The Economics of Developmentby the Alliance for Building a Better Ottawa
1
ByCal Kirkpatrick | President | Colonnade DevelopmentJack Stirling | Vice President, Land Development | Minto Communities Inc.Stephen Martin | Vice President, Development | Minto Commercial Properties Inc.
Presentation to Planning 101 by the
Alliance for Building a Better Ottawa1:30 – 2:30 pm Monday, February 14, 2011
The Economics of Developmentby the Alliance for Building a Better Ottawa
2
Who is the “Alliance”?Greater Ottawa Home Builders Association (GOHBA)
Building Owners & Managers Association (BOMA)General Contractor’s Association (GCA)Ottawa Construction Association (OCA)
Professional Engineers of Ontario – Ottawa Chapter
The Economics of Developmentby the Alliance for Building a Better Ottawa
3
Guiding Principles of the “Alliance” The purpose of the Alliance for Building a Better Ottawa is to represent the commercial development, construction and home building industry in communication with decision makers at all levels of government and both the residents and business community of Ottawa.
The Alliance will continue to work in partnership with Council and City staff to build a vibrant and dynamic city.
The Alliance for Building a Better Ottawa will continue to work towards building sustainable residential and employment communities that meet public demand and expectations.
The Alliance as part of its objective to building a better Ottawa will be sharing its varied expertise with City staff and Council/Committee.
The Economics of Developmentby the Alliance for Building a Better Ottawa
4
Case Studies
10 storey 200,000 sq. ft office tower location: downtown
+ 150 stacked townhomes location: suburbssize: 10 acre site
development cost: $28 million
size: 0.75 acre sitedevelopment cost: $60 million
The Economics of Developmentby the Alliance for Building a Better Ottawa
5
Off
er
Inve
sti
ga
tio
n
Du
e D
ilig
en
ce
Pu
rch
as
e t
he
La
nd
Ap
pli
ca
tio
ns
Fin
al
Ap
pro
va
l
Le
ga
l Cle
ara
nc
e
Re
gis
tra
tio
n
Bu
ild
ing
Pe
rmit
Co
ns
tru
cti
on
Co
mp
leti
on
Ha
nd
ove
r
Pro
ject
Wra
p-u
p
Draft Plan (12 months)
Zoning Amendment (9 months)
Site Plan (6 months)Off
er
Inve
sti
ga
tio
n
Du
e D
ilig
en
ce
Pu
rch
as
e t
he
La
nd
Ap
pli
ca
tio
ns
F
ina
l A
pp
rov
al
Le
ga
l C
lea
ran
ce
Re
gis
tra
tio
n
Bu
ild
ing
Pe
rmit
Co
ns
tru
cti
on
Co
mp
leti
on
Ha
nd
ov
er
Pro
ject
Wra
p-u
p
Draft Plan (12 months)
Zoning Amendment (9 months)
Site Plan (6 months)
Development Timeline & Expenses
The Economