancy cost (base rent)
Operating Costs
The Council-approved March 28 2011 report states that the annual operating costs of the new space were estimated at $21 million These operating costs are comparable regardless of who builds the building the City or the Private Sector As also mentioned the current operating cost paid by the Cityfor leased space in Downtown Brampton is $1 million per year This means that the net annual operating cost increase for the new facility is $11 million per year ($21 m -$10m = $11m) starting in 2014
In developing the Space Lease for these phases of the development the City secured the option of being able to use City staff or contracted resources to maintain and operate our facilities By doing so the City estimates that it could save as much as $300000 annually ($75 million over the 25-year term) in operating and maintenance costs
Also the Citys estimated share of the retail lease revenue of $200000 per year could be used to reduce the net increase in operating costs by as much as $200000 per year
The following table based on the most conservative scenario shows the forecasted tax funded capital spending This includes the money that staff proposes be reallocated to fund the $72 million net impact of additional occupancy costs and the $1 million in net operating costs
If the savings noted above (ie staff operating the facility and estimated revenue from Citys share of retail space) are realized they will be deducted from the $82 million shown in the following table beginning in 2014
2012 2013 2014
(Smillions) (Smillions) (Smillions) Total Amount included in
Capital Budget Forecast 20245 24352 28767
Dedicated to SWQ 2733 5466 8209
Remaining portion available to fund tax
funded capital or other 17512 18886 20558 annual Council
projectspriorities
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The Citys practice of allocating a portion of taxes from increased assessment to fund tax based capital plus the 1 capital infrastructure levy introduced in the 2011 Budget allows Council to direct resources to the SWQ Renewal Plan and still fund other Council priorities over the next three years
In addition the Citys annual capital program is no longer needed to pay for the Sandalwood Transit facility freeing up Federal gas tax funds that were dedicated to paying for the facility Therefore beginning in 2011 $24 million of Federal Gas tax funds are available annually to fund other eligible capital projects
Staff recommends that during 2012 budget deliberations Council consider a long-term funding strategy that includes using long-term debt to fund high priority projects (such as key road projects BramEast CommunityCentreLibrary Fire stations Works Yards) andor to reduce the backlog of key deferred capital projects
The strategic use of debt (similar to what is in place at the Region of Peel) will help the Citycontinue to put the necessary infrastructure in place in advance of development This would be particularly beneficial in light of fluctuations in the Citys Development Charges (DC) receipts and the current DC deficit balances For significant capital projects where a large portion is to be funded by property taxes the use of long-term debt also allows the Cityto match the costs of the facilities to those who benefit by spreading out the payments over future years so that property taxes from new residents help pay
This will be the subject of a separate report to Council at a later date this Fall
Benefits of Approving this Arrangement
Councils priorities and directives for this project have been clear from the start revitalize the downtown through private sector investment minimize risk and protect the taxpayers The agreement with Dominus achieves this and more laying the foundation for strategic financial solutions to assist Council in its city-building initiatives
If approved this arrangement would provide the following benefits
bull Full up-front construction costs would be paid by the Citys Private Sector partner signifying a significant Private Sector investment in Downtown Brampton
bull Citys $100 million Legacy Reserve Fund remains intact The existence of this Fund is a key consideration in the City retaining its Triple A Credit rating
bull Nominal or no impact to the property taxpayer is achieved
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bull Additional investments impact is managed in conjunction with other capital spending
bull The plan is affordable As the City continues to grow the costs are spread out over a larger tax base each year reducing the portion paid by each individual property taxpayer and ensuring that future residents who benefit from City services and downtown improvements share in the cost
bull Council will have flexibility to determine the amount to be allocated for repair and replacement or to cover annual debt payment increases each year from 2012 - 2014 (This is based on Council deciding to approve a long-term funding strategy during the 2012 Budget process)
bull No lease payments by the City until 2014 at which time a Council shyapproved long-term funding strategy will be in place
bull The City will set aside $27 million in 2012 and $55 million in 2013 for a total of $82 million to assist in the transition and fit-up costs associated with this project Any unused portion would be available to help plan and implement Phases 2 and 3 This is based on the above funding plan
Value-for-Money
Delivering value-for money to the City and taxpayers is a critical piece of the assessment and evaluation process staff undertakes prior to making recommendations to Council
To ensure that value-for-money will be delivered through a partnership with Dominus the City sought an independent review by Deloitte Consulting which was part of the appendices in the March 28th 2011 Council report In it Deloitte states that in their opinion the Final Offer submitted by Dominus represented sound value for money and is consistent with industry benchmarks for projects of this nature
The financing rate associated with the construction of this project is very advantageous based on comparisons completed by City staff in conjunction with financial institutions This review also confirmed that financing rates are a reflection of the Citys status as a desirable tenant with a Triple A Credit rating qualities the City continues to leverage to the benefit of taxpayers
The costs per square foot for each component of the project have been provided by Dominus to City staff Dominus deems this information as commercially sensitive and provided this information to the City for its analysis under the condition that it remains confidential
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As noted Dominus is fully responsible for the construction of the buildings at its cost The City is only responsible for making annual occupancy cost payments over the 25shyyear lease term As such the construction costs were reviewed and Citystaff is satisfied that the City will receive good value for the base rent that is required to pay for a building that it will own at the end of the lease term
The costing information provided by Dominus has been reviewed by Hanscomb Limited (Quantity Surveyors) to provide independent review of the costs Hanscomb Limited has concluded that the cost of the project is reasonable and their opinion letter is attached as Appendix A in this report
City staff also reviewed the numbers provided by Dominus on life cycle costing that will be used to determine funding for major maintenance Staff in conjunction with City Consultants concluded that the plan will ensure that adequate funds are available to carry out the repair and maintenance work required to keep the buildings in Class A condition with no deferred maintenance when the City takes over ownership of the building at the end of the lease term
Citys Advocacy Efforts - Phase 2 and Phase 3
While immediate emphasis in the downtown will be on Phase 1 and 1a Phases 2 and 3 represent the completion of Councils vision for this citys rejuvenated centre core
City staff working with Dominus as its long-term partner will monitor market conditions assess the Citys additional space requirements and report back to Council on the scope cost and timing of Phases 2 and 3 of the SWQ Renewal Plan
Staff will also report back on what other steps can or may be needed to move the additional two phases forward Some of these steps will include
bull consultation with key stakeholders including library representatives
bull government advocacy work including applying for funding from the Federal and Provincial governments and
bull leveraging additional private sector investment
Staff feels that Phase 2 is a strong candidate for P3 Canada funding The next application intake for projects under this program is expected to be in June 2012 Under this program the projects Phase 2 component could receive up to 25 funding from the Federal government
City staff is a member of a working group formed by the Municipal Finance Officers Association (MFOA) that is working to prepare another position paper asking the Province of Ontario to make amendments to the Development Charges Act 2001
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Among the requested changes being sought is the reinstatement of administrative space as an eligible category and removal of the 10 reduction for soft services Provincial approval of the requested changes would result in additional funding being available for the Phase 2- library and Phase 3 - administrative space The MFOA document is expected to be delivered to the Province for consideration priorto the October 2011 Provincial Election
Longer-Term Economic Benefits
The Council-approved March 28 2011 report states that to deliver the Dominus long-term vision for Downtown Brampton an estimated $251 million of CityPrivate Sector investment is required (Phase 1 - Sites 1 and 1a - $94 million Phase 2 - $86 million Phase 3 - $71 million) This investment would be over a number of years and serve as a catalyst to promote additional private and publicsector investment Also the plan provides much needed additional investment in downtown retail space in the first phase of the project
The investment under the Dominus solution in addition to the Citys investment to date in facilities such as Alderlea and the Rose Theatre would bring the City-initiated investment in Downtown Brampton to over $300 million
Based on information provided by the Citys Economic Development Department the multiplier effect of institutional investment is 14 times in industry sectors locally and provincially
As the Downtown market continues to grow in the years ahead this investment is another major building block in the ongoing revitalization of the Downtown Brampton serving to support existing and attract new businesses residents consumers visitors and employees to the historic Downtown
The amount and timing of this additional private sector investment is dependent on economic and market conditions and competing investment opportunities in Brampton and across the GTA
Conclusion
The Southwest Quadrant Renewal Project is an exciting opportunity to provide strategic investment in Downtown Brampton bring cultural and commercial benefits to the city while upholding the principles of smart urban planning and city building
By Council approving the recommendations contained in this report RFP2009-072 is concluded but in turn will set in motion activities that will begin renewing the downtowns southwest quadrant with construction activity scheduled to begin this fall (October 2011)
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Staff will then return to Council with a comprehensive Space Plan outlining key milestone activities timing and logistics for repatriating staff from satellite offices
The result will be that Phase 1 and 1a of this plan will provide administrative space and other Council-desired amenities such as additional parking and new retail space to the downtown core
In summary the partnership between the City and Dominus provides significant benefits to both parties as development partners including but not limited to
Benefits to Dominus Include
bull Partner with a Triple A Public Sector Tenant with a strong lease covenant bull Contribute to City building bull Achieving a safe rate of return
Benefits to the City Include
The RFPs primary objectives were achieved and RFP 2009-072 is concluded No occupancy cost payments till 2014 $100 million Legacy Reserve Fund remains intact Citys Triple A Credit Rating is preserved Administrative space needs satisfied Development acts as a catalyst for future downtown revitalization Ownership of the building (including retail space) is transferred to the City at end of lease term at additional no cost
Transfer of risk to private sector (construction financing) Councils desire for nominal or no increase to the property taxpayer is achieved Additional retail space in the downtown core will be delivered in 2014
Respectfully submitted
Julian P^ttesqn L Mo Lewis
Commissioner Commissioner
Buildings and Property Management Financial and Information Services and
Treasurer
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APPENDIX A
July 27 2011
The Corporation of the City of Brampton 2 Wellington Street West Brampton Ontario L6Y 4R2
Attention Julian Patteson MBA AACI PApp Commissioner Buildings and Property Management
Re Southwest Quadrant Renewal Plan
City of Brampton
Dear Mr Patteson
Per the Citys recent request we have reviewed documentation provided the City related to the above noted project with the intent of providing our opinion on the adequacy of the proponents bid in response to the Citys RFP 2009-072 Our review can be classified as order of magnitude or Class D in nature
Based on our discussions with the City we understand that the proponents bid of $94385 million is inclusive of all base building finishes work partial fit-out beyond base building general contractors overheads and profit ITcommssecurity head-end equipment LEED Gold certification permits- amp fees project management fees and expenses professional fees and expenses construction cost escalation and financing costs but is exclusive of site remediation the Citys leasehold improvements furniture furnishings and equipment Owners management reserve and HST Given this understanding it is our opinion that the $94385 million is fair and reasonable
For your information using the parameters noted above our range of probable project costs for this project based on an order of magnitude Class D review of the project documentation ranges between $950 and $1000 million
Yours very truly
Hanscomb Limited
Dale Panday PQS MRICS MAACE Director
Fito OOffC6VU6W CityOfBrampton CityHalExparaion tUtunaie RoviaviAHanscornti Raporu July14 raquo11Soumwost Quadrant Rantwal Plan CityOf BramptonHintoombOpinion01ProbaobPropelCo(ts_27-Jut-2011 Doc
oanrupj
Hanscomb Limited
Suite 90040 Holly Street Toronto Ontario M4S 3C3
Tel 416)487-3811 Fax(416)487-5043 Email torontohanscombcom www hanscombcom
Tl-H-
bull major maintenance (such as replacement of roof replacement of elevator motors structural repairs re-cladding) and
bull property management and asset management
Dominus will remain responsible for asset management oversight of periodic maintenance and major maintenance as part of the asset management function The City will pay Dominus an annual asset management fee for this function
Fit-Out and Leasehold Improvements
The Space Lease will require completion and delivery of space in keeping with an agreed-upon schedule and will take into account damages for late delivery The Space Lease will include the Citys specifications for the Building and the City space the retail space and the parking
Dominus will finish the City space to the Citys specifications referenced in the Space Lease for open concept administrative space including partial fit-out beyond base building The City will provide its own leasehold improvements including furniture fixtures and equipment The City will seek competitive bids for leasehold improvements Dominus is entitled to make a bid for the work but is not entitled to perform leasehold improvements unless selected as the most cost- effective bid
These terms are in keeping with provisions in all of the Citys standard operating leases
Break Fee
The City and Dominus have negotiated Break Fee provisions covering Dominus transaction expenses prior to the August 10 2011 Council session
If for any reason Dominus and the City cannot settle all of the required definitive documents to their mutual satisfaction through good faith negotiations or if Brampton Council elects not to proceed with the signing of the Agreement Documents the City shall pay to Dominus a Break Fee to reimburse the company for its expenses in connection with this transaction The fees amount will be the total amount of bona fide
third-party costs paid by Dominus This amount would have to be supported by appropriate third-party receipts or other documentation made available for audit by the City not to exceed $350000
The above compensation will be the only compensation payable to Dominus in such an event The parties will mutually release each other elected representatives and officials (in the case of the City) directors and officers (in the case of Dominus) their respective employees agents and contractors from any and all liability of any nature or kind arising out of or in connection with the Request for Proposals or any of the settled documents
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Termination Cost
The City and Dominus also negotiated Termination Cost provisions covering the period from the August 10 2011 Council decision to the anticipated closing of the transaction on October 25 2011
If Brampton Council approves the Agreement Documents and one or more of the Conditions are not satisfied or waived by the date provided either the Cityor Dominus may terminate by giving written notice to the other party If either party elects to terminate (a) the City will pay to Dominus an amount equal to its Arms-Length Costs and (b) Dominus will assign and transfer to the City all plans specifications contracts work-in-progress and any other work product acquired by or developed by Dominus in connection with the building Arms-Length Costs must be accounted for by appropriate third-party receipts or other documentation made available for audit by the City
The compensation described here will be the only compensation payable to Dominus in such event The parties will mutually release each other elected representatives and officials (in the case of the City) directors and officers (in the case of Dominus) their respective employees agents and contractors from any and all liability of any nature or kind arising out of or in connection with the Request for Proposals or any of the settled documents
Phased Development
The City and Dominus plan a phased project comprised of the following elements
bull Phase 1 41 George Street 126398 sq ft administrative space 10545 sq ft multi-purpose meeting rooms 1496 sq ft police reporting station 10147sqft retail 446 parking spaces
bull Phase 1 a 33 Queen Street West
2507 sq ft committee rooms 6187sqft retail
bull Phase 2 20 George Street 130000 sq ft library (estimated) 360 parking spaces 4000 sq ft retail
bull Phase 3 65 Queen Street East
120000 sq ft administrative space (estimated)
T-7-4-0
Phase 1 and 1a are firmly committed subject to Council approval and satisfaction of the conditions listed in the report prior to closing Phases 2 and 3 are optional as described below The project shall be substantially as described in the Dominus Final Offer submission dated December 9 2010 and as described in this report Minor adjustments to building areas may occur through the design development process
Phase 2 Obligations
To demonstrate its commitment to the long-term vision for the Southwest Quadrant Renewal Plan and the phased development scheme Dominus has secured the Phase 2 lands that are not owned by the City This provides the required site footprint for the Phase 2 improvements including the new central library parking and additional retail development
The option for the City and Dominus to proceed with Phase 2 development will be available for three years from commencement of the Option period If the City decides to proceed with Phase 2 it will ask Dominus to submit a proposal for Phase 2 addressing the Citys requirements and desired amenities
If the City and Dominus are unable to agree on price scope or other key terms of the Phase 2 project within a period of six months subject to any mutually agreed-upon extensions the Phase 2 Option shall be at an end The City at its option may release the Phase 2 Option earlier releasing both parties from further obligations with respect to Phase 2
Phase 3 Obligations
The City will agree to keep the Phase 3 site available until three years after the Phase 2 Option has been exercised The Phase 3 option includes the development of an additional 120000 sq ft of administrative space The remaining Phase 3 obligations are similar to those described in Phase 2
The City shall keep the Phase 3 Site available until the Phase 3 Option Expiry Date The City may at its option elect to release the Phase 3 option earlier than the Phase 3 Option Expiry Date and each of the City and Dominus will then be released from all further obligations in respect of Phase 3
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Summary of Salient Terms and Conditions of Transaction
Parties to the Transaction
Net Leasable Area (Phase 1 and 1a)
Base Rent
Ground Lease Term
Space Lease Term
Land Ownership During Ground Lease
Building Ownership During Space Lease
Reversionary Ownership Rights of Lands and Buildings
Reversionary Ownership Rights of Retail Space
Management Agreement for Retail Space
Revenue Sharing for Retail Space
Construction Class of Building
The City and Dominus Construction Group (DC) in trust for one or more special purpose entities controlled by DC to be established and without
personal liability (Dominus) As is customary practice Dominus will be completing a series of underlying transactions with institutional investors
to finance the development and construction of the Project Dominus and its affiliates however will continue to be contractually committed to perform all obligations as the private sector proponent
157283 sqft 446 parking spaces
$8209170 per year payable in equal monthly installments starting 2014
Construction Term Plus 25 Years
25 Years
Dominus
Dominus
City
City
Between City and Dominus with buyout provision after Space Lease Term Dominus sublets to retail tenants based upon City approval
50 City 50 Dominus
Class A Signature Building
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Maintenance Level of Building
Major Maintenance Reserve
Conditions Prior to October 2011 Closing (City and Dominus)
City Financial Obligations
Class A with periodic inspections by City and no deferred maintenance at Reversion
Funded by the City and controlled jointly by the City and Dominus Residual funds revert to City
Complete and up-to-date survey of the lands
Legal opinion on the quality of the Citys title to the lands Emergency accessegress TRCA approval Environmental and designated substance surveys Demolition permit Excavation permit Site Plan Approval Geotechnical report Completion of ancillary agreements Financing
Councils desire to leverage private sector investment when revitalizing the downtown led to the critical decision of issuing an RFP to search for a long-term development partner Councils objective was to find a partner that recognizes the potential of Bramptons downtown and investment in it ultimately acting as a catalyst in rejuvenating the citys core
On March 28th 2011 Council approved Dominus as its long-term development partner Council then directed staff to negotiate the terms of the Citys financial obligations to the revitalization project to
bull Secure private sector investment to construct and finance the facility
bull Commit the City to paying an occupancy cost - starting in 2014 for a 25-year term - that does not exceed $82 million annually
bull Ensure an appropriate balance between public and private sector risk
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Staff negotiations with Dominus achieved all these objectives Highlights include
bull Dominus will make the initial investment with an estimated value of $94 million
bull Beginning in 2014 the Citywill pay annual occupancy cost payments (base rent) of $82 million annually for the 25-year term
bull Dominus assumes the full responsibility for managing construction risk (such as cost overruns as a result of increases in the cost of construction materials increases in labour costs for skilled trade and construction delays)
bull Dominus is responsible for managing the normal financing risk associated with this type of project (However if a catastrophic economic event occurs similar to the 2008 Worldwide Economic Crisis the agreement requires the City to work with Dominus to manage the financial impact as it relates to this project and protect the financial interests of both parties)
Property Tax Impacts
Annual Occupancy Costs (Base Rent)
Council has been very clear in its intent to leverage private sector investment while also aiming to achieve a nominal or no additional impact to the property taxpayer
In support of these objectives and keeping in mind the Citys financial capacity and the tools available to deliver Councils priorities and service demands the following are some of the options presented to Council to fund this priority investment
1 Increase the tax rate to reflect the new building costs
2 Adjust or reallocate current or forecasted spending to reflect the new building costs
3 Cash in a portion of the Citys reserve funds to offer private sector partner an upfront contribution to offset construction costs of the new building and
4 Borrow $94 million to finance the cost of the new building and increase the property tax rate to make annual payments to repay the debt over a 25-year period
It is staffs recommendation that Option 2 be selected - adjust or reallocate existing property tax revenues over a three-year period beginning in 2012 By doing so no new property taxes are required to fund the Southwest Quadrant Renewal Plan
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The rationale for the recommendation is that the $82 million occupancy cost represents what the Citywould pay for the facilities over a 25-year period rather than having a one-time capital expenditure of $94 million both of these routes would require funding by property taxes However when deducting the $1 million per year that the City now spends to occupy leased space in Downtown Brampton on a net basis the amount to be funded over the 25-year period is actually $72 million per year to pay the annual occupancy cost (base rent)
Operating Costs
The Council-approved March 28 2011 report states that the annual operating costs of the new space were estimated at $21 million These operating costs are comparable regardless of who builds the building the City or the Private Sector As also mentioned the current operating cost paid by the Cityfor leased space in Downtown Brampton is $1 million per year This means that the net annual operating cost increase for the new facility is $11 million per year ($21 m -$10m = $11m) starting in 2014
In developing the Space Lease for these phases of the development the City secured the option of being able to use City staff or contracted resources to maintain and operate our facilities By doing so the City estimates that it could save as much as $300000 annually ($75 million over the 25-year term) in operating and maintenance costs
Also the Citys estimated share of the retail lease revenue of $200000 per year could be used to reduce the net increase in operating costs by as much as $200000 per year
The following table based on the most conservative scenario shows the forecasted tax funded capital spending This includes the money that staff proposes be reallocated to fund the $72 million net impact of additional occupancy costs and the $1 million in net operating costs
If the savings noted above (ie staff operating the facility and estimated revenue from Citys share of retail space) are realized they will be deducted from the $82 million shown in the following table beginning in 2014
2012 2013 2014
(Smillions) (Smillions) (Smillions) Total Amount included in
Capital Budget Forecast 20245 24352 28767
Dedicated to SWQ 2733 5466 8209
Remaining portion available to fund tax
funded capital or other 17512 18886 20558 annual Council
projectspriorities
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The Citys practice of allocating a portion of taxes from increased assessment to fund tax based capital plus the 1 capital infrastructure levy introduced in the 2011 Budget allows Council to direct resources to the SWQ Renewal Plan and still fund other Council priorities over the next three years
In addition the Citys annual capital program is no longer needed to pay for the Sandalwood Transit facility freeing up Federal gas tax funds that were dedicated to paying for the facility Therefore beginning in 2011 $24 million of Federal Gas tax funds are available annually to fund other eligible capital projects
Staff recommends that during 2012 budget deliberations Council consider a long-term funding strategy that includes using long-term debt to fund high priority projects (such as key road projects BramEast CommunityCentreLibrary Fire stations Works Yards) andor to reduce the backlog of key deferred capital projects
The strategic use of debt (similar to what is in place at the Region of Peel) will help the Citycontinue to put the necessary infrastructure in place in advance of development This would be particularly beneficial in light of fluctuations in the Citys Development Charges (DC) receipts and the current DC deficit balances For significant capital projects where a large portion is to be funded by property taxes the use of long-term debt also allows the Cityto match the costs of the facilities to those who benefit by spreading out the payments over future years so that property taxes from new residents help pay
This will be the subject of a separate report to Council at a later date this Fall
Benefits of Approving this Arrangement
Councils priorities and directives for this project have been clear from the start revitalize the downtown through private sector investment minimize risk and protect the taxpayers The agreement with Dominus achieves this and more laying the foundation for strategic financial solutions to assist Council in its city-building initiatives
If approved this arrangement would provide the following benefits
bull Full up-front construction costs would be paid by the Citys Private Sector partner signifying a significant Private Sector investment in Downtown Brampton
bull Citys $100 million Legacy Reserve Fund remains intact The existence of this Fund is a key consideration in the City retaining its Triple A Credit rating
bull Nominal or no impact to the property taxpayer is achieved
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bull Additional investments impact is managed in conjunction with other capital spending
bull The plan is affordable As the City continues to grow the costs are spread out over a larger tax base each year reducing the portion paid by each individual property taxpayer and ensuring that future residents who benefit from City services and downtown improvements share in the cost
bull Council will have flexibility to determine the amount to be allocated for repair and replacement or to cover annual debt payment increases each year from 2012 - 2014 (This is based on Council deciding to approve a long-term funding strategy during the 2012 Budget process)
bull No lease payments by the City until 2014 at which time a Council shyapproved long-term funding strategy will be in place
bull The City will set aside $27 million in 2012 and $55 million in 2013 for a total of $82 million to assist in the transition and fit-up costs associated with this project Any unused portion would be available to help plan and implement Phases 2 and 3 This is based on the above funding plan
Value-for-Money
Delivering value-for money to the City and taxpayers is a critical piece of the assessment and evaluation process staff undertakes prior to making recommendations to Council
To ensure that value-for-money will be delivered through a partnership with Dominus the City sought an independent review by Deloitte Consulting which was part of the appendices in the March 28th 2011 Council report In it Deloitte states that in their opinion the Final Offer submitted by Dominus represented sound value for money and is consistent with industry benchmarks for projects of this nature
The financing rate associated with the construction of this project is very advantageous based on comparisons completed by City staff in conjunction with financial institutions This review also confirmed that financing rates are a reflection of the Citys status as a desirable tenant with a Triple A Credit rating qualities the City continues to leverage to the benefit of taxpayers
The costs per square foot for each component of the project have been provided by Dominus to City staff Dominus deems this information as commercially sensitive and provided this information to the City for its analysis under the condition that it remains confidential
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As noted Dominus is fully responsible for the construction of the buildings at its cost The City is only responsible for making annual occupancy cost payments over the 25shyyear lease term As such the construction costs were reviewed and Citystaff is satisfied that the City will receive good value for the base rent that is required to pay for a building that it will own at the end of the lease term
The costing information provided by Dominus has been reviewed by Hanscomb Limited (Quantity Surveyors) to provide independent review of the costs Hanscomb Limited has concluded that the cost of the project is reasonable and their opinion letter is attached as Appendix A in this report
City staff also reviewed the numbers provided by Dominus on life cycle costing that will be used to determine funding for major maintenance Staff in conjunction with City Consultants concluded that the plan will ensure that adequate funds are available to carry out the repair and maintenance work required to keep the buildings in Class A condition with no deferred maintenance when the City takes over ownership of the building at the end of the lease term
Citys Advocacy Efforts - Phase 2 and Phase 3
While immediate emphasis in the downtown will be on Phase 1 and 1a Phases 2 and 3 represent the completion of Councils vision for this citys rejuvenated centre core
City staff working with Dominus as its long-term partner will monitor market conditions assess the Citys additional space requirements and report back to Council on the scope cost and timing of Phases 2 and 3 of the SWQ Renewal Plan
Staff will also report back on what other steps can or may be needed to move the additional two phases forward Some of these steps will include
bull consultation with key stakeholders including library representatives
bull government advocacy work including applying for funding from the Federal and Provincial governments and
bull leveraging additional private sector investment
Staff feels that Phase 2 is a strong candidate for P3 Canada funding The next application intake for projects under this program is expected to be in June 2012 Under this program the projects Phase 2 component could receive up to 25 funding from the Federal government
City staff is a member of a working group formed by the Municipal Finance Officers Association (MFOA) that is working to prepare another position paper asking the Province of Ontario to make amendments to the Development Charges Act 2001
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Among the requested changes being sought is the reinstatement of administrative space as an eligible category and removal of the 10 reduction for soft services Provincial approval of the requested changes would result in additional funding being available for the Phase 2- library and Phase 3 - administrative space The MFOA document is expected to be delivered to the Province for consideration priorto the October 2011 Provincial Election
Longer-Term Economic Benefits
The Council-approved March 28 2011 report states that to deliver the Dominus long-term vision for Downtown Brampton an estimated $251 million of CityPrivate Sector investment is required (Phase 1 - Sites 1 and 1a - $94 million Phase 2 - $86 million Phase 3 - $71 million) This investment would be over a number of years and serve as a catalyst to promote additional private and publicsector investment Also the plan provides much needed additional investment in downtown retail space in the first phase of the project
The investment under the Dominus solution in addition to the Citys investment to date in facilities such as Alderlea and the Rose Theatre would bring the City-initiated investment in Downtown Brampton to over $300 million
Based on information provided by the Citys Economic Development Department the multiplier effect of institutional investment is 14 times in industry sectors locally and provincially
As the Downtown market continues to grow in the years ahead this investment is another major building block in the ongoing revitalization of the Downtown Brampton serving to support existing and attract new businesses residents consumers visitors and employees to the historic Downtown
The amount and timing of this additional private sector investment is dependent on economic and market conditions and competing investment opportunities in Brampton and across the GTA
Conclusion
The Southwest Quadrant Renewal Project is an exciting opportunity to provide strategic investment in Downtown Brampton bring cultural and commercial benefits to the city while upholding the principles of smart urban planning and city building
By Council approving the recommendations contained in this report RFP2009-072 is concluded but in turn will set in motion activities that will begin renewing the downtowns southwest quadrant with construction activity scheduled to begin this fall (October 2011)
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Staff will then return to Council with a comprehensive Space Plan outlining key milestone activities timing and logistics for repatriating staff from satellite offices
The result will be that Phase 1 and 1a of this plan will provide administrative space and other Council-desired amenities such as additional parking and new retail space to the downtown core
In summary the partnership between the City and Dominus provides significant benefits to both parties as development partners including but not limited to
Benefits to Dominus Include
bull Partner with a Triple A Public Sector Tenant with a strong lease covenant bull Contribute to City building bull Achieving a safe rate of return
Benefits to the City Include
The RFPs primary objectives were achieved and RFP 2009-072 is concluded No occupancy cost payments till 2014 $100 million Legacy Reserve Fund remains intact Citys Triple A Credit Rating is preserved Administrative space needs satisfied Development acts as a catalyst for future downtown revitalization Ownership of the building (including retail space) is transferred to the City at end of lease term at additional no cost
Transfer of risk to private sector (construction financing) Councils desire for nominal or no increase to the property taxpayer is achieved Additional retail space in the downtown core will be delivered in 2014
Respectfully submitted
Julian P^ttesqn L Mo Lewis
Commissioner Commissioner
Buildings and Property Management Financial and Information Services and
Treasurer
19
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APPENDIX A
July 27 2011
The Corporation of the City of Brampton 2 Wellington Street West Brampton Ontario L6Y 4R2
Attention Julian Patteson MBA AACI PApp Commissioner Buildings and Property Management
Re Southwest Quadrant Renewal Plan
City of Brampton
Dear Mr Patteson
Per the Citys recent request we have reviewed documentation provided the City related to the above noted project with the intent of providing our opinion on the adequacy of the proponents bid in response to the Citys RFP 2009-072 Our review can be classified as order of magnitude or Class D in nature
Based on our discussions with the City we understand that the proponents bid of $94385 million is inclusive of all base building finishes work partial fit-out beyond base building general contractors overheads and profit ITcommssecurity head-end equipment LEED Gold certification permits- amp fees project management fees and expenses professional fees and expenses construction cost escalation and financing costs but is exclusive of site remediation the Citys leasehold improvements furniture furnishings and equipment Owners management reserve and HST Given this understanding it is our opinion that the $94385 million is fair and reasonable
For your information using the parameters noted above our range of probable project costs for this project based on an order of magnitude Class D review of the project documentation ranges between $950 and $1000 million
Yours very truly
Hanscomb Limited
Dale Panday PQS MRICS MAACE Director
Fito OOffC6VU6W CityOfBrampton CityHalExparaion tUtunaie RoviaviAHanscornti Raporu July14 raquo11Soumwost Quadrant Rantwal Plan CityOf BramptonHintoombOpinion01ProbaobPropelCo(ts_27-Jut-2011 Doc
oanrupj
Hanscomb Limited
Suite 90040 Holly Street Toronto Ontario M4S 3C3
Tel 416)487-3811 Fax(416)487-5043 Email torontohanscombcom www hanscombcom
11-4degl
Termination Cost
The City and Dominus also negotiated Termination Cost provisions covering the period from the August 10 2011 Council decision to the anticipated closing of the transaction on October 25 2011
If Brampton Council approves the Agreement Documents and one or more of the Conditions are not satisfied or waived by the date provided either the Cityor Dominus may terminate by giving written notice to the other party If either party elects to terminate (a) the City will pay to Dominus an amount equal to its Arms-Length Costs and (b) Dominus will assign and transfer to the City all plans specifications contracts work-in-progress and any other work product acquired by or developed by Dominus in connection with the building Arms-Length Costs must be accounted for by appropriate third-party receipts or other documentation made available for audit by the City
The compensation described here will be the only compensation payable to Dominus in such event The parties will mutually release each other elected representatives and officials (in the case of the City) directors and officers (in the case of Dominus) their respective employees agents and contractors from any and all liability of any nature or kind arising out of or in connection with the Request for Proposals or any of the settled documents
Phased Development
The City and Dominus plan a phased project comprised of the following elements
bull Phase 1 41 George Street 126398 sq ft administrative space 10545 sq ft multi-purpose meeting rooms 1496 sq ft police reporting station 10147sqft retail 446 parking spaces
bull Phase 1 a 33 Queen Street West
2507 sq ft committee rooms 6187sqft retail
bull Phase 2 20 George Street 130000 sq ft library (estimated) 360 parking spaces 4000 sq ft retail
bull Phase 3 65 Queen Street East
120000 sq ft administrative space (estimated)
T-7-4-0
Phase 1 and 1a are firmly committed subject to Council approval and satisfaction of the conditions listed in the report prior to closing Phases 2 and 3 are optional as described below The project shall be substantially as described in the Dominus Final Offer submission dated December 9 2010 and as described in this report Minor adjustments to building areas may occur through the design development process
Phase 2 Obligations
To demonstrate its commitment to the long-term vision for the Southwest Quadrant Renewal Plan and the phased development scheme Dominus has secured the Phase 2 lands that are not owned by the City This provides the required site footprint for the Phase 2 improvements including the new central library parking and additional retail development
The option for the City and Dominus to proceed with Phase 2 development will be available for three years from commencement of the Option period If the City decides to proceed with Phase 2 it will ask Dominus to submit a proposal for Phase 2 addressing the Citys requirements and desired amenities
If the City and Dominus are unable to agree on price scope or other key terms of the Phase 2 project within a period of six months subject to any mutually agreed-upon extensions the Phase 2 Option shall be at an end The City at its option may release the Phase 2 Option earlier releasing both parties from further obligations with respect to Phase 2
Phase 3 Obligations
The City will agree to keep the Phase 3 site available until three years after the Phase 2 Option has been exercised The Phase 3 option includes the development of an additional 120000 sq ft of administrative space The remaining Phase 3 obligations are similar to those described in Phase 2
The City shall keep the Phase 3 Site available until the Phase 3 Option Expiry Date The City may at its option elect to release the Phase 3 option earlier than the Phase 3 Option Expiry Date and each of the City and Dominus will then be released from all further obligations in respect of Phase 3
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Summary of Salient Terms and Conditions of Transaction
Parties to the Transaction
Net Leasable Area (Phase 1 and 1a)
Base Rent
Ground Lease Term
Space Lease Term
Land Ownership During Ground Lease
Building Ownership During Space Lease
Reversionary Ownership Rights of Lands and Buildings
Reversionary Ownership Rights of Retail Space
Management Agreement for Retail Space
Revenue Sharing for Retail Space
Construction Class of Building
The City and Dominus Construction Group (DC) in trust for one or more special purpose entities controlled by DC to be established and without
personal liability (Dominus) As is customary practice Dominus will be completing a series of underlying transactions with institutional investors
to finance the development and construction of the Project Dominus and its affiliates however will continue to be contractually committed to perform all obligations as the private sector proponent
157283 sqft 446 parking spaces
$8209170 per year payable in equal monthly installments starting 2014
Construction Term Plus 25 Years
25 Years
Dominus
Dominus
City
City
Between City and Dominus with buyout provision after Space Lease Term Dominus sublets to retail tenants based upon City approval
50 City 50 Dominus
Class A Signature Building
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Maintenance Level of Building
Major Maintenance Reserve
Conditions Prior to October 2011 Closing (City and Dominus)
City Financial Obligations
Class A with periodic inspections by City and no deferred maintenance at Reversion
Funded by the City and controlled jointly by the City and Dominus Residual funds revert to City
Complete and up-to-date survey of the lands
Legal opinion on the quality of the Citys title to the lands Emergency accessegress TRCA approval Environmental and designated substance surveys Demolition permit Excavation permit Site Plan Approval Geotechnical report Completion of ancillary agreements Financing
Councils desire to leverage private sector investment when revitalizing the downtown led to the critical decision of issuing an RFP to search for a long-term development partner Councils objective was to find a partner that recognizes the potential of Bramptons downtown and investment in it ultimately acting as a catalyst in rejuvenating the citys core
On March 28th 2011 Council approved Dominus as its long-term development partner Council then directed staff to negotiate the terms of the Citys financial obligations to the revitalization project to
bull Secure private sector investment to construct and finance the facility
bull Commit the City to paying an occupancy cost - starting in 2014 for a 25-year term - that does not exceed $82 million annually
bull Ensure an appropriate balance between public and private sector risk
12
Staff negotiations with Dominus achieved all these objectives Highlights include
bull Dominus will make the initial investment with an estimated value of $94 million
bull Beginning in 2014 the Citywill pay annual occupancy cost payments (base rent) of $82 million annually for the 25-year term
bull Dominus assumes the full responsibility for managing construction risk (such as cost overruns as a result of increases in the cost of construction materials increases in labour costs for skilled trade and construction delays)
bull Dominus is responsible for managing the normal financing risk associated with this type of project (However if a catastrophic economic event occurs similar to the 2008 Worldwide Economic Crisis the agreement requires the City to work with Dominus to manage the financial impact as it relates to this project and protect the financial interests of both parties)
Property Tax Impacts
Annual Occupancy Costs (Base Rent)
Council has been very clear in its intent to leverage private sector investment while also aiming to achieve a nominal or no additional impact to the property taxpayer
In support of these objectives and keeping in mind the Citys financial capacity and the tools available to deliver Councils priorities and service demands the following are some of the options presented to Council to fund this priority investment
1 Increase the tax rate to reflect the new building costs
2 Adjust or reallocate current or forecasted spending to reflect the new building costs
3 Cash in a portion of the Citys reserve funds to offer private sector partner an upfront contribution to offset construction costs of the new building and
4 Borrow $94 million to finance the cost of the new building and increase the property tax rate to make annual payments to repay the debt over a 25-year period
It is staffs recommendation that Option 2 be selected - adjust or reallocate existing property tax revenues over a three-year period beginning in 2012 By doing so no new property taxes are required to fund the Southwest Quadrant Renewal Plan
13
ii-^-i1
The rationale for the recommendation is that the $82 million occupancy cost represents what the Citywould pay for the facilities over a 25-year period rather than having a one-time capital expenditure of $94 million both of these routes would require funding by property taxes However when deducting the $1 million per year that the City now spends to occupy leased space in Downtown Brampton on a net basis the amount to be funded over the 25-year period is actually $72 million per year to pay the annual occupancy cost (base rent)
Operating Costs
The Council-approved March 28 2011 report states that the annual operating costs of the new space were estimated at $21 million These operating costs are comparable regardless of who builds the building the City or the Private Sector As also mentioned the current operating cost paid by the Cityfor leased space in Downtown Brampton is $1 million per year This means that the net annual operating cost increase for the new facility is $11 million per year ($21 m -$10m = $11m) starting in 2014
In developing the Space Lease for these phases of the development the City secured the option of being able to use City staff or contracted resources to maintain and operate our facilities By doing so the City estimates that it could save as much as $300000 annually ($75 million over the 25-year term) in operating and maintenance costs
Also the Citys estimated share of the retail lease revenue of $200000 per year could be used to reduce the net increase in operating costs by as much as $200000 per year
The following table based on the most conservative scenario shows the forecasted tax funded capital spending This includes the money that staff proposes be reallocated to fund the $72 million net impact of additional occupancy costs and the $1 million in net operating costs
If the savings noted above (ie staff operating the facility and estimated revenue from Citys share of retail space) are realized they will be deducted from the $82 million shown in the following table beginning in 2014
2012 2013 2014
(Smillions) (Smillions) (Smillions) Total Amount included in
Capital Budget Forecast 20245 24352 28767
Dedicated to SWQ 2733 5466 8209
Remaining portion available to fund tax
funded capital or other 17512 18886 20558 annual Council
projectspriorities
14
11-4-15
The Citys practice of allocating a portion of taxes from increased assessment to fund tax based capital plus the 1 capital infrastructure levy introduced in the 2011 Budget allows Council to direct resources to the SWQ Renewal Plan and still fund other Council priorities over the next three years
In addition the Citys annual capital program is no longer needed to pay for the Sandalwood Transit facility freeing up Federal gas tax funds that were dedicated to paying for the facility Therefore beginning in 2011 $24 million of Federal Gas tax funds are available annually to fund other eligible capital projects
Staff recommends that during 2012 budget deliberations Council consider a long-term funding strategy that includes using long-term debt to fund high priority projects (such as key road projects BramEast CommunityCentreLibrary Fire stations Works Yards) andor to reduce the backlog of key deferred capital projects
The strategic use of debt (similar to what is in place at the Region of Peel) will help the Citycontinue to put the necessary infrastructure in place in advance of development This would be particularly beneficial in light of fluctuations in the Citys Development Charges (DC) receipts and the current DC deficit balances For significant capital projects where a large portion is to be funded by property taxes the use of long-term debt also allows the Cityto match the costs of the facilities to those who benefit by spreading out the payments over future years so that property taxes from new residents help pay
This will be the subject of a separate report to Council at a later date this Fall
Benefits of Approving this Arrangement
Councils priorities and directives for this project have been clear from the start revitalize the downtown through private sector investment minimize risk and protect the taxpayers The agreement with Dominus achieves this and more laying the foundation for strategic financial solutions to assist Council in its city-building initiatives
If approved this arrangement would provide the following benefits
bull Full up-front construction costs would be paid by the Citys Private Sector partner signifying a significant Private Sector investment in Downtown Brampton
bull Citys $100 million Legacy Reserve Fund remains intact The existence of this Fund is a key consideration in the City retaining its Triple A Credit rating
bull Nominal or no impact to the property taxpayer is achieved
15
ji-4-i(o
bull Additional investments impact is managed in conjunction with other capital spending
bull The plan is affordable As the City continues to grow the costs are spread out over a larger tax base each year reducing the portion paid by each individual property taxpayer and ensuring that future residents who benefit from City services and downtown improvements share in the cost
bull Council will have flexibility to determine the amount to be allocated for repair and replacement or to cover annual debt payment increases each year from 2012 - 2014 (This is based on Council deciding to approve a long-term funding strategy during the 2012 Budget process)
bull No lease payments by the City until 2014 at which time a Council shyapproved long-term funding strategy will be in place
bull The City will set aside $27 million in 2012 and $55 million in 2013 for a total of $82 million to assist in the transition and fit-up costs associated with this project Any unused portion would be available to help plan and implement Phases 2 and 3 This is based on the above funding plan
Value-for-Money
Delivering value-for money to the City and taxpayers is a critical piece of the assessment and evaluation process staff undertakes prior to making recommendations to Council
To ensure that value-for-money will be delivered through a partnership with Dominus the City sought an independent review by Deloitte Consulting which was part of the appendices in the March 28th 2011 Council report In it Deloitte states that in their opinion the Final Offer submitted by Dominus represented sound value for money and is consistent with industry benchmarks for projects of this nature
The financing rate associated with the construction of this project is very advantageous based on comparisons completed by City staff in conjunction with financial institutions This review also confirmed that financing rates are a reflection of the Citys status as a desirable tenant with a Triple A Credit rating qualities the City continues to leverage to the benefit of taxpayers
The costs per square foot for each component of the project have been provided by Dominus to City staff Dominus deems this information as commercially sensitive and provided this information to the City for its analysis under the condition that it remains confidential
16
xi-t-in
As noted Dominus is fully responsible for the construction of the buildings at its cost The City is only responsible for making annual occupancy cost payments over the 25shyyear lease term As such the construction costs were reviewed and Citystaff is satisfied that the City will receive good value for the base rent that is required to pay for a building that it will own at the end of the lease term
The costing information provided by Dominus has been reviewed by Hanscomb Limited (Quantity Surveyors) to provide independent review of the costs Hanscomb Limited has concluded that the cost of the project is reasonable and their opinion letter is attached as Appendix A in this report
City staff also reviewed the numbers provided by Dominus on life cycle costing that will be used to determine funding for major maintenance Staff in conjunction with City Consultants concluded that the plan will ensure that adequate funds are available to carry out the repair and maintenance work required to keep the buildings in Class A condition with no deferred maintenance when the City takes over ownership of the building at the end of the lease term
Citys Advocacy Efforts - Phase 2 and Phase 3
While immediate emphasis in the downtown will be on Phase 1 and 1a Phases 2 and 3 represent the completion of Councils vision for this citys rejuvenated centre core
City staff working with Dominus as its long-term partner will monitor market conditions assess the Citys additional space requirements and report back to Council on the scope cost and timing of Phases 2 and 3 of the SWQ Renewal Plan
Staff will also report back on what other steps can or may be needed to move the additional two phases forward Some of these steps will include
bull consultation with key stakeholders including library representatives
bull government advocacy work including applying for funding from the Federal and Provincial governments and
bull leveraging additional private sector investment
Staff feels that Phase 2 is a strong candidate for P3 Canada funding The next application intake for projects under this program is expected to be in June 2012 Under this program the projects Phase 2 component could receive up to 25 funding from the Federal government
City staff is a member of a working group formed by the Municipal Finance Officers Association (MFOA) that is working to prepare another position paper asking the Province of Ontario to make amendments to the Development Charges Act 2001
17
T1-4-IB
Among the requested changes being sought is the reinstatement of administrative space as an eligible category and removal of the 10 reduction for soft services Provincial approval of the requested changes would result in additional funding being available for the Phase 2- library and Phase 3 - administrative space The MFOA document is expected to be delivered to the Province for consideration priorto the October 2011 Provincial Election
Longer-Term Economic Benefits
The Council-approved March 28 2011 report states that to deliver the Dominus long-term vision for Downtown Brampton an estimated $251 million of CityPrivate Sector investment is required (Phase 1 - Sites 1 and 1a - $94 million Phase 2 - $86 million Phase 3 - $71 million) This investment would be over a number of years and serve as a catalyst to promote additional private and publicsector investment Also the plan provides much needed additional investment in downtown retail space in the first phase of the project
The investment under the Dominus solution in addition to the Citys investment to date in facilities such as Alderlea and the Rose Theatre would bring the City-initiated investment in Downtown Brampton to over $300 million
Based on information provided by the Citys Economic Development Department the multiplier effect of institutional investment is 14 times in industry sectors locally and provincially
As the Downtown market continues to grow in the years ahead this investment is another major building block in the ongoing revitalization of the Downtown Brampton serving to support existing and attract new businesses residents consumers visitors and employees to the historic Downtown
The amount and timing of this additional private sector investment is dependent on economic and market conditions and competing investment opportunities in Brampton and across the GTA
Conclusion
The Southwest Quadrant Renewal Project is an exciting opportunity to provide strategic investment in Downtown Brampton bring cultural and commercial benefits to the city while upholding the principles of smart urban planning and city building
By Council approving the recommendations contained in this report RFP2009-072 is concluded but in turn will set in motion activities that will begin renewing the downtowns southwest quadrant with construction activity scheduled to begin this fall (October 2011)
18
ii4-ic
Staff will then return to Council with a comprehensive Space Plan outlining key milestone activities timing and logistics for repatriating staff from satellite offices
The result will be that Phase 1 and 1a of this plan will provide administrative space and other Council-desired amenities such as additional parking and new retail space to the downtown core
In summary the partnership between the City and Dominus provides significant benefits to both parties as development partners including but not limited to
Benefits to Dominus Include
bull Partner with a Triple A Public Sector Tenant with a strong lease covenant bull Contribute to City building bull Achieving a safe rate of return
Benefits to the City Include
The RFPs primary objectives were achieved and RFP 2009-072 is concluded No occupancy cost payments till 2014 $100 million Legacy Reserve Fund remains intact Citys Triple A Credit Rating is preserved Administrative space needs satisfied Development acts as a catalyst for future downtown revitalization Ownership of the building (including retail space) is transferred to the City at end of lease term at additional no cost
Transfer of risk to private sector (construction financing) Councils desire for nominal or no increase to the property taxpayer is achieved Additional retail space in the downtown core will be delivered in 2014
Respectfully submitted
Julian P^ttesqn L Mo Lewis
Commissioner Commissioner
Buildings and Property Management Financial and Information Services and
Treasurer
19
11-4-20
APPENDIX A
July 27 2011
The Corporation of the City of Brampton 2 Wellington Street West Brampton Ontario L6Y 4R2
Attention Julian Patteson MBA AACI PApp Commissioner Buildings and Property Management
Re Southwest Quadrant Renewal Plan
City of Brampton
Dear Mr Patteson
Per the Citys recent request we have reviewed documentation provided the City related to the above noted project with the intent of providing our opinion on the adequacy of the proponents bid in response to the Citys RFP 2009-072 Our review can be classified as order of magnitude or Class D in nature
Based on our discussions with the City we understand that the proponents bid of $94385 million is inclusive of all base building finishes work partial fit-out beyond base building general contractors overheads and profit ITcommssecurity head-end equipment LEED Gold certification permits- amp fees project management fees and expenses professional fees and expenses construction cost escalation and financing costs but is exclusive of site remediation the Citys leasehold improvements furniture furnishings and equipment Owners management reserve and HST Given this understanding it is our opinion that the $94385 million is fair and reasonable
For your information using the parameters noted above our range of probable project costs for this project based on an order of magnitude Class D review of the project documentation ranges between $950 and $1000 million
Yours very truly
Hanscomb Limited
Dale Panday PQS MRICS MAACE Director
Fito OOffC6VU6W CityOfBrampton CityHalExparaion tUtunaie RoviaviAHanscornti Raporu July14 raquo11Soumwost Quadrant Rantwal Plan CityOf BramptonHintoombOpinion01ProbaobPropelCo(ts_27-Jut-2011 Doc
oanrupj
Hanscomb Limited
Suite 90040 Holly Street Toronto Ontario M4S 3C3
Tel 416)487-3811 Fax(416)487-5043 Email torontohanscombcom www hanscombcom
T-7-4-0
Phase 1 and 1a are firmly committed subject to Council approval and satisfaction of the conditions listed in the report prior to closing Phases 2 and 3 are optional as described below The project shall be substantially as described in the Dominus Final Offer submission dated December 9 2010 and as described in this report Minor adjustments to building areas may occur through the design development process
Phase 2 Obligations
To demonstrate its commitment to the long-term vision for the Southwest Quadrant Renewal Plan and the phased development scheme Dominus has secured the Phase 2 lands that are not owned by the City This provides the required site footprint for the Phase 2 improvements including the new central library parking and additional retail development
The option for the City and Dominus to proceed with Phase 2 development will be available for three years from commencement of the Option period If the City decides to proceed with Phase 2 it will ask Dominus to submit a proposal for Phase 2 addressing the Citys requirements and desired amenities
If the City and Dominus are unable to agree on price scope or other key terms of the Phase 2 project within a period of six months subject to any mutually agreed-upon extensions the Phase 2 Option shall be at an end The City at its option may release the Phase 2 Option earlier releasing both parties from further obligations with respect to Phase 2
Phase 3 Obligations
The City will agree to keep the Phase 3 site available until three years after the Phase 2 Option has been exercised The Phase 3 option includes the development of an additional 120000 sq ft of administrative space The remaining Phase 3 obligations are similar to those described in Phase 2
The City shall keep the Phase 3 Site available until the Phase 3 Option Expiry Date The City may at its option elect to release the Phase 3 option earlier than the Phase 3 Option Expiry Date and each of the City and Dominus will then be released from all further obligations in respect of Phase 3
10
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Summary of Salient Terms and Conditions of Transaction
Parties to the Transaction
Net Leasable Area (Phase 1 and 1a)
Base Rent
Ground Lease Term
Space Lease Term
Land Ownership During Ground Lease
Building Ownership During Space Lease
Reversionary Ownership Rights of Lands and Buildings
Reversionary Ownership Rights of Retail Space
Management Agreement for Retail Space
Revenue Sharing for Retail Space
Construction Class of Building
The City and Dominus Construction Group (DC) in trust for one or more special purpose entities controlled by DC to be established and without
personal liability (Dominus) As is customary practice Dominus will be completing a series of underlying transactions with institutional investors
to finance the development and construction of the Project Dominus and its affiliates however will continue to be contractually committed to perform all obligations as the private sector proponent
157283 sqft 446 parking spaces
$8209170 per year payable in equal monthly installments starting 2014
Construction Term Plus 25 Years
25 Years
Dominus
Dominus
City
City
Between City and Dominus with buyout provision after Space Lease Term Dominus sublets to retail tenants based upon City approval
50 City 50 Dominus
Class A Signature Building
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11-4- 12
Maintenance Level of Building
Major Maintenance Reserve
Conditions Prior to October 2011 Closing (City and Dominus)
City Financial Obligations
Class A with periodic inspections by City and no deferred maintenance at Reversion
Funded by the City and controlled jointly by the City and Dominus Residual funds revert to City
Complete and up-to-date survey of the lands
Legal opinion on the quality of the Citys title to the lands Emergency accessegress TRCA approval Environmental and designated substance surveys Demolition permit Excavation permit Site Plan Approval Geotechnical report Completion of ancillary agreements Financing
Councils desire to leverage private sector investment when revitalizing the downtown led to the critical decision of issuing an RFP to search for a long-term development partner Councils objective was to find a partner that recognizes the potential of Bramptons downtown and investment in it ultimately acting as a catalyst in rejuvenating the citys core
On March 28th 2011 Council approved Dominus as its long-term development partner Council then directed staff to negotiate the terms of the Citys financial obligations to the revitalization project to
bull Secure private sector investment to construct and finance the facility
bull Commit the City to paying an occupancy cost - starting in 2014 for a 25-year term - that does not exceed $82 million annually
bull Ensure an appropriate balance between public and private sector risk
12
Staff negotiations with Dominus achieved all these objectives Highlights include
bull Dominus will make the initial investment with an estimated value of $94 million
bull Beginning in 2014 the Citywill pay annual occupancy cost payments (base rent) of $82 million annually for the 25-year term
bull Dominus assumes the full responsibility for managing construction risk (such as cost overruns as a result of increases in the cost of construction materials increases in labour costs for skilled trade and construction delays)
bull Dominus is responsible for managing the normal financing risk associated with this type of project (However if a catastrophic economic event occurs similar to the 2008 Worldwide Economic Crisis the agreement requires the City to work with Dominus to manage the financial impact as it relates to this project and protect the financial interests of both parties)
Property Tax Impacts
Annual Occupancy Costs (Base Rent)
Council has been very clear in its intent to leverage private sector investment while also aiming to achieve a nominal or no additional impact to the property taxpayer
In support of these objectives and keeping in mind the Citys financial capacity and the tools available to deliver Councils priorities and service demands the following are some of the options presented to Council to fund this priority investment
1 Increase the tax rate to reflect the new building costs
2 Adjust or reallocate current or forecasted spending to reflect the new building costs
3 Cash in a portion of the Citys reserve funds to offer private sector partner an upfront contribution to offset construction costs of the new building and
4 Borrow $94 million to finance the cost of the new building and increase the property tax rate to make annual payments to repay the debt over a 25-year period
It is staffs recommendation that Option 2 be selected - adjust or reallocate existing property tax revenues over a three-year period beginning in 2012 By doing so no new property taxes are required to fund the Southwest Quadrant Renewal Plan
13
ii-^-i1
The rationale for the recommendation is that the $82 million occupancy cost represents what the Citywould pay for the facilities over a 25-year period rather than having a one-time capital expenditure of $94 million both of these routes would require funding by property taxes However when deducting the $1 million per year that the City now spends to occupy leased space in Downtown Brampton on a net basis the amount to be funded over the 25-year period is actually $72 million per year to pay the annual occupancy cost (base rent)
Operating Costs
The Council-approved March 28 2011 report states that the annual operating costs of the new space were estimated at $21 million These operating costs are comparable regardless of who builds the building the City or the Private Sector As also mentioned the current operating cost paid by the Cityfor leased space in Downtown Brampton is $1 million per year This means that the net annual operating cost increase for the new facility is $11 million per year ($21 m -$10m = $11m) starting in 2014
In developing the Space Lease for these phases of the development the City secured the option of being able to use City staff or contracted resources to maintain and operate our facilities By doing so the City estimates that it could save as much as $300000 annually ($75 million over the 25-year term) in operating and maintenance costs
Also the Citys estimated share of the retail lease revenue of $200000 per year could be used to reduce the net increase in operating costs by as much as $200000 per year
The following table based on the most conservative scenario shows the forecasted tax funded capital spending This includes the money that staff proposes be reallocated to fund the $72 million net impact of additional occupancy costs and the $1 million in net operating costs
If the savings noted above (ie staff operating the facility and estimated revenue from Citys share of retail space) are realized they will be deducted from the $82 million shown in the following table beginning in 2014
2012 2013 2014
(Smillions) (Smillions) (Smillions) Total Amount included in
Capital Budget Forecast 20245 24352 28767
Dedicated to SWQ 2733 5466 8209
Remaining portion available to fund tax
funded capital or other 17512 18886 20558 annual Council
projectspriorities
14
11-4-15
The Citys practice of allocating a portion of taxes from increased assessment to fund tax based capital plus the 1 capital infrastructure levy introduced in the 2011 Budget allows Council to direct resources to the SWQ Renewal Plan and still fund other Council priorities over the next three years
In addition the Citys annual capital program is no longer needed to pay for the Sandalwood Transit facility freeing up Federal gas tax funds that were dedicated to paying for the facility Therefore beginning in 2011 $24 million of Federal Gas tax funds are available annually to fund other eligible capital projects
Staff recommends that during 2012 budget deliberations Council consider a long-term funding strategy that includes using long-term debt to fund high priority projects (such as key road projects BramEast CommunityCentreLibrary Fire stations Works Yards) andor to reduce the backlog of key deferred capital projects
The strategic use of debt (similar to what is in place at the Region of Peel) will help the Citycontinue to put the necessary infrastructure in place in advance of development This would be particularly beneficial in light of fluctuations in the Citys Development Charges (DC) receipts and the current DC deficit balances For significant capital projects where a large portion is to be funded by property taxes the use of long-term debt also allows the Cityto match the costs of the facilities to those who benefit by spreading out the payments over future years so that property taxes from new residents help pay
This will be the subject of a separate report to Council at a later date this Fall
Benefits of Approving this Arrangement
Councils priorities and directives for this project have been clear from the start revitalize the downtown through private sector investment minimize risk and protect the taxpayers The agreement with Dominus achieves this and more laying the foundation for strategic financial solutions to assist Council in its city-building initiatives
If approved this arrangement would provide the following benefits
bull Full up-front construction costs would be paid by the Citys Private Sector partner signifying a significant Private Sector investment in Downtown Brampton
bull Citys $100 million Legacy Reserve Fund remains intact The existence of this Fund is a key consideration in the City retaining its Triple A Credit rating
bull Nominal or no impact to the property taxpayer is achieved
15
ji-4-i(o
bull Additional investments impact is managed in conjunction with other capital spending
bull The plan is affordable As the City continues to grow the costs are spread out over a larger tax base each year reducing the portion paid by each individual property taxpayer and ensuring that future residents who benefit from City services and downtown improvements share in the cost
bull Council will have flexibility to determine the amount to be allocated for repair and replacement or to cover annual debt payment increases each year from 2012 - 2014 (This is based on Council deciding to approve a long-term funding strategy during the 2012 Budget process)
bull No lease payments by the City until 2014 at which time a Council shyapproved long-term funding strategy will be in place
bull The City will set aside $27 million in 2012 and $55 million in 2013 for a total of $82 million to assist in the transition and fit-up costs associated with this project Any unused portion would be available to help plan and implement Phases 2 and 3 This is based on the above funding plan
Value-for-Money
Delivering value-for money to the City and taxpayers is a critical piece of the assessment and evaluation process staff undertakes prior to making recommendations to Council
To ensure that value-for-money will be delivered through a partnership with Dominus the City sought an independent review by Deloitte Consulting which was part of the appendices in the March 28th 2011 Council report In it Deloitte states that in their opinion the Final Offer submitted by Dominus represented sound value for money and is consistent with industry benchmarks for projects of this nature
The financing rate associated with the construction of this project is very advantageous based on comparisons completed by City staff in conjunction with financial institutions This review also confirmed that financing rates are a reflection of the Citys status as a desirable tenant with a Triple A Credit rating qualities the City continues to leverage to the benefit of taxpayers
The costs per square foot for each component of the project have been provided by Dominus to City staff Dominus deems this information as commercially sensitive and provided this information to the City for its analysis under the condition that it remains confidential
16
xi-t-in
As noted Dominus is fully responsible for the construction of the buildings at its cost The City is only responsible for making annual occupancy cost payments over the 25shyyear lease term As such the construction costs were reviewed and Citystaff is satisfied that the City will receive good value for the base rent that is required to pay for a building that it will own at the end of the lease term
The costing information provided by Dominus has been reviewed by Hanscomb Limited (Quantity Surveyors) to provide independent review of the costs Hanscomb Limited has concluded that the cost of the project is reasonable and their opinion letter is attached as Appendix A in this report
City staff also reviewed the numbers provided by Dominus on life cycle costing that will be used to determine funding for major maintenance Staff in conjunction with City Consultants concluded that the plan will ensure that adequate funds are available to carry out the repair and maintenance work required to keep the buildings in Class A condition with no deferred maintenance when the City takes over ownership of the building at the end of the lease term
Citys Advocacy Efforts - Phase 2 and Phase 3
While immediate emphasis in the downtown will be on Phase 1 and 1a Phases 2 and 3 represent the completion of Councils vision for this citys rejuvenated centre core
City staff working with Dominus as its long-term partner will monitor market conditions assess the Citys additional space requirements and report back to Council on the scope cost and timing of Phases 2 and 3 of the SWQ Renewal Plan
Staff will also report back on what other steps can or may be needed to move the additional two phases forward Some of these steps will include
bull consultation with key stakeholders including library representatives
bull government advocacy work including applying for funding from the Federal and Provincial governments and
bull leveraging additional private sector investment
Staff feels that Phase 2 is a strong candidate for P3 Canada funding The next application intake for projects under this program is expected to be in June 2012 Under this program the projects Phase 2 component could receive up to 25 funding from the Federal government
City staff is a member of a working group formed by the Municipal Finance Officers Association (MFOA) that is working to prepare another position paper asking the Province of Ontario to make amendments to the Development Charges Act 2001
17
T1-4-IB
Among the requested changes being sought is the reinstatement of administrative space as an eligible category and removal of the 10 reduction for soft services Provincial approval of the requested changes would result in additional funding being available for the Phase 2- library and Phase 3 - administrative space The MFOA document is expected to be delivered to the Province for consideration priorto the October 2011 Provincial Election
Longer-Term Economic Benefits
The Council-approved March 28 2011 report states that to deliver the Dominus long-term vision for Downtown Brampton an estimated $251 million of CityPrivate Sector investment is required (Phase 1 - Sites 1 and 1a - $94 million Phase 2 - $86 million Phase 3 - $71 million) This investment would be over a number of years and serve as a catalyst to promote additional private and publicsector investment Also the plan provides much needed additional investment in downtown retail space in the first phase of the project
The investment under the Dominus solution in addition to the Citys investment to date in facilities such as Alderlea and the Rose Theatre would bring the City-initiated investment in Downtown Brampton to over $300 million
Based on information provided by the Citys Economic Development Department the multiplier effect of institutional investment is 14 times in industry sectors locally and provincially
As the Downtown market continues to grow in the years ahead this investment is another major building block in the ongoing revitalization of the Downtown Brampton serving to support existing and attract new businesses residents consumers visitors and employees to the historic Downtown
The amount and timing of this additional private sector investment is dependent on economic and market conditions and competing investment opportunities in Brampton and across the GTA
Conclusion
The Southwest Quadrant Renewal Project is an exciting opportunity to provide strategic investment in Downtown Brampton bring cultural and commercial benefits to the city while upholding the principles of smart urban planning and city building
By Council approving the recommendations contained in this report RFP2009-072 is concluded but in turn will set in motion activities that will begin renewing the downtowns southwest quadrant with construction activity scheduled to begin this fall (October 2011)
18
ii4-ic
Staff will then return to Council with a comprehensive Space Plan outlining key milestone activities timing and logistics for repatriating staff from satellite offices
The result will be that Phase 1 and 1a of this plan will provide administrative space and other Council-desired amenities such as additional parking and new retail space to the downtown core
In summary the partnership between the City and Dominus provides significant benefits to both parties as development partners including but not limited to
Benefits to Dominus Include
bull Partner with a Triple A Public Sector Tenant with a strong lease covenant bull Contribute to City building bull Achieving a safe rate of return
Benefits to the City Include
The RFPs primary objectives were achieved and RFP 2009-072 is concluded No occupancy cost payments till 2014 $100 million Legacy Reserve Fund remains intact Citys Triple A Credit Rating is preserved Administrative space needs satisfied Development acts as a catalyst for future downtown revitalization Ownership of the building (including retail space) is transferred to the City at end of lease term at additional no cost
Transfer of risk to private sector (construction financing) Councils desire for nominal or no increase to the property taxpayer is achieved Additional retail space in the downtown core will be delivered in 2014
Respectfully submitted
Julian P^ttesqn L Mo Lewis
Commissioner Commissioner
Buildings and Property Management Financial and Information Services and
Treasurer
19
11-4-20
APPENDIX A
July 27 2011
The Corporation of the City of Brampton 2 Wellington Street West Brampton Ontario L6Y 4R2
Attention Julian Patteson MBA AACI PApp Commissioner Buildings and Property Management
Re Southwest Quadrant Renewal Plan
City of Brampton
Dear Mr Patteson
Per the Citys recent request we have reviewed documentation provided the City related to the above noted project with the intent of providing our opinion on the adequacy of the proponents bid in response to the Citys RFP 2009-072 Our review can be classified as order of magnitude or Class D in nature
Based on our discussions with the City we understand that the proponents bid of $94385 million is inclusive of all base building finishes work partial fit-out beyond base building general contractors overheads and profit ITcommssecurity head-end equipment LEED Gold certification permits- amp fees project management fees and expenses professional fees and expenses construction cost escalation and financing costs but is exclusive of site remediation the Citys leasehold improvements furniture furnishings and equipment Owners management reserve and HST Given this understanding it is our opinion that the $94385 million is fair and reasonable
For your information using the parameters noted above our range of probable project costs for this project based on an order of magnitude Class D review of the project documentation ranges between $950 and $1000 million
Yours very truly
Hanscomb Limited
Dale Panday PQS MRICS MAACE Director
Fito OOffC6VU6W CityOfBrampton CityHalExparaion tUtunaie RoviaviAHanscornti Raporu July14 raquo11Soumwost Quadrant Rantwal Plan CityOf BramptonHintoombOpinion01ProbaobPropelCo(ts_27-Jut-2011 Doc
oanrupj
Hanscomb Limited
Suite 90040 Holly Street Toronto Ontario M4S 3C3
Tel 416)487-3811 Fax(416)487-5043 Email torontohanscombcom www hanscombcom
11-4-I I
Summary of Salient Terms and Conditions of Transaction
Parties to the Transaction
Net Leasable Area (Phase 1 and 1a)
Base Rent
Ground Lease Term
Space Lease Term
Land Ownership During Ground Lease
Building Ownership During Space Lease
Reversionary Ownership Rights of Lands and Buildings
Reversionary Ownership Rights of Retail Space
Management Agreement for Retail Space
Revenue Sharing for Retail Space
Construction Class of Building
The City and Dominus Construction Group (DC) in trust for one or more special purpose entities controlled by DC to be established and without
personal liability (Dominus) As is customary practice Dominus will be completing a series of underlying transactions with institutional investors
to finance the development and construction of the Project Dominus and its affiliates however will continue to be contractually committed to perform all obligations as the private sector proponent
157283 sqft 446 parking spaces
$8209170 per year payable in equal monthly installments starting 2014
Construction Term Plus 25 Years
25 Years
Dominus
Dominus
City
City
Between City and Dominus with buyout provision after Space Lease Term Dominus sublets to retail tenants based upon City approval
50 City 50 Dominus
Class A Signature Building
11
11-4- 12
Maintenance Level of Building
Major Maintenance Reserve
Conditions Prior to October 2011 Closing (City and Dominus)
City Financial Obligations
Class A with periodic inspections by City and no deferred maintenance at Reversion
Funded by the City and controlled jointly by the City and Dominus Residual funds revert to City
Complete and up-to-date survey of the lands
Legal opinion on the quality of the Citys title to the lands Emergency accessegress TRCA approval Environmental and designated substance surveys Demolition permit Excavation permit Site Plan Approval Geotechnical report Completion of ancillary agreements Financing
Councils desire to leverage private sector investment when revitalizing the downtown led to the critical decision of issuing an RFP to search for a long-term development partner Councils objective was to find a partner that recognizes the potential of Bramptons downtown and investment in it ultimately acting as a catalyst in rejuvenating the citys core
On March 28th 2011 Council approved Dominus as its long-term development partner Council then directed staff to negotiate the terms of the Citys financial obligations to the revitalization project to
bull Secure private sector investment to construct and finance the facility
bull Commit the City to paying an occupancy cost - starting in 2014 for a 25-year term - that does not exceed $82 million annually
bull Ensure an appropriate balance between public and private sector risk
12
Staff negotiations with Dominus achieved all these objectives Highlights include
bull Dominus will make the initial investment with an estimated value of $94 million
bull Beginning in 2014 the Citywill pay annual occupancy cost payments (base rent) of $82 million annually for the 25-year term
bull Dominus assumes the full responsibility for managing construction risk (such as cost overruns as a result of increases in the cost of construction materials increases in labour costs for skilled trade and construction delays)
bull Dominus is responsible for managing the normal financing risk associated with this type of project (However if a catastrophic economic event occurs similar to the 2008 Worldwide Economic Crisis the agreement requires the City to work with Dominus to manage the financial impact as it relates to this project and protect the financial interests of both parties)
Property Tax Impacts
Annual Occupancy Costs (Base Rent)
Council has been very clear in its intent to leverage private sector investment while also aiming to achieve a nominal or no additional impact to the property taxpayer
In support of these objectives and keeping in mind the Citys financial capacity and the tools available to deliver Councils priorities and service demands the following are some of the options presented to Council to fund this priority investment
1 Increase the tax rate to reflect the new building costs
2 Adjust or reallocate current or forecasted spending to reflect the new building costs
3 Cash in a portion of the Citys reserve funds to offer private sector partner an upfront contribution to offset construction costs of the new building and
4 Borrow $94 million to finance the cost of the new building and increase the property tax rate to make annual payments to repay the debt over a 25-year period
It is staffs recommendation that Option 2 be selected - adjust or reallocate existing property tax revenues over a three-year period beginning in 2012 By doing so no new property taxes are required to fund the Southwest Quadrant Renewal Plan
13
ii-^-i1
The rationale for the recommendation is that the $82 million occupancy cost represents what the Citywould pay for the facilities over a 25-year period rather than having a one-time capital expenditure of $94 million both of these routes would require funding by property taxes However when deducting the $1 million per year that the City now spends to occupy leased space in Downtown Brampton on a net basis the amount to be funded over the 25-year period is actually $72 million per year to pay the annual occupancy cost (base rent)
Operating Costs
The Council-approved March 28 2011 report states that the annual operating costs of the new space were estimated at $21 million These operating costs are comparable regardless of who builds the building the City or the Private Sector As also mentioned the current operating cost paid by the Cityfor leased space in Downtown Brampton is $1 million per year This means that the net annual operating cost increase for the new facility is $11 million per year ($21 m -$10m = $11m) starting in 2014
In developing the Space Lease for these phases of the development the City secured the option of being able to use City staff or contracted resources to maintain and operate our facilities By doing so the City estimates that it could save as much as $300000 annually ($75 million over the 25-year term) in operating and maintenance costs
Also the Citys estimated share of the retail lease revenue of $200000 per year could be used to reduce the net increase in operating costs by as much as $200000 per year
The following table based on the most conservative scenario shows the forecasted tax funded capital spending This includes the money that staff proposes be reallocated to fund the $72 million net impact of additional occupancy costs and the $1 million in net operating costs
If the savings noted above (ie staff operating the facility and estimated revenue from Citys share of retail space) are realized they will be deducted from the $82 million shown in the following table beginning in 2014
2012 2013 2014
(Smillions) (Smillions) (Smillions) Total Amount included in
Capital Budget Forecast 20245 24352 28767
Dedicated to SWQ 2733 5466 8209
Remaining portion available to fund tax
funded capital or other 17512 18886 20558 annual Council
projectspriorities
14
11-4-15
The Citys practice of allocating a portion of taxes from increased assessment to fund tax based capital plus the 1 capital infrastructure levy introduced in the 2011 Budget allows Council to direct resources to the SWQ Renewal Plan and still fund other Council priorities over the next three years
In addition the Citys annual capital program is no longer needed to pay for the Sandalwood Transit facility freeing up Federal gas tax funds that were dedicated to paying for the facility Therefore beginning in 2011 $24 million of Federal Gas tax funds are available annually to fund other eligible capital projects
Staff recommends that during 2012 budget deliberations Council consider a long-term funding strategy that includes using long-term debt to fund high priority projects (such as key road projects BramEast CommunityCentreLibrary Fire stations Works Yards) andor to reduce the backlog of key deferred capital projects
The strategic use of debt (similar to what is in place at the Region of Peel) will help the Citycontinue to put the necessary infrastructure in place in advance of development This would be particularly beneficial in light of fluctuations in the Citys Development Charges (DC) receipts and the current DC deficit balances For significant capital projects where a large portion is to be funded by property taxes the use of long-term debt also allows the Cityto match the costs of the facilities to those who benefit by spreading out the payments over future years so that property taxes from new residents help pay
This will be the subject of a separate report to Council at a later date this Fall
Benefits of Approving this Arrangement
Councils priorities and directives for this project have been clear from the start revitalize the downtown through private sector investment minimize risk and protect the taxpayers The agreement with Dominus achieves this and more laying the foundation for strategic financial solutions to assist Council in its city-building initiatives
If approved this arrangement would provide the following benefits
bull Full up-front construction costs would be paid by the Citys Private Sector partner signifying a significant Private Sector investment in Downtown Brampton
bull Citys $100 million Legacy Reserve Fund remains intact The existence of this Fund is a key consideration in the City retaining its Triple A Credit rating
bull Nominal or no impact to the property taxpayer is achieved
15
ji-4-i(o
bull Additional investments impact is managed in conjunction with other capital spending
bull The plan is affordable As the City continues to grow the costs are spread out over a larger tax base each year reducing the portion paid by each individual property taxpayer and ensuring that future residents who benefit from City services and downtown improvements share in the cost
bull Council will have flexibility to determine the amount to be allocated for repair and replacement or to cover annual debt payment increases each year from 2012 - 2014 (This is based on Council deciding to approve a long-term funding strategy during the 2012 Budget process)
bull No lease payments by the City until 2014 at which time a Council shyapproved long-term funding strategy will be in place
bull The City will set aside $27 million in 2012 and $55 million in 2013 for a total of $82 million to assist in the transition and fit-up costs associated with this project Any unused portion would be available to help plan and implement Phases 2 and 3 This is based on the above funding plan
Value-for-Money
Delivering value-for money to the City and taxpayers is a critical piece of the assessment and evaluation process staff undertakes prior to making recommendations to Council
To ensure that value-for-money will be delivered through a partnership with Dominus the City sought an independent review by Deloitte Consulting which was part of the appendices in the March 28th 2011 Council report In it Deloitte states that in their opinion the Final Offer submitted by Dominus represented sound value for money and is consistent with industry benchmarks for projects of this nature
The financing rate associated with the construction of this project is very advantageous based on comparisons completed by City staff in conjunction with financial institutions This review also confirmed that financing rates are a reflection of the Citys status as a desirable tenant with a Triple A Credit rating qualities the City continues to leverage to the benefit of taxpayers
The costs per square foot for each component of the project have been provided by Dominus to City staff Dominus deems this information as commercially sensitive and provided this information to the City for its analysis under the condition that it remains confidential
16
xi-t-in
As noted Dominus is fully responsible for the construction of the buildings at its cost The City is only responsible for making annual occupancy cost payments over the 25shyyear lease term As such the construction costs were reviewed and Citystaff is satisfied that the City will receive good value for the base rent that is required to pay for a building that it will own at the end of the lease term
The costing information provided by Dominus has been reviewed by Hanscomb Limited (Quantity Surveyors) to provide independent review of the costs Hanscomb Limited has concluded that the cost of the project is reasonable and their opinion letter is attached as Appendix A in this report
City staff also reviewed the numbers provided by Dominus on life cycle costing that will be used to determine funding for major maintenance Staff in conjunction with City Consultants concluded that the plan will ensure that adequate funds are available to carry out the repair and maintenance work required to keep the buildings in Class A condition with no deferred maintenance when the City takes over ownership of the building at the end of the lease term
Citys Advocacy Efforts - Phase 2 and Phase 3
While immediate emphasis in the downtown will be on Phase 1 and 1a Phases 2 and 3 represent the completion of Councils vision for this citys rejuvenated centre core
City staff working with Dominus as its long-term partner will monitor market conditions assess the Citys additional space requirements and report back to Council on the scope cost and timing of Phases 2 and 3 of the SWQ Renewal Plan
Staff will also report back on what other steps can or may be needed to move the additional two phases forward Some of these steps will include
bull consultation with key stakeholders including library representatives
bull government advocacy work including applying for funding from the Federal and Provincial governments and
bull leveraging additional private sector investment
Staff feels that Phase 2 is a strong candidate for P3 Canada funding The next application intake for projects under this program is expected to be in June 2012 Under this program the projects Phase 2 component could receive up to 25 funding from the Federal government
City staff is a member of a working group formed by the Municipal Finance Officers Association (MFOA) that is working to prepare another position paper asking the Province of Ontario to make amendments to the Development Charges Act 2001
17
T1-4-IB
Among the requested changes being sought is the reinstatement of administrative space as an eligible category and removal of the 10 reduction for soft services Provincial approval of the requested changes would result in additional funding being available for the Phase 2- library and Phase 3 - administrative space The MFOA document is expected to be delivered to the Province for consideration priorto the October 2011 Provincial Election
Longer-Term Economic Benefits
The Council-approved March 28 2011 report states that to deliver the Dominus long-term vision for Downtown Brampton an estimated $251 million of CityPrivate Sector investment is required (Phase 1 - Sites 1 and 1a - $94 million Phase 2 - $86 million Phase 3 - $71 million) This investment would be over a number of years and serve as a catalyst to promote additional private and publicsector investment Also the plan provides much needed additional investment in downtown retail space in the first phase of the project
The investment under the Dominus solution in addition to the Citys investment to date in facilities such as Alderlea and the Rose Theatre would bring the City-initiated investment in Downtown Brampton to over $300 million
Based on information provided by the Citys Economic Development Department the multiplier effect of institutional investment is 14 times in industry sectors locally and provincially
As the Downtown market continues to grow in the years ahead this investment is another major building block in the ongoing revitalization of the Downtown Brampton serving to support existing and attract new businesses residents consumers visitors and employees to the historic Downtown
The amount and timing of this additional private sector investment is dependent on economic and market conditions and competing investment opportunities in Brampton and across the GTA
Conclusion
The Southwest Quadrant Renewal Project is an exciting opportunity to provide strategic investment in Downtown Brampton bring cultural and commercial benefits to the city while upholding the principles of smart urban planning and city building
By Council approving the recommendations contained in this report RFP2009-072 is concluded but in turn will set in motion activities that will begin renewing the downtowns southwest quadrant with construction activity scheduled to begin this fall (October 2011)
18
ii4-ic
Staff will then return to Council with a comprehensive Space Plan outlining key milestone activities timing and logistics for repatriating staff from satellite offices
The result will be that Phase 1 and 1a of this plan will provide administrative space and other Council-desired amenities such as additional parking and new retail space to the downtown core
In summary the partnership between the City and Dominus provides significant benefits to both parties as development partners including but not limited to
Benefits to Dominus Include
bull Partner with a Triple A Public Sector Tenant with a strong lease covenant bull Contribute to City building bull Achieving a safe rate of return
Benefits to the City Include
The RFPs primary objectives were achieved and RFP 2009-072 is concluded No occupancy cost payments till 2014 $100 million Legacy Reserve Fund remains intact Citys Triple A Credit Rating is preserved Administrative space needs satisfied Development acts as a catalyst for future downtown revitalization Ownership of the building (including retail space) is transferred to the City at end of lease term at additional no cost
Transfer of risk to private sector (construction financing) Councils desire for nominal or no increase to the property taxpayer is achieved Additional retail space in the downtown core will be delivered in 2014
Respectfully submitted
Julian P^ttesqn L Mo Lewis
Commissioner Commissioner
Buildings and Property Management Financial and Information Services and
Treasurer
19
11-4-20
APPENDIX A
July 27 2011
The Corporation of the City of Brampton 2 Wellington Street West Brampton Ontario L6Y 4R2
Attention Julian Patteson MBA AACI PApp Commissioner Buildings and Property Management
Re Southwest Quadrant Renewal Plan
City of Brampton
Dear Mr Patteson
Per the Citys recent request we have reviewed documentation provided the City related to the above noted project with the intent of providing our opinion on the adequacy of the proponents bid in response to the Citys RFP 2009-072 Our review can be classified as order of magnitude or Class D in nature
Based on our discussions with the City we understand that the proponents bid of $94385 million is inclusive of all base building finishes work partial fit-out beyond base building general contractors overheads and profit ITcommssecurity head-end equipment LEED Gold certification permits- amp fees project management fees and expenses professional fees and expenses construction cost escalation and financing costs but is exclusive of site remediation the Citys leasehold improvements furniture furnishings and equipment Owners management reserve and HST Given this understanding it is our opinion that the $94385 million is fair and reasonable
For your information using the parameters noted above our range of probable project costs for this project based on an order of magnitude Class D review of the project documentation ranges between $950 and $1000 million
Yours very truly
Hanscomb Limited
Dale Panday PQS MRICS MAACE Director
Fito OOffC6VU6W CityOfBrampton CityHalExparaion tUtunaie RoviaviAHanscornti Raporu July14 raquo11Soumwost Quadrant Rantwal Plan CityOf BramptonHintoombOpinion01ProbaobPropelCo(ts_27-Jut-2011 Doc
oanrupj
Hanscomb Limited
Suite 90040 Holly Street Toronto Ontario M4S 3C3
Tel 416)487-3811 Fax(416)487-5043 Email torontohanscombcom www hanscombcom
11-4- 12
Maintenance Level of Building
Major Maintenance Reserve
Conditions Prior to October 2011 Closing (City and Dominus)
City Financial Obligations
Class A with periodic inspections by City and no deferred maintenance at Reversion
Funded by the City and controlled jointly by the City and Dominus Residual funds revert to City
Complete and up-to-date survey of the lands
Legal opinion on the quality of the Citys title to the lands Emergency accessegress TRCA approval Environmental and designated substance surveys Demolition permit Excavation permit Site Plan Approval Geotechnical report Completion of ancillary agreements Financing
Councils desire to leverage private sector investment when revitalizing the downtown led to the critical decision of issuing an RFP to search for a long-term development partner Councils objective was to find a partner that recognizes the potential of Bramptons downtown and investment in it ultimately acting as a catalyst in rejuvenating the citys core
On March 28th 2011 Council approved Dominus as its long-term development partner Council then directed staff to negotiate the terms of the Citys financial obligations to the revitalization project to
bull Secure private sector investment to construct and finance the facility
bull Commit the City to paying an occupancy cost - starting in 2014 for a 25-year term - that does not exceed $82 million annually
bull Ensure an appropriate balance between public and private sector risk
12
Staff negotiations with Dominus achieved all these objectives Highlights include
bull Dominus will make the initial investment with an estimated value of $94 million
bull Beginning in 2014 the Citywill pay annual occupancy cost payments (base rent) of $82 million annually for the 25-year term
bull Dominus assumes the full responsibility for managing construction risk (such as cost overruns as a result of increases in the cost of construction materials increases in labour costs for skilled trade and construction delays)
bull Dominus is responsible for managing the normal financing risk associated with this type of project (However if a catastrophic economic event occurs similar to the 2008 Worldwide Economic Crisis the agreement requires the City to work with Dominus to manage the financial impact as it relates to this project and protect the financial interests of both parties)
Property Tax Impacts
Annual Occupancy Costs (Base Rent)
Council has been very clear in its intent to leverage private sector investment while also aiming to achieve a nominal or no additional impact to the property taxpayer
In support of these objectives and keeping in mind the Citys financial capacity and the tools available to deliver Councils priorities and service demands the following are some of the options presented to Council to fund this priority investment
1 Increase the tax rate to reflect the new building costs
2 Adjust or reallocate current or forecasted spending to reflect the new building costs
3 Cash in a portion of the Citys reserve funds to offer private sector partner an upfront contribution to offset construction costs of the new building and
4 Borrow $94 million to finance the cost of the new building and increase the property tax rate to make annual payments to repay the debt over a 25-year period
It is staffs recommendation that Option 2 be selected - adjust or reallocate existing property tax revenues over a three-year period beginning in 2012 By doing so no new property taxes are required to fund the Southwest Quadrant Renewal Plan
13
ii-^-i1
The rationale for the recommendation is that the $82 million occupancy cost represents what the Citywould pay for the facilities over a 25-year period rather than having a one-time capital expenditure of $94 million both of these routes would require funding by property taxes However when deducting the $1 million per year that the City now spends to occupy leased space in Downtown Brampton on a net basis the amount to be funded over the 25-year period is actually $72 million per year to pay the annual occupancy cost (base rent)
Operating Costs
The Council-approved March 28 2011 report states that the annual operating costs of the new space were estimated at $21 million These operating costs are comparable regardless of who builds the building the City or the Private Sector As also mentioned the current operating cost paid by the Cityfor leased space in Downtown Brampton is $1 million per year This means that the net annual operating cost increase for the new facility is $11 million per year ($21 m -$10m = $11m) starting in 2014
In developing the Space Lease for these phases of the development the City secured the option of being able to use City staff or contracted resources to maintain and operate our facilities By doing so the City estimates that it could save as much as $300000 annually ($75 million over the 25-year term) in operating and maintenance costs
Also the Citys estimated share of the retail lease revenue of $200000 per year could be used to reduce the net increase in operating costs by as much as $200000 per year
The following table based on the most conservative scenario shows the forecasted tax funded capital spending This includes the money that staff proposes be reallocated to fund the $72 million net impact of additional occupancy costs and the $1 million in net operating costs
If the savings noted above (ie staff operating the facility and estimated revenue from Citys share of retail space) are realized they will be deducted from the $82 million shown in the following table beginning in 2014
2012 2013 2014
(Smillions) (Smillions) (Smillions) Total Amount included in
Capital Budget Forecast 20245 24352 28767
Dedicated to SWQ 2733 5466 8209
Remaining portion available to fund tax
funded capital or other 17512 18886 20558 annual Council
projectspriorities
14
11-4-15
The Citys practice of allocating a portion of taxes from increased assessment to fund tax based capital plus the 1 capital infrastructure levy introduced in the 2011 Budget allows Council to direct resources to the SWQ Renewal Plan and still fund other Council priorities over the next three years
In addition the Citys annual capital program is no longer needed to pay for the Sandalwood Transit facility freeing up Federal gas tax funds that were dedicated to paying for the facility Therefore beginning in 2011 $24 million of Federal Gas tax funds are available annually to fund other eligible capital projects
Staff recommends that during 2012 budget deliberations Council consider a long-term funding strategy that includes using long-term debt to fund high priority projects (such as key road projects BramEast CommunityCentreLibrary Fire stations Works Yards) andor to reduce the backlog of key deferred capital projects
The strategic use of debt (similar to what is in place at the Region of Peel) will help the Citycontinue to put the necessary infrastructure in place in advance of development This would be particularly beneficial in light of fluctuations in the Citys Development Charges (DC) receipts and the current DC deficit balances For significant capital projects where a large portion is to be funded by property taxes the use of long-term debt also allows the Cityto match the costs of the facilities to those who benefit by spreading out the payments over future years so that property taxes from new residents help pay
This will be the subject of a separate report to Council at a later date this Fall
Benefits of Approving this Arrangement
Councils priorities and directives for this project have been clear from the start revitalize the downtown through private sector investment minimize risk and protect the taxpayers The agreement with Dominus achieves this and more laying the foundation for strategic financial solutions to assist Council in its city-building initiatives
If approved this arrangement would provide the following benefits
bull Full up-front construction costs would be paid by the Citys Private Sector partner signifying a significant Private Sector investment in Downtown Brampton
bull Citys $100 million Legacy Reserve Fund remains intact The existence of this Fund is a key consideration in the City retaining its Triple A Credit rating
bull Nominal or no impact to the property taxpayer is achieved
15
ji-4-i(o
bull Additional investments impact is managed in conjunction with other capital spending
bull The plan is affordable As the City continues to grow the costs are spread out over a larger tax base each year reducing the portion paid by each individual property taxpayer and ensuring that future residents who benefit from City services and downtown improvements share in the cost
bull Council will have flexibility to determine the amount to be allocated for repair and replacement or to cover annual debt payment increases each year from 2012 - 2014 (This is based on Council deciding to approve a long-term funding strategy during the 2012 Budget process)
bull No lease payments by the City until 2014 at which time a Council shyapproved long-term funding strategy will be in place
bull The City will set aside $27 million in 2012 and $55 million in 2013 for a total of $82 million to assist in the transition and fit-up costs associated with this project Any unused portion would be available to help plan and implement Phases 2 and 3 This is based on the above funding plan
Value-for-Money
Delivering value-for money to the City and taxpayers is a critical piece of the assessment and evaluation process staff undertakes prior to making recommendations to Council
To ensure that value-for-money will be delivered through a partnership with Dominus the City sought an independent review by Deloitte Consulting which was part of the appendices in the March 28th 2011 Council report In it Deloitte states that in their opinion the Final Offer submitted by Dominus represented sound value for money and is consistent with industry benchmarks for projects of this nature
The financing rate associated with the construction of this project is very advantageous based on comparisons completed by City staff in conjunction with financial institutions This review also confirmed that financing rates are a reflection of the Citys status as a desirable tenant with a Triple A Credit rating qualities the City continues to leverage to the benefit of taxpayers
The costs per square foot for each component of the project have been provided by Dominus to City staff Dominus deems this information as commercially sensitive and provided this information to the City for its analysis under the condition that it remains confidential
16
xi-t-in
As noted Dominus is fully responsible for the construction of the buildings at its cost The City is only responsible for making annual occupancy cost payments over the 25shyyear lease term As such the construction costs were reviewed and Citystaff is satisfied that the City will receive good value for the base rent that is required to pay for a building that it will own at the end of the lease term
The costing information provided by Dominus has been reviewed by Hanscomb Limited (Quantity Surveyors) to provide independent review of the costs Hanscomb Limited has concluded that the cost of the project is reasonable and their opinion letter is attached as Appendix A in this report
City staff also reviewed the numbers provided by Dominus on life cycle costing that will be used to determine funding for major maintenance Staff in conjunction with City Consultants concluded that the plan will ensure that adequate funds are available to carry out the repair and maintenance work required to keep the buildings in Class A condition with no deferred maintenance when the City takes over ownership of the building at the end of the lease term
Citys Advocacy Efforts - Phase 2 and Phase 3
While immediate emphasis in the downtown will be on Phase 1 and 1a Phases 2 and 3 represent the completion of Councils vision for this citys rejuvenated centre core
City staff working with Dominus as its long-term partner will monitor market conditions assess the Citys additional space requirements and report back to Council on the scope cost and timing of Phases 2 and 3 of the SWQ Renewal Plan
Staff will also report back on what other steps can or may be needed to move the additional two phases forward Some of these steps will include
bull consultation with key stakeholders including library representatives
bull government advocacy work including applying for funding from the Federal and Provincial governments and
bull leveraging additional private sector investment
Staff feels that Phase 2 is a strong candidate for P3 Canada funding The next application intake for projects under this program is expected to be in June 2012 Under this program the projects Phase 2 component could receive up to 25 funding from the Federal government
City staff is a member of a working group formed by the Municipal Finance Officers Association (MFOA) that is working to prepare another position paper asking the Province of Ontario to make amendments to the Development Charges Act 2001
17
T1-4-IB
Among the requested changes being sought is the reinstatement of administrative space as an eligible category and removal of the 10 reduction for soft services Provincial approval of the requested changes would result in additional funding being available for the Phase 2- library and Phase 3 - administrative space The MFOA document is expected to be delivered to the Province for consideration priorto the October 2011 Provincial Election
Longer-Term Economic Benefits
The Council-approved March 28 2011 report states that to deliver the Dominus long-term vision for Downtown Brampton an estimated $251 million of CityPrivate Sector investment is required (Phase 1 - Sites 1 and 1a - $94 million Phase 2 - $86 million Phase 3 - $71 million) This investment would be over a number of years and serve as a catalyst to promote additional private and publicsector investment Also the plan provides much needed additional investment in downtown retail space in the first phase of the project
The investment under the Dominus solution in addition to the Citys investment to date in facilities such as Alderlea and the Rose Theatre would bring the City-initiated investment in Downtown Brampton to over $300 million
Based on information provided by the Citys Economic Development Department the multiplier effect of institutional investment is 14 times in industry sectors locally and provincially
As the Downtown market continues to grow in the years ahead this investment is another major building block in the ongoing revitalization of the Downtown Brampton serving to support existing and attract new businesses residents consumers visitors and employees to the historic Downtown
The amount and timing of this additional private sector investment is dependent on economic and market conditions and competing investment opportunities in Brampton and across the GTA
Conclusion
The Southwest Quadrant Renewal Project is an exciting opportunity to provide strategic investment in Downtown Brampton bring cultural and commercial benefits to the city while upholding the principles of smart urban planning and city building
By Council approving the recommendations contained in this report RFP2009-072 is concluded but in turn will set in motion activities that will begin renewing the downtowns southwest quadrant with construction activity scheduled to begin this fall (October 2011)
18
ii4-ic
Staff will then return to Council with a comprehensive Space Plan outlining key milestone activities timing and logistics for repatriating staff from satellite offices
The result will be that Phase 1 and 1a of this plan will provide administrative space and other Council-desired amenities such as additional parking and new retail space to the downtown core
In summary the partnership between the City and Dominus provides significant benefits to both parties as development partners including but not limited to
Benefits to Dominus Include
bull Partner with a Triple A Public Sector Tenant with a strong lease covenant bull Contribute to City building bull Achieving a safe rate of return
Benefits to the City Include
The RFPs primary objectives were achieved and RFP 2009-072 is concluded No occupancy cost payments till 2014 $100 million Legacy Reserve Fund remains intact Citys Triple A Credit Rating is preserved Administrative space needs satisfied Development acts as a catalyst for future downtown revitalization Ownership of the building (including retail space) is transferred to the City at end of lease term at additional no cost
Transfer of risk to private sector (construction financing) Councils desire for nominal or no increase to the property taxpayer is achieved Additional retail space in the downtown core will be delivered in 2014
Respectfully submitted
Julian P^ttesqn L Mo Lewis
Commissioner Commissioner
Buildings and Property Management Financial and Information Services and
Treasurer
19
11-4-20
APPENDIX A
July 27 2011
The Corporation of the City of Brampton 2 Wellington Street West Brampton Ontario L6Y 4R2
Attention Julian Patteson MBA AACI PApp Commissioner Buildings and Property Management
Re Southwest Quadrant Renewal Plan
City of Brampton
Dear Mr Patteson
Per the Citys recent request we have reviewed documentation provided the City related to the above noted project with the intent of providing our opinion on the adequacy of the proponents bid in response to the Citys RFP 2009-072 Our review can be classified as order of magnitude or Class D in nature
Based on our discussions with the City we understand that the proponents bid of $94385 million is inclusive of all base building finishes work partial fit-out beyond base building general contractors overheads and profit ITcommssecurity head-end equipment LEED Gold certification permits- amp fees project management fees and expenses professional fees and expenses construction cost escalation and financing costs but is exclusive of site remediation the Citys leasehold improvements furniture furnishings and equipment Owners management reserve and HST Given this understanding it is our opinion that the $94385 million is fair and reasonable
For your information using the parameters noted above our range of probable project costs for this project based on an order of magnitude Class D review of the project documentation ranges between $950 and $1000 million
Yours very truly
Hanscomb Limited
Dale Panday PQS MRICS MAACE Director
Fito OOffC6VU6W CityOfBrampton CityHalExparaion tUtunaie RoviaviAHanscornti Raporu July14 raquo11Soumwost Quadrant Rantwal Plan CityOf BramptonHintoombOpinion01ProbaobPropelCo(ts_27-Jut-2011 Doc
oanrupj
Hanscomb Limited
Suite 90040 Holly Street Toronto Ontario M4S 3C3
Tel 416)487-3811 Fax(416)487-5043 Email torontohanscombcom www hanscombcom
Staff negotiations with Dominus achieved all these objectives Highlights include
bull Dominus will make the initial investment with an estimated value of $94 million
bull Beginning in 2014 the Citywill pay annual occupancy cost payments (base rent) of $82 million annually for the 25-year term
bull Dominus assumes the full responsibility for managing construction risk (such as cost overruns as a result of increases in the cost of construction materials increases in labour costs for skilled trade and construction delays)
bull Dominus is responsible for managing the normal financing risk associated with this type of project (However if a catastrophic economic event occurs similar to the 2008 Worldwide Economic Crisis the agreement requires the City to work with Dominus to manage the financial impact as it relates to this project and protect the financial interests of both parties)
Property Tax Impacts
Annual Occupancy Costs (Base Rent)
Council has been very clear in its intent to leverage private sector investment while also aiming to achieve a nominal or no additional impact to the property taxpayer
In support of these objectives and keeping in mind the Citys financial capacity and the tools available to deliver Councils priorities and service demands the following are some of the options presented to Council to fund this priority investment
1 Increase the tax rate to reflect the new building costs
2 Adjust or reallocate current or forecasted spending to reflect the new building costs
3 Cash in a portion of the Citys reserve funds to offer private sector partner an upfront contribution to offset construction costs of the new building and
4 Borrow $94 million to finance the cost of the new building and increase the property tax rate to make annual payments to repay the debt over a 25-year period
It is staffs recommendation that Option 2 be selected - adjust or reallocate existing property tax revenues over a three-year period beginning in 2012 By doing so no new property taxes are required to fund the Southwest Quadrant Renewal Plan
13
ii-^-i1
The rationale for the recommendation is that the $82 million occupancy cost represents what the Citywould pay for the facilities over a 25-year period rather than having a one-time capital expenditure of $94 million both of these routes would require funding by property taxes However when deducting the $1 million per year that the City now spends to occupy leased space in Downtown Brampton on a net basis the amount to be funded over the 25-year period is actually $72 million per year to pay the annual occupancy cost (base rent)
Operating Costs
The Council-approved March 28 2011 report states that the annual operating costs of the new space were estimated at $21 million These operating costs are comparable regardless of who builds the building the City or the Private Sector As also mentioned the current operating cost paid by the Cityfor leased space in Downtown Brampton is $1 million per year This means that the net annual operating cost increase for the new facility is $11 million per year ($21 m -$10m = $11m) starting in 2014
In developing the Space Lease for these phases of the development the City secured the option of being able to use City staff or contracted resources to maintain and operate our facilities By doing so the City estimates that it could save as much as $300000 annually ($75 million over the 25-year term) in operating and maintenance costs
Also the Citys estimated share of the retail lease revenue of $200000 per year could be used to reduce the net increase in operating costs by as much as $200000 per year
The following table based on the most conservative scenario shows the forecasted tax funded capital spending This includes the money that staff proposes be reallocated to fund the $72 million net impact of additional occupancy costs and the $1 million in net operating costs
If the savings noted above (ie staff operating the facility and estimated revenue from Citys share of retail space) are realized they will be deducted from the $82 million shown in the following table beginning in 2014
2012 2013 2014
(Smillions) (Smillions) (Smillions) Total Amount included in
Capital Budget Forecast 20245 24352 28767
Dedicated to SWQ 2733 5466 8209
Remaining portion available to fund tax
funded capital or other 17512 18886 20558 annual Council
projectspriorities
14
11-4-15
The Citys practice of allocating a portion of taxes from increased assessment to fund tax based capital plus the 1 capital infrastructure levy introduced in the 2011 Budget allows Council to direct resources to the SWQ Renewal Plan and still fund other Council priorities over the next three years
In addition the Citys annual capital program is no longer needed to pay for the Sandalwood Transit facility freeing up Federal gas tax funds that were dedicated to paying for the facility Therefore beginning in 2011 $24 million of Federal Gas tax funds are available annually to fund other eligible capital projects
Staff recommends that during 2012 budget deliberations Council consider a long-term funding strategy that includes using long-term debt to fund high priority projects (such as key road projects BramEast CommunityCentreLibrary Fire stations Works Yards) andor to reduce the backlog of key deferred capital projects
The strategic use of debt (similar to what is in place at the Region of Peel) will help the Citycontinue to put the necessary infrastructure in place in advance of development This would be particularly beneficial in light of fluctuations in the Citys Development Charges (DC) receipts and the current DC deficit balances For significant capital projects where a large portion is to be funded by property taxes the use of long-term debt also allows the Cityto match the costs of the facilities to those who benefit by spreading out the payments over future years so that property taxes from new residents help pay
This will be the subject of a separate report to Council at a later date this Fall
Benefits of Approving this Arrangement
Councils priorities and directives for this project have been clear from the start revitalize the downtown through private sector investment minimize risk and protect the taxpayers The agreement with Dominus achieves this and more laying the foundation for strategic financial solutions to assist Council in its city-building initiatives
If approved this arrangement would provide the following benefits
bull Full up-front construction costs would be paid by the Citys Private Sector partner signifying a significant Private Sector investment in Downtown Brampton
bull Citys $100 million Legacy Reserve Fund remains intact The existence of this Fund is a key consideration in the City retaining its Triple A Credit rating
bull Nominal or no impact to the property taxpayer is achieved
15
ji-4-i(o
bull Additional investments impact is managed in conjunction with other capital spending
bull The plan is affordable As the City continues to grow the costs are spread out over a larger tax base each year reducing the portion paid by each individual property taxpayer and ensuring that future residents who benefit from City services and downtown improvements share in the cost
bull Council will have flexibility to determine the amount to be allocated for repair and replacement or to cover annual debt payment increases each year from 2012 - 2014 (This is based on Council deciding to approve a long-term funding strategy during the 2012 Budget process)
bull No lease payments by the City until 2014 at which time a Council shyapproved long-term funding strategy will be in place
bull The City will set aside $27 million in 2012 and $55 million in 2013 for a total of $82 million to assist in the transition and fit-up costs associated with this project Any unused portion would be available to help plan and implement Phases 2 and 3 This is based on the above funding plan
Value-for-Money
Delivering value-for money to the City and taxpayers is a critical piece of the assessment and evaluation process staff undertakes prior to making recommendations to Council
To ensure that value-for-money will be delivered through a partnership with Dominus the City sought an independent review by Deloitte Consulting which was part of the appendices in the March 28th 2011 Council report In it Deloitte states that in their opinion the Final Offer submitted by Dominus represented sound value for money and is consistent with industry benchmarks for projects of this nature
The financing rate associated with the construction of this project is very advantageous based on comparisons completed by City staff in conjunction with financial institutions This review also confirmed that financing rates are a reflection of the Citys status as a desirable tenant with a Triple A Credit rating qualities the City continues to leverage to the benefit of taxpayers
The costs per square foot for each component of the project have been provided by Dominus to City staff Dominus deems this information as commercially sensitive and provided this information to the City for its analysis under the condition that it remains confidential
16
xi-t-in
As noted Dominus is fully responsible for the construction of the buildings at its cost The City is only responsible for making annual occupancy cost payments over the 25shyyear lease term As such the construction costs were reviewed and Citystaff is satisfied that the City will receive good value for the base rent that is required to pay for a building that it will own at the end of the lease term
The costing information provided by Dominus has been reviewed by Hanscomb Limited (Quantity Surveyors) to provide independent review of the costs Hanscomb Limited has concluded that the cost of the project is reasonable and their opinion letter is attached as Appendix A in this report
City staff also reviewed the numbers provided by Dominus on life cycle costing that will be used to determine funding for major maintenance Staff in conjunction with City Consultants concluded that the plan will ensure that adequate funds are available to carry out the repair and maintenance work required to keep the buildings in Class A condition with no deferred maintenance when the City takes over ownership of the building at the end of the lease term
Citys Advocacy Efforts - Phase 2 and Phase 3
While immediate emphasis in the downtown will be on Phase 1 and 1a Phases 2 and 3 represent the completion of Councils vision for this citys rejuvenated centre core
City staff working with Dominus as its long-term partner will monitor market conditions assess the Citys additional space requirements and report back to Council on the scope cost and timing of Phases 2 and 3 of the SWQ Renewal Plan
Staff will also report back on what other steps can or may be needed to move the additional two phases forward Some of these steps will include
bull consultation with key stakeholders including library representatives
bull government advocacy work including applying for funding from the Federal and Provincial governments and
bull leveraging additional private sector investment
Staff feels that Phase 2 is a strong candidate for P3 Canada funding The next application intake for projects under this program is expected to be in June 2012 Under this program the projects Phase 2 component could receive up to 25 funding from the Federal government
City staff is a member of a working group formed by the Municipal Finance Officers Association (MFOA) that is working to prepare another position paper asking the Province of Ontario to make amendments to the Development Charges Act 2001
17
T1-4-IB
Among the requested changes being sought is the reinstatement of administrative space as an eligible category and removal of the 10 reduction for soft services Provincial approval of the requested changes would result in additional funding being available for the Phase 2- library and Phase 3 - administrative space The MFOA document is expected to be delivered to the Province for consideration priorto the October 2011 Provincial Election
Longer-Term Economic Benefits
The Council-approved March 28 2011 report states that to deliver the Dominus long-term vision for Downtown Brampton an estimated $251 million of CityPrivate Sector investment is required (Phase 1 - Sites 1 and 1a - $94 million Phase 2 - $86 million Phase 3 - $71 million) This investment would be over a number of years and serve as a catalyst to promote additional private and publicsector investment Also the plan provides much needed additional investment in downtown retail space in the first phase of the project
The investment under the Dominus solution in addition to the Citys investment to date in facilities such as Alderlea and the Rose Theatre would bring the City-initiated investment in Downtown Brampton to over $300 million
Based on information provided by the Citys Economic Development Department the multiplier effect of institutional investment is 14 times in industry sectors locally and provincially
As the Downtown market continues to grow in the years ahead this investment is another major building block in the ongoing revitalization of the Downtown Brampton serving to support existing and attract new businesses residents consumers visitors and employees to the historic Downtown
The amount and timing of this additional private sector investment is dependent on economic and market conditions and competing investment opportunities in Brampton and across the GTA
Conclusion
The Southwest Quadrant Renewal Project is an exciting opportunity to provide strategic investment in Downtown Brampton bring cultural and commercial benefits to the city while upholding the principles of smart urban planning and city building
By Council approving the recommendations contained in this report RFP2009-072 is concluded but in turn will set in motion activities that will begin renewing the downtowns southwest quadrant with construction activity scheduled to begin this fall (October 2011)
18
ii4-ic
Staff will then return to Council with a comprehensive Space Plan outlining key milestone activities timing and logistics for repatriating staff from satellite offices
The result will be that Phase 1 and 1a of this plan will provide administrative space and other Council-desired amenities such as additional parking and new retail space to the downtown core
In summary the partnership between the City and Dominus provides significant benefits to both parties as development partners including but not limited to
Benefits to Dominus Include
bull Partner with a Triple A Public Sector Tenant with a strong lease covenant bull Contribute to City building bull Achieving a safe rate of return
Benefits to the City Include
The RFPs primary objectives were achieved and RFP 2009-072 is concluded No occupancy cost payments till 2014 $100 million Legacy Reserve Fund remains intact Citys Triple A Credit Rating is preserved Administrative space needs satisfied Development acts as a catalyst for future downtown revitalization Ownership of the building (including retail space) is transferred to the City at end of lease term at additional no cost
Transfer of risk to private sector (construction financing) Councils desire for nominal or no increase to the property taxpayer is achieved Additional retail space in the downtown core will be delivered in 2014
Respectfully submitted
Julian P^ttesqn L Mo Lewis
Commissioner Commissioner
Buildings and Property Management Financial and Information Services and
Treasurer
19
11-4-20
APPENDIX A
July 27 2011
The Corporation of the City of Brampton 2 Wellington Street West Brampton Ontario L6Y 4R2
Attention Julian Patteson MBA AACI PApp Commissioner Buildings and Property Management
Re Southwest Quadrant Renewal Plan
City of Brampton
Dear Mr Patteson
Per the Citys recent request we have reviewed documentation provided the City related to the above noted project with the intent of providing our opinion on the adequacy of the proponents bid in response to the Citys RFP 2009-072 Our review can be classified as order of magnitude or Class D in nature
Based on our discussions with the City we understand that the proponents bid of $94385 million is inclusive of all base building finishes work partial fit-out beyond base building general contractors overheads and profit ITcommssecurity head-end equipment LEED Gold certification permits- amp fees project management fees and expenses professional fees and expenses construction cost escalation and financing costs but is exclusive of site remediation the Citys leasehold improvements furniture furnishings and equipment Owners management reserve and HST Given this understanding it is our opinion that the $94385 million is fair and reasonable
For your information using the parameters noted above our range of probable project costs for this project based on an order of magnitude Class D review of the project documentation ranges between $950 and $1000 million
Yours very truly
Hanscomb Limited
Dale Panday PQS MRICS MAACE Director
Fito OOffC6VU6W CityOfBrampton CityHalExparaion tUtunaie RoviaviAHanscornti Raporu July14 raquo11Soumwost Quadrant Rantwal Plan CityOf BramptonHintoombOpinion01ProbaobPropelCo(ts_27-Jut-2011 Doc
oanrupj
Hanscomb Limited
Suite 90040 Holly Street Toronto Ontario M4S 3C3
Tel 416)487-3811 Fax(416)487-5043 Email torontohanscombcom www hanscombcom
ii-^-i1
The rationale for the recommendation is that the $82 million occupancy cost represents what the Citywould pay for the facilities over a 25-year period rather than having a one-time capital expenditure of $94 million both of these routes would require funding by property taxes However when deducting the $1 million per year that the City now spends to occupy leased space in Downtown Brampton on a net basis the amount to be funded over the 25-year period is actually $72 million per year to pay the annual occupancy cost (base rent)
Operating Costs
The Council-approved March 28 2011 report states that the annual operating costs of the new space were estimated at $21 million These operating costs are comparable regardless of who builds the building the City or the Private Sector As also mentioned the current operating cost paid by the Cityfor leased space in Downtown Brampton is $1 million per year This means that the net annual operating cost increase for the new facility is $11 million per year ($21 m -$10m = $11m) starting in 2014
In developing the Space Lease for these phases of the development the City secured the option of being able to use City staff or contracted resources to maintain and operate our facilities By doing so the City estimates that it could save as much as $300000 annually ($75 million over the 25-year term) in operating and maintenance costs
Also the Citys estimated share of the retail lease revenue of $200000 per year could be used to reduce the net increase in operating costs by as much as $200000 per year
The following table based on the most conservative scenario shows the forecasted tax funded capital spending This includes the money that staff proposes be reallocated to fund the $72 million net impact of additional occupancy costs and the $1 million in net operating costs
If the savings noted above (ie staff operating the facility and estimated revenue from Citys share of retail space) are realized they will be deducted from the $82 million shown in the following table beginning in 2014
2012 2013 2014
(Smillions) (Smillions) (Smillions) Total Amount included in
Capital Budget Forecast 20245 24352 28767
Dedicated to SWQ 2733 5466 8209
Remaining portion available to fund tax
funded capital or other 17512 18886 20558 annual Council
projectspriorities
14
11-4-15
The Citys practice of allocating a portion of taxes from increased assessment to fund tax based capital plus the 1 capital infrastructure levy introduced in the 2011 Budget allows Council to direct resources to the SWQ Renewal Plan and still fund other Council priorities over the next three years
In addition the Citys annual capital program is no longer needed to pay for the Sandalwood Transit facility freeing up Federal gas tax funds that were dedicated to paying for the facility Therefore beginning in 2011 $24 million of Federal Gas tax funds are available annually to fund other eligible capital projects
Staff recommends that during 2012 budget deliberations Council consider a long-term funding strategy that includes using long-term debt to fund high priority projects (such as key road projects BramEast CommunityCentreLibrary Fire stations Works Yards) andor to reduce the backlog of key deferred capital projects
The strategic use of debt (similar to what is in place at the Region of Peel) will help the Citycontinue to put the necessary infrastructure in place in advance of development This would be particularly beneficial in light of fluctuations in the Citys Development Charges (DC) receipts and the current DC deficit balances For significant capital projects where a large portion is to be funded by property taxes the use of long-term debt also allows the Cityto match the costs of the facilities to those who benefit by spreading out the payments over future years so that property taxes from new residents help pay
This will be the subject of a separate report to Council at a later date this Fall
Benefits of Approving this Arrangement
Councils priorities and directives for this project have been clear from the start revitalize the downtown through private sector investment minimize risk and protect the taxpayers The agreement with Dominus achieves this and more laying the foundation for strategic financial solutions to assist Council in its city-building initiatives
If approved this arrangement would provide the following benefits
bull Full up-front construction costs would be paid by the Citys Private Sector partner signifying a significant Private Sector investment in Downtown Brampton
bull Citys $100 million Legacy Reserve Fund remains intact The existence of this Fund is a key consideration in the City retaining its Triple A Credit rating
bull Nominal or no impact to the property taxpayer is achieved
15
ji-4-i(o
bull Additional investments impact is managed in conjunction with other capital spending
bull The plan is affordable As the City continues to grow the costs are spread out over a larger tax base each year reducing the portion paid by each individual property taxpayer and ensuring that future residents who benefit from City services and downtown improvements share in the cost
bull Council will have flexibility to determine the amount to be allocated for repair and replacement or to cover annual debt payment increases each year from 2012 - 2014 (This is based on Council deciding to approve a long-term funding strategy during the 2012 Budget process)
bull No lease payments by the City until 2014 at which time a Council shyapproved long-term funding strategy will be in place
bull The City will set aside $27 million in 2012 and $55 million in 2013 for a total of $82 million to assist in the transition and fit-up costs associated with this project Any unused portion would be available to help plan and implement Phases 2 and 3 This is based on the above funding plan
Value-for-Money
Delivering value-for money to the City and taxpayers is a critical piece of the assessment and evaluation process staff undertakes prior to making recommendations to Council
To ensure that value-for-money will be delivered through a partnership with Dominus the City sought an independent review by Deloitte Consulting which was part of the appendices in the March 28th 2011 Council report In it Deloitte states that in their opinion the Final Offer submitted by Dominus represented sound value for money and is consistent with industry benchmarks for projects of this nature
The financing rate associated with the construction of this project is very advantageous based on comparisons completed by City staff in conjunction with financial institutions This review also confirmed that financing rates are a reflection of the Citys status as a desirable tenant with a Triple A Credit rating qualities the City continues to leverage to the benefit of taxpayers
The costs per square foot for each component of the project have been provided by Dominus to City staff Dominus deems this information as commercially sensitive and provided this information to the City for its analysis under the condition that it remains confidential
16
xi-t-in
As noted Dominus is fully responsible for the construction of the buildings at its cost The City is only responsible for making annual occupancy cost payments over the 25shyyear lease term As such the construction costs were reviewed and Citystaff is satisfied that the City will receive good value for the base rent that is required to pay for a building that it will own at the end of the lease term
The costing information provided by Dominus has been reviewed by Hanscomb Limited (Quantity Surveyors) to provide independent review of the costs Hanscomb Limited has concluded that the cost of the project is reasonable and their opinion letter is attached as Appendix A in this report
City staff also reviewed the numbers provided by Dominus on life cycle costing that will be used to determine funding for major maintenance Staff in conjunction with City Consultants concluded that the plan will ensure that adequate funds are available to carry out the repair and maintenance work required to keep the buildings in Class A condition with no deferred maintenance when the City takes over ownership of the building at the end of the lease term
Citys Advocacy Efforts - Phase 2 and Phase 3
While immediate emphasis in the downtown will be on Phase 1 and 1a Phases 2 and 3 represent the completion of Councils vision for this citys rejuvenated centre core
City staff working with Dominus as its long-term partner will monitor market conditions assess the Citys additional space requirements and report back to Council on the scope cost and timing of Phases 2 and 3 of the SWQ Renewal Plan
Staff will also report back on what other steps can or may be needed to move the additional two phases forward Some of these steps will include
bull consultation with key stakeholders including library representatives
bull government advocacy work including applying for funding from the Federal and Provincial governments and
bull leveraging additional private sector investment
Staff feels that Phase 2 is a strong candidate for P3 Canada funding The next application intake for projects under this program is expected to be in June 2012 Under this program the projects Phase 2 component could receive up to 25 funding from the Federal government
City staff is a member of a working group formed by the Municipal Finance Officers Association (MFOA) that is working to prepare another position paper asking the Province of Ontario to make amendments to the Development Charges Act 2001
17
T1-4-IB
Among the requested changes being sought is the reinstatement of administrative space as an eligible category and removal of the 10 reduction for soft services Provincial approval of the requested changes would result in additional funding being available for the Phase 2- library and Phase 3 - administrative space The MFOA document is expected to be delivered to the Province for consideration priorto the October 2011 Provincial Election
Longer-Term Economic Benefits
The Council-approved March 28 2011 report states that to deliver the Dominus long-term vision for Downtown Brampton an estimated $251 million of CityPrivate Sector investment is required (Phase 1 - Sites 1 and 1a - $94 million Phase 2 - $86 million Phase 3 - $71 million) This investment would be over a number of years and serve as a catalyst to promote additional private and publicsector investment Also the plan provides much needed additional investment in downtown retail space in the first phase of the project
The investment under the Dominus solution in addition to the Citys investment to date in facilities such as Alderlea and the Rose Theatre would bring the City-initiated investment in Downtown Brampton to over $300 million
Based on information provided by the Citys Economic Development Department the multiplier effect of institutional investment is 14 times in industry sectors locally and provincially
As the Downtown market continues to grow in the years ahead this investment is another major building block in the ongoing revitalization of the Downtown Brampton serving to support existing and attract new businesses residents consumers visitors and employees to the historic Downtown
The amount and timing of this additional private sector investment is dependent on economic and market conditions and competing investment opportunities in Brampton and across the GTA
Conclusion
The Southwest Quadrant Renewal Project is an exciting opportunity to provide strategic investment in Downtown Brampton bring cultural and commercial benefits to the city while upholding the principles of smart urban planning and city building
By Council approving the recommendations contained in this report RFP2009-072 is concluded but in turn will set in motion activities that will begin renewing the downtowns southwest quadrant with construction activity scheduled to begin this fall (October 2011)
18
ii4-ic
Staff will then return to Council with a comprehensive Space Plan outlining key milestone activities timing and logistics for repatriating staff from satellite offices
The result will be that Phase 1 and 1a of this plan will provide administrative space and other Council-desired amenities such as additional parking and new retail space to the downtown core
In summary the partnership between the City and Dominus provides significant benefits to both parties as development partners including but not limited to
Benefits to Dominus Include
bull Partner with a Triple A Public Sector Tenant with a strong lease covenant bull Contribute to City building bull Achieving a safe rate of return
Benefits to the City Include
The RFPs primary objectives were achieved and RFP 2009-072 is concluded No occupancy cost payments till 2014 $100 million Legacy Reserve Fund remains intact Citys Triple A Credit Rating is preserved Administrative space needs satisfied Development acts as a catalyst for future downtown revitalization Ownership of the building (including retail space) is transferred to the City at end of lease term at additional no cost
Transfer of risk to private sector (construction financing) Councils desire for nominal or no increase to the property taxpayer is achieved Additional retail space in the downtown core will be delivered in 2014
Respectfully submitted
Julian P^ttesqn L Mo Lewis
Commissioner Commissioner
Buildings and Property Management Financial and Information Services and
Treasurer
19
11-4-20
APPENDIX A
July 27 2011
The Corporation of the City of Brampton 2 Wellington Street West Brampton Ontario L6Y 4R2
Attention Julian Patteson MBA AACI PApp Commissioner Buildings and Property Management
Re Southwest Quadrant Renewal Plan
City of Brampton
Dear Mr Patteson
Per the Citys recent request we have reviewed documentation provided the City related to the above noted project with the intent of providing our opinion on the adequacy of the proponents bid in response to the Citys RFP 2009-072 Our review can be classified as order of magnitude or Class D in nature
Based on our discussions with the City we understand that the proponents bid of $94385 million is inclusive of all base building finishes work partial fit-out beyond base building general contractors overheads and profit ITcommssecurity head-end equipment LEED Gold certification permits- amp fees project management fees and expenses professional fees and expenses construction cost escalation and financing costs but is exclusive of site remediation the Citys leasehold improvements furniture furnishings and equipment Owners management reserve and HST Given this understanding it is our opinion that the $94385 million is fair and reasonable
For your information using the parameters noted above our range of probable project costs for this project based on an order of magnitude Class D review of the project documentation ranges between $950 and $1000 million
Yours very truly
Hanscomb Limited
Dale Panday PQS MRICS MAACE Director
Fito OOffC6VU6W CityOfBrampton CityHalExparaion tUtunaie RoviaviAHanscornti Raporu July14 raquo11Soumwost Quadrant Rantwal Plan CityOf BramptonHintoombOpinion01ProbaobPropelCo(ts_27-Jut-2011 Doc
oanrupj
Hanscomb Limited
Suite 90040 Holly Street Toronto Ontario M4S 3C3
Tel 416)487-3811 Fax(416)487-5043 Email torontohanscombcom www hanscombcom
11-4-15
The Citys practice of allocating a portion of taxes from increased assessment to fund tax based capital plus the 1 capital infrastructure levy introduced in the 2011 Budget allows Council to direct resources to the SWQ Renewal Plan and still fund other Council priorities over the next three years
In addition the Citys annual capital program is no longer needed to pay for the Sandalwood Transit facility freeing up Federal gas tax funds that were dedicated to paying for the facility Therefore beginning in 2011 $24 million of Federal Gas tax funds are available annually to fund other eligible capital projects
Staff recommends that during 2012 budget deliberations Council consider a long-term funding strategy that includes using long-term debt to fund high priority projects (such as key road projects BramEast CommunityCentreLibrary Fire stations Works Yards) andor to reduce the backlog of key deferred capital projects
The strategic use of debt (similar to what is in place at the Region of Peel) will help the Citycontinue to put the necessary infrastructure in place in advance of development This would be particularly beneficial in light of fluctuations in the Citys Development Charges (DC) receipts and the current DC deficit balances For significant capital projects where a large portion is to be funded by property taxes the use of long-term debt also allows the Cityto match the costs of the facilities to those who benefit by spreading out the payments over future years so that property taxes from new residents help pay
This will be the subject of a separate report to Council at a later date this Fall
Benefits of Approving this Arrangement
Councils priorities and directives for this project have been clear from the start revitalize the downtown through private sector investment minimize risk and protect the taxpayers The agreement with Dominus achieves this and more laying the foundation for strategic financial solutions to assist Council in its city-building initiatives
If approved this arrangement would provide the following benefits
bull Full up-front construction costs would be paid by the Citys Private Sector partner signifying a significant Private Sector investment in Downtown Brampton
bull Citys $100 million Legacy Reserve Fund remains intact The existence of this Fund is a key consideration in the City retaining its Triple A Credit rating
bull Nominal or no impact to the property taxpayer is achieved
15
ji-4-i(o
bull Additional investments impact is managed in conjunction with other capital spending
bull The plan is affordable As the City continues to grow the costs are spread out over a larger tax base each year reducing the portion paid by each individual property taxpayer and ensuring that future residents who benefit from City services and downtown improvements share in the cost
bull Council will have flexibility to determine the amount to be allocated for repair and replacement or to cover annual debt payment increases each year from 2012 - 2014 (This is based on Council deciding to approve a long-term funding strategy during the 2012 Budget process)
bull No lease payments by the City until 2014 at which time a Council shyapproved long-term funding strategy will be in place
bull The City will set aside $27 million in 2012 and $55 million in 2013 for a total of $82 million to assist in the transition and fit-up costs associated with this project Any unused portion would be available to help plan and implement Phases 2 and 3 This is based on the above funding plan
Value-for-Money
Delivering value-for money to the City and taxpayers is a critical piece of the assessment and evaluation process staff undertakes prior to making recommendations to Council
To ensure that value-for-money will be delivered through a partnership with Dominus the City sought an independent review by Deloitte Consulting which was part of the appendices in the March 28th 2011 Council report In it Deloitte states that in their opinion the Final Offer submitted by Dominus represented sound value for money and is consistent with industry benchmarks for projects of this nature
The financing rate associated with the construction of this project is very advantageous based on comparisons completed by City staff in conjunction with financial institutions This review also confirmed that financing rates are a reflection of the Citys status as a desirable tenant with a Triple A Credit rating qualities the City continues to leverage to the benefit of taxpayers
The costs per square foot for each component of the project have been provided by Dominus to City staff Dominus deems this information as commercially sensitive and provided this information to the City for its analysis under the condition that it remains confidential
16
xi-t-in
As noted Dominus is fully responsible for the construction of the buildings at its cost The City is only responsible for making annual occupancy cost payments over the 25shyyear lease term As such the construction costs were reviewed and Citystaff is satisfied that the City will receive good value for the base rent that is required to pay for a building that it will own at the end of the lease term
The costing information provided by Dominus has been reviewed by Hanscomb Limited (Quantity Surveyors) to provide independent review of the costs Hanscomb Limited has concluded that the cost of the project is reasonable and their opinion letter is attached as Appendix A in this report
City staff also reviewed the numbers provided by Dominus on life cycle costing that will be used to determine funding for major maintenance Staff in conjunction with City Consultants concluded that the plan will ensure that adequate funds are available to carry out the repair and maintenance work required to keep the buildings in Class A condition with no deferred maintenance when the City takes over ownership of the building at the end of the lease term
Citys Advocacy Efforts - Phase 2 and Phase 3
While immediate emphasis in the downtown will be on Phase 1 and 1a Phases 2 and 3 represent the completion of Councils vision for this citys rejuvenated centre core
City staff working with Dominus as its long-term partner will monitor market conditions assess the Citys additional space requirements and report back to Council on the scope cost and timing of Phases 2 and 3 of the SWQ Renewal Plan
Staff will also report back on what other steps can or may be needed to move the additional two phases forward Some of these steps will include
bull consultation with key stakeholders including library representatives
bull government advocacy work including applying for funding from the Federal and Provincial governments and
bull leveraging additional private sector investment
Staff feels that Phase 2 is a strong candidate for P3 Canada funding The next application intake for projects under this program is expected to be in June 2012 Under this program the projects Phase 2 component could receive up to 25 funding from the Federal government
City staff is a member of a working group formed by the Municipal Finance Officers Association (MFOA) that is working to prepare another position paper asking the Province of Ontario to make amendments to the Development Charges Act 2001
17
T1-4-IB
Among the requested changes being sought is the reinstatement of administrative space as an eligible category and removal of the 10 reduction for soft services Provincial approval of the requested changes would result in additional funding being available for the Phase 2- library and Phase 3 - administrative space The MFOA document is expected to be delivered to the Province for consideration priorto the October 2011 Provincial Election
Longer-Term Economic Benefits
The Council-approved March 28 2011 report states that to deliver the Dominus long-term vision for Downtown Brampton an estimated $251 million of CityPrivate Sector investment is required (Phase 1 - Sites 1 and 1a - $94 million Phase 2 - $86 million Phase 3 - $71 million) This investment would be over a number of years and serve as a catalyst to promote additional private and publicsector investment Also the plan provides much needed additional investment in downtown retail space in the first phase of the project
The investment under the Dominus solution in addition to the Citys investment to date in facilities such as Alderlea and the Rose Theatre would bring the City-initiated investment in Downtown Brampton to over $300 million
Based on information provided by the Citys Economic Development Department the multiplier effect of institutional investment is 14 times in industry sectors locally and provincially
As the Downtown market continues to grow in the years ahead this investment is another major building block in the ongoing revitalization of the Downtown Brampton serving to support existing and attract new businesses residents consumers visitors and employees to the historic Downtown
The amount and timing of this additional private sector investment is dependent on economic and market conditions and competing investment opportunities in Brampton and across the GTA
Conclusion
The Southwest Quadrant Renewal Project is an exciting opportunity to provide strategic investment in Downtown Brampton bring cultural and commercial benefits to the city while upholding the principles of smart urban planning and city building
By Council approving the recommendations contained in this report RFP2009-072 is concluded but in turn will set in motion activities that will begin renewing the downtowns southwest quadrant with construction activity scheduled to begin this fall (October 2011)
18
ii4-ic
Staff will then return to Council with a comprehensive Space Plan outlining key milestone activities timing and logistics for repatriating staff from satellite offices
The result will be that Phase 1 and 1a of this plan will provide administrative space and other Council-desired amenities such as additional parking and new retail space to the downtown core
In summary the partnership between the City and Dominus provides significant benefits to both parties as development partners including but not limited to
Benefits to Dominus Include
bull Partner with a Triple A Public Sector Tenant with a strong lease covenant bull Contribute to City building bull Achieving a safe rate of return
Benefits to the City Include
The RFPs primary objectives were achieved and RFP 2009-072 is concluded No occupancy cost payments till 2014 $100 million Legacy Reserve Fund remains intact Citys Triple A Credit Rating is preserved Administrative space needs satisfied Development acts as a catalyst for future downtown revitalization Ownership of the building (including retail space) is transferred to the City at end of lease term at additional no cost
Transfer of risk to private sector (construction financing) Councils desire for nominal or no increase to the property taxpayer is achieved Additional retail space in the downtown core will be delivered in 2014
Respectfully submitted
Julian P^ttesqn L Mo Lewis
Commissioner Commissioner
Buildings and Property Management Financial and Information Services and
Treasurer
19
11-4-20
APPENDIX A
July 27 2011
The Corporation of the City of Brampton 2 Wellington Street West Brampton Ontario L6Y 4R2
Attention Julian Patteson MBA AACI PApp Commissioner Buildings and Property Management
Re Southwest Quadrant Renewal Plan
City of Brampton
Dear Mr Patteson
Per the Citys recent request we have reviewed documentation provided the City related to the above noted project with the intent of providing our opinion on the adequacy of the proponents bid in response to the Citys RFP 2009-072 Our review can be classified as order of magnitude or Class D in nature
Based on our discussions with the City we understand that the proponents bid of $94385 million is inclusive of all base building finishes work partial fit-out beyond base building general contractors overheads and profit ITcommssecurity head-end equipment LEED Gold certification permits- amp fees project management fees and expenses professional fees and expenses construction cost escalation and financing costs but is exclusive of site remediation the Citys leasehold improvements furniture furnishings and equipment Owners management reserve and HST Given this understanding it is our opinion that the $94385 million is fair and reasonable
For your information using the parameters noted above our range of probable project costs for this project based on an order of magnitude Class D review of the project documentation ranges between $950 and $1000 million
Yours very truly
Hanscomb Limited
Dale Panday PQS MRICS MAACE Director
Fito OOffC6VU6W CityOfBrampton CityHalExparaion tUtunaie RoviaviAHanscornti Raporu July14 raquo11Soumwost Quadrant Rantwal Plan CityOf BramptonHintoombOpinion01ProbaobPropelCo(ts_27-Jut-2011 Doc
oanrupj
Hanscomb Limited
Suite 90040 Holly Street Toronto Ontario M4S 3C3
Tel 416)487-3811 Fax(416)487-5043 Email torontohanscombcom www hanscombcom
ji-4-i(o
bull Additional investments impact is managed in conjunction with other capital spending
bull The plan is affordable As the City continues to grow the costs are spread out over a larger tax base each year reducing the portion paid by each individual property taxpayer and ensuring that future residents who benefit from City services and downtown improvements share in the cost
bull Council will have flexibility to determine the amount to be allocated for repair and replacement or to cover annual debt payment increases each year from 2012 - 2014 (This is based on Council deciding to approve a long-term funding strategy during the 2012 Budget process)
bull No lease payments by the City until 2014 at which time a Council shyapproved long-term funding strategy will be in place
bull The City will set aside $27 million in 2012 and $55 million in 2013 for a total of $82 million to assist in the transition and fit-up costs associated with this project Any unused portion would be available to help plan and implement Phases 2 and 3 This is based on the above funding plan
Value-for-Money
Delivering value-for money to the City and taxpayers is a critical piece of the assessment and evaluation process staff undertakes prior to making recommendations to Council
To ensure that value-for-money will be delivered through a partnership with Dominus the City sought an independent review by Deloitte Consulting which was part of the appendices in the March 28th 2011 Council report In it Deloitte states that in their opinion the Final Offer submitted by Dominus represented sound value for money and is consistent with industry benchmarks for projects of this nature
The financing rate associated with the construction of this project is very advantageous based on comparisons completed by City staff in conjunction with financial institutions This review also confirmed that financing rates are a reflection of the Citys status as a desirable tenant with a Triple A Credit rating qualities the City continues to leverage to the benefit of taxpayers
The costs per square foot for each component of the project have been provided by Dominus to City staff Dominus deems this information as commercially sensitive and provided this information to the City for its analysis under the condition that it remains confidential
16
xi-t-in
As noted Dominus is fully responsible for the construction of the buildings at its cost The City is only responsible for making annual occupancy cost payments over the 25shyyear lease term As such the construction costs were reviewed and Citystaff is satisfied that the City will receive good value for the base rent that is required to pay for a building that it will own at the end of the lease term
The costing information provided by Dominus has been reviewed by Hanscomb Limited (Quantity Surveyors) to provide independent review of the costs Hanscomb Limited has concluded that the cost of the project is reasonable and their opinion letter is attached as Appendix A in this report
City staff also reviewed the numbers provided by Dominus on life cycle costing that will be used to determine funding for major maintenance Staff in conjunction with City Consultants concluded that the plan will ensure that adequate funds are available to carry out the repair and maintenance work required to keep the buildings in Class A condition with no deferred maintenance when the City takes over ownership of the building at the end of the lease term
Citys Advocacy Efforts - Phase 2 and Phase 3
While immediate emphasis in the downtown will be on Phase 1 and 1a Phases 2 and 3 represent the completion of Councils vision for this citys rejuvenated centre core
City staff working with Dominus as its long-term partner will monitor market conditions assess the Citys additional space requirements and report back to Council on the scope cost and timing of Phases 2 and 3 of the SWQ Renewal Plan
Staff will also report back on what other steps can or may be needed to move the additional two phases forward Some of these steps will include
bull consultation with key stakeholders including library representatives
bull government advocacy work including applying for funding from the Federal and Provincial governments and
bull leveraging additional private sector investment
Staff feels that Phase 2 is a strong candidate for P3 Canada funding The next application intake for projects under this program is expected to be in June 2012 Under this program the projects Phase 2 component could receive up to 25 funding from the Federal government
City staff is a member of a working group formed by the Municipal Finance Officers Association (MFOA) that is working to prepare another position paper asking the Province of Ontario to make amendments to the Development Charges Act 2001
17
T1-4-IB
Among the requested changes being sought is the reinstatement of administrative space as an eligible category and removal of the 10 reduction for soft services Provincial approval of the requested changes would result in additional funding being available for the Phase 2- library and Phase 3 - administrative space The MFOA document is expected to be delivered to the Province for consideration priorto the October 2011 Provincial Election
Longer-Term Economic Benefits
The Council-approved March 28 2011 report states that to deliver the Dominus long-term vision for Downtown Brampton an estimated $251 million of CityPrivate Sector investment is required (Phase 1 - Sites 1 and 1a - $94 million Phase 2 - $86 million Phase 3 - $71 million) This investment would be over a number of years and serve as a catalyst to promote additional private and publicsector investment Also the plan provides much needed additional investment in downtown retail space in the first phase of the project
The investment under the Dominus solution in addition to the Citys investment to date in facilities such as Alderlea and the Rose Theatre would bring the City-initiated investment in Downtown Brampton to over $300 million
Based on information provided by the Citys Economic Development Department the multiplier effect of institutional investment is 14 times in industry sectors locally and provincially
As the Downtown market continues to grow in the years ahead this investment is another major building block in the ongoing revitalization of the Downtown Brampton serving to support existing and attract new businesses residents consumers visitors and employees to the historic Downtown
The amount and timing of this additional private sector investment is dependent on economic and market conditions and competing investment opportunities in Brampton and across the GTA
Conclusion
The Southwest Quadrant Renewal Project is an exciting opportunity to provide strategic investment in Downtown Brampton bring cultural and commercial benefits to the city while upholding the principles of smart urban planning and city building
By Council approving the recommendations contained in this report RFP2009-072 is concluded but in turn will set in motion activities that will begin renewing the downtowns southwest quadrant with construction activity scheduled to begin this fall (October 2011)
18
ii4-ic
Staff will then return to Council with a comprehensive Space Plan outlining key milestone activities timing and logistics for repatriating staff from satellite offices
The result will be that Phase 1 and 1a of this plan will provide administrative space and other Council-desired amenities such as additional parking and new retail space to the downtown core
In summary the partnership between the City and Dominus provides significant benefits to both parties as development partners including but not limited to
Benefits to Dominus Include
bull Partner with a Triple A Public Sector Tenant with a strong lease covenant bull Contribute to City building bull Achieving a safe rate of return
Benefits to the City Include
The RFPs primary objectives were achieved and RFP 2009-072 is concluded No occupancy cost payments till 2014 $100 million Legacy Reserve Fund remains intact Citys Triple A Credit Rating is preserved Administrative space needs satisfied Development acts as a catalyst for future downtown revitalization Ownership of the building (including retail space) is transferred to the City at end of lease term at additional no cost
Transfer of risk to private sector (construction financing) Councils desire for nominal or no increase to the property taxpayer is achieved Additional retail space in the downtown core will be delivered in 2014
Respectfully submitted
Julian P^ttesqn L Mo Lewis
Commissioner Commissioner
Buildings and Property Management Financial and Information Services and
Treasurer
19
11-4-20
APPENDIX A
July 27 2011
The Corporation of the City of Brampton 2 Wellington Street West Brampton Ontario L6Y 4R2
Attention Julian Patteson MBA AACI PApp Commissioner Buildings and Property Management
Re Southwest Quadrant Renewal Plan
City of Brampton
Dear Mr Patteson
Per the Citys recent request we have reviewed documentation provided the City related to the above noted project with the intent of providing our opinion on the adequacy of the proponents bid in response to the Citys RFP 2009-072 Our review can be classified as order of magnitude or Class D in nature
Based on our discussions with the City we understand that the proponents bid of $94385 million is inclusive of all base building finishes work partial fit-out beyond base building general contractors overheads and profit ITcommssecurity head-end equipment LEED Gold certification permits- amp fees project management fees and expenses professional fees and expenses construction cost escalation and financing costs but is exclusive of site remediation the Citys leasehold improvements furniture furnishings and equipment Owners management reserve and HST Given this understanding it is our opinion that the $94385 million is fair and reasonable
For your information using the parameters noted above our range of probable project costs for this project based on an order of magnitude Class D review of the project documentation ranges between $950 and $1000 million
Yours very truly
Hanscomb Limited
Dale Panday PQS MRICS MAACE Director
Fito OOffC6VU6W CityOfBrampton CityHalExparaion tUtunaie RoviaviAHanscornti Raporu July14 raquo11Soumwost Quadrant Rantwal Plan CityOf BramptonHintoombOpinion01ProbaobPropelCo(ts_27-Jut-2011 Doc
oanrupj
Hanscomb Limited
Suite 90040 Holly Street Toronto Ontario M4S 3C3
Tel 416)487-3811 Fax(416)487-5043 Email torontohanscombcom www hanscombcom
xi-t-in
As noted Dominus is fully responsible for the construction of the buildings at its cost The City is only responsible for making annual occupancy cost payments over the 25shyyear lease term As such the construction costs were reviewed and Citystaff is satisfied that the City will receive good value for the base rent that is required to pay for a building that it will own at the end of the lease term
The costing information provided by Dominus has been reviewed by Hanscomb Limited (Quantity Surveyors) to provide independent review of the costs Hanscomb Limited has concluded that the cost of the project is reasonable and their opinion letter is attached as Appendix A in this report
City staff also reviewed the numbers provided by Dominus on life cycle costing that will be used to determine funding for major maintenance Staff in conjunction with City Consultants concluded that the plan will ensure that adequate funds are available to carry out the repair and maintenance work required to keep the buildings in Class A condition with no deferred maintenance when the City takes over ownership of the building at the end of the lease term
Citys Advocacy Efforts - Phase 2 and Phase 3
While immediate emphasis in the downtown will be on Phase 1 and 1a Phases 2 and 3 represent the completion of Councils vision for this citys rejuvenated centre core
City staff working with Dominus as its long-term partner will monitor market conditions assess the Citys additional space requirements and report back to Council on the scope cost and timing of Phases 2 and 3 of the SWQ Renewal Plan
Staff will also report back on what other steps can or may be needed to move the additional two phases forward Some of these steps will include
bull consultation with key stakeholders including library representatives
bull government advocacy work including applying for funding from the Federal and Provincial governments and
bull leveraging additional private sector investment
Staff feels that Phase 2 is a strong candidate for P3 Canada funding The next application intake for projects under this program is expected to be in June 2012 Under this program the projects Phase 2 component could receive up to 25 funding from the Federal government
City staff is a member of a working group formed by the Municipal Finance Officers Association (MFOA) that is working to prepare another position paper asking the Province of Ontario to make amendments to the Development Charges Act 2001
17
T1-4-IB
Among the requested changes being sought is the reinstatement of administrative space as an eligible category and removal of the 10 reduction for soft services Provincial approval of the requested changes would result in additional funding being available for the Phase 2- library and Phase 3 - administrative space The MFOA document is expected to be delivered to the Province for consideration priorto the October 2011 Provincial Election
Longer-Term Economic Benefits
The Council-approved March 28 2011 report states that to deliver the Dominus long-term vision for Downtown Brampton an estimated $251 million of CityPrivate Sector investment is required (Phase 1 - Sites 1 and 1a - $94 million Phase 2 - $86 million Phase 3 - $71 million) This investment would be over a number of years and serve as a catalyst to promote additional private and publicsector investment Also the plan provides much needed additional investment in downtown retail space in the first phase of the project
The investment under the Dominus solution in addition to the Citys investment to date in facilities such as Alderlea and the Rose Theatre would bring the City-initiated investment in Downtown Brampton to over $300 million
Based on information provided by the Citys Economic Development Department the multiplier effect of institutional investment is 14 times in industry sectors locally and provincially
As the Downtown market continues to grow in the years ahead this investment is another major building block in the ongoing revitalization of the Downtown Brampton serving to support existing and attract new businesses residents consumers visitors and employees to the historic Downtown
The amount and timing of this additional private sector investment is dependent on economic and market conditions and competing investment opportunities in Brampton and across the GTA
Conclusion
The Southwest Quadrant Renewal Project is an exciting opportunity to provide strategic investment in Downtown Brampton bring cultural and commercial benefits to the city while upholding the principles of smart urban planning and city building
By Council approving the recommendations contained in this report RFP2009-072 is concluded but in turn will set in motion activities that will begin renewing the downtowns southwest quadrant with construction activity scheduled to begin this fall (October 2011)
18
ii4-ic
Staff will then return to Council with a comprehensive Space Plan outlining key milestone activities timing and logistics for repatriating staff from satellite offices
The result will be that Phase 1 and 1a of this plan will provide administrative space and other Council-desired amenities such as additional parking and new retail space to the downtown core
In summary the partnership between the City and Dominus provides significant benefits to both parties as development partners including but not limited to
Benefits to Dominus Include
bull Partner with a Triple A Public Sector Tenant with a strong lease covenant bull Contribute to City building bull Achieving a safe rate of return
Benefits to the City Include
The RFPs primary objectives were achieved and RFP 2009-072 is concluded No occupancy cost payments till 2014 $100 million Legacy Reserve Fund remains intact Citys Triple A Credit Rating is preserved Administrative space needs satisfied Development acts as a catalyst for future downtown revitalization Ownership of the building (including retail space) is transferred to the City at end of lease term at additional no cost
Transfer of risk to private sector (construction financing) Councils desire for nominal or no increase to the property taxpayer is achieved Additional retail space in the downtown core will be delivered in 2014
Respectfully submitted
Julian P^ttesqn L Mo Lewis
Commissioner Commissioner
Buildings and Property Management Financial and Information Services and
Treasurer
19
11-4-20
APPENDIX A
July 27 2011
The Corporation of the City of Brampton 2 Wellington Street West Brampton Ontario L6Y 4R2
Attention Julian Patteson MBA AACI PApp Commissioner Buildings and Property Management
Re Southwest Quadrant Renewal Plan
City of Brampton
Dear Mr Patteson
Per the Citys recent request we have reviewed documentation provided the City related to the above noted project with the intent of providing our opinion on the adequacy of the proponents bid in response to the Citys RFP 2009-072 Our review can be classified as order of magnitude or Class D in nature
Based on our discussions with the City we understand that the proponents bid of $94385 million is inclusive of all base building finishes work partial fit-out beyond base building general contractors overheads and profit ITcommssecurity head-end equipment LEED Gold certification permits- amp fees project management fees and expenses professional fees and expenses construction cost escalation and financing costs but is exclusive of site remediation the Citys leasehold improvements furniture furnishings and equipment Owners management reserve and HST Given this understanding it is our opinion that the $94385 million is fair and reasonable
For your information using the parameters noted above our range of probable project costs for this project based on an order of magnitude Class D review of the project documentation ranges between $950 and $1000 million
Yours very truly
Hanscomb Limited
Dale Panday PQS MRICS MAACE Director
Fito OOffC6VU6W CityOfBrampton CityHalExparaion tUtunaie RoviaviAHanscornti Raporu July14 raquo11Soumwost Quadrant Rantwal Plan CityOf BramptonHintoombOpinion01ProbaobPropelCo(ts_27-Jut-2011 Doc
oanrupj
Hanscomb Limited
Suite 90040 Holly Street Toronto Ontario M4S 3C3
Tel 416)487-3811 Fax(416)487-5043 Email torontohanscombcom www hanscombcom
T1-4-IB
Among the requested changes being sought is the reinstatement of administrative space as an eligible category and removal of the 10 reduction for soft services Provincial approval of the requested changes would result in additional funding being available for the Phase 2- library and Phase 3 - administrative space The MFOA document is expected to be delivered to the Province for consideration priorto the October 2011 Provincial Election
Longer-Term Economic Benefits
The Council-approved March 28 2011 report states that to deliver the Dominus long-term vision for Downtown Brampton an estimated $251 million of CityPrivate Sector investment is required (Phase 1 - Sites 1 and 1a - $94 million Phase 2 - $86 million Phase 3 - $71 million) This investment would be over a number of years and serve as a catalyst to promote additional private and publicsector investment Also the plan provides much needed additional investment in downtown retail space in the first phase of the project
The investment under the Dominus solution in addition to the Citys investment to date in facilities such as Alderlea and the Rose Theatre would bring the City-initiated investment in Downtown Brampton to over $300 million
Based on information provided by the Citys Economic Development Department the multiplier effect of institutional investment is 14 times in industry sectors locally and provincially
As the Downtown market continues to grow in the years ahead this investment is another major building block in the ongoing revitalization of the Downtown Brampton serving to support existing and attract new businesses residents consumers visitors and employees to the historic Downtown
The amount and timing of this additional private sector investment is dependent on economic and market conditions and competing investment opportunities in Brampton and across the GTA
Conclusion
The Southwest Quadrant Renewal Project is an exciting opportunity to provide strategic investment in Downtown Brampton bring cultural and commercial benefits to the city while upholding the principles of smart urban planning and city building
By Council approving the recommendations contained in this report RFP2009-072 is concluded but in turn will set in motion activities that will begin renewing the downtowns southwest quadrant with construction activity scheduled to begin this fall (October 2011)
18
ii4-ic
Staff will then return to Council with a comprehensive Space Plan outlining key milestone activities timing and logistics for repatriating staff from satellite offices
The result will be that Phase 1 and 1a of this plan will provide administrative space and other Council-desired amenities such as additional parking and new retail space to the downtown core
In summary the partnership between the City and Dominus provides significant benefits to both parties as development partners including but not limited to
Benefits to Dominus Include
bull Partner with a Triple A Public Sector Tenant with a strong lease covenant bull Contribute to City building bull Achieving a safe rate of return
Benefits to the City Include
The RFPs primary objectives were achieved and RFP 2009-072 is concluded No occupancy cost payments till 2014 $100 million Legacy Reserve Fund remains intact Citys Triple A Credit Rating is preserved Administrative space needs satisfied Development acts as a catalyst for future downtown revitalization Ownership of the building (including retail space) is transferred to the City at end of lease term at additional no cost
Transfer of risk to private sector (construction financing) Councils desire for nominal or no increase to the property taxpayer is achieved Additional retail space in the downtown core will be delivered in 2014
Respectfully submitted
Julian P^ttesqn L Mo Lewis
Commissioner Commissioner
Buildings and Property Management Financial and Information Services and
Treasurer
19
11-4-20
APPENDIX A
July 27 2011
The Corporation of the City of Brampton 2 Wellington Street West Brampton Ontario L6Y 4R2
Attention Julian Patteson MBA AACI PApp Commissioner Buildings and Property Management
Re Southwest Quadrant Renewal Plan
City of Brampton
Dear Mr Patteson
Per the Citys recent request we have reviewed documentation provided the City related to the above noted project with the intent of providing our opinion on the adequacy of the proponents bid in response to the Citys RFP 2009-072 Our review can be classified as order of magnitude or Class D in nature
Based on our discussions with the City we understand that the proponents bid of $94385 million is inclusive of all base building finishes work partial fit-out beyond base building general contractors overheads and profit ITcommssecurity head-end equipment LEED Gold certification permits- amp fees project management fees and expenses professional fees and expenses construction cost escalation and financing costs but is exclusive of site remediation the Citys leasehold improvements furniture furnishings and equipment Owners management reserve and HST Given this understanding it is our opinion that the $94385 million is fair and reasonable
For your information using the parameters noted above our range of probable project costs for this project based on an order of magnitude Class D review of the project documentation ranges between $950 and $1000 million
Yours very truly
Hanscomb Limited
Dale Panday PQS MRICS MAACE Director
Fito OOffC6VU6W CityOfBrampton CityHalExparaion tUtunaie RoviaviAHanscornti Raporu July14 raquo11Soumwost Quadrant Rantwal Plan CityOf BramptonHintoombOpinion01ProbaobPropelCo(ts_27-Jut-2011 Doc
oanrupj
Hanscomb Limited
Suite 90040 Holly Street Toronto Ontario M4S 3C3
Tel 416)487-3811 Fax(416)487-5043 Email torontohanscombcom www hanscombcom
ii4-ic
Staff will then return to Council with a comprehensive Space Plan outlining key milestone activities timing and logistics for repatriating staff from satellite offices
The result will be that Phase 1 and 1a of this plan will provide administrative space and other Council-desired amenities such as additional parking and new retail space to the downtown core
In summary the partnership between the City and Dominus provides significant benefits to both parties as development partners including but not limited to
Benefits to Dominus Include
bull Partner with a Triple A Public Sector Tenant with a strong lease covenant bull Contribute to City building bull Achieving a safe rate of return
Benefits to the City Include
The RFPs primary objectives were achieved and RFP 2009-072 is concluded No occupancy cost payments till 2014 $100 million Legacy Reserve Fund remains intact Citys Triple A Credit Rating is preserved Administrative space needs satisfied Development acts as a catalyst for future downtown revitalization Ownership of the building (including retail space) is transferred to the City at end of lease term at additional no cost
Transfer of risk to private sector (construction financing) Councils desire for nominal or no increase to the property taxpayer is achieved Additional retail space in the downtown core will be delivered in 2014
Respectfully submitted
Julian P^ttesqn L Mo Lewis
Commissioner Commissioner
Buildings and Property Management Financial and Information Services and
Treasurer
19
11-4-20
APPENDIX A
July 27 2011
The Corporation of the City of Brampton 2 Wellington Street West Brampton Ontario L6Y 4R2
Attention Julian Patteson MBA AACI PApp Commissioner Buildings and Property Management
Re Southwest Quadrant Renewal Plan
City of Brampton
Dear Mr Patteson
Per the Citys recent request we have reviewed documentation provided the City related to the above noted project with the intent of providing our opinion on the adequacy of the proponents bid in response to the Citys RFP 2009-072 Our review can be classified as order of magnitude or Class D in nature
Based on our discussions with the City we understand that the proponents bid of $94385 million is inclusive of all base building finishes work partial fit-out beyond base building general contractors overheads and profit ITcommssecurity head-end equipment LEED Gold certification permits- amp fees project management fees and expenses professional fees and expenses construction cost escalation and financing costs but is exclusive of site remediation the Citys leasehold improvements furniture furnishings and equipment Owners management reserve and HST Given this understanding it is our opinion that the $94385 million is fair and reasonable
For your information using the parameters noted above our range of probable project costs for this project based on an order of magnitude Class D review of the project documentation ranges between $950 and $1000 million
Yours very truly
Hanscomb Limited
Dale Panday PQS MRICS MAACE Director
Fito OOffC6VU6W CityOfBrampton CityHalExparaion tUtunaie RoviaviAHanscornti Raporu July14 raquo11Soumwost Quadrant Rantwal Plan CityOf BramptonHintoombOpinion01ProbaobPropelCo(ts_27-Jut-2011 Doc
oanrupj
Hanscomb Limited
Suite 90040 Holly Street Toronto Ontario M4S 3C3
Tel 416)487-3811 Fax(416)487-5043 Email torontohanscombcom www hanscombcom
11-4-20
APPENDIX A
July 27 2011
The Corporation of the City of Brampton 2 Wellington Street West Brampton Ontario L6Y 4R2
Attention Julian Patteson MBA AACI PApp Commissioner Buildings and Property Management
Re Southwest Quadrant Renewal Plan
City of Brampton
Dear Mr Patteson
Per the Citys recent request we have reviewed documentation provided the City related to the above noted project with the intent of providing our opinion on the adequacy of the proponents bid in response to the Citys RFP 2009-072 Our review can be classified as order of magnitude or Class D in nature
Based on our discussions with the City we understand that the proponents bid of $94385 million is inclusive of all base building finishes work partial fit-out beyond base building general contractors overheads and profit ITcommssecurity head-end equipment LEED Gold certification permits- amp fees project management fees and expenses professional fees and expenses construction cost escalation and financing costs but is exclusive of site remediation the Citys leasehold improvements furniture furnishings and equipment Owners management reserve and HST Given this understanding it is our opinion that the $94385 million is fair and reasonable
For your information using the parameters noted above our range of probable project costs for this project based on an order of magnitude Class D review of the project documentation ranges between $950 and $1000 million
Yours very truly
Hanscomb Limited
Dale Panday PQS MRICS MAACE Director
Fito OOffC6VU6W CityOfBrampton CityHalExparaion tUtunaie RoviaviAHanscornti Raporu July14 raquo11Soumwost Quadrant Rantwal Plan CityOf BramptonHintoombOpinion01ProbaobPropelCo(ts_27-Jut-2011 Doc
oanrupj
Hanscomb Limited
Suite 90040 Holly Street Toronto Ontario M4S 3C3
Tel 416)487-3811 Fax(416)487-5043 Email torontohanscombcom www hanscombcom
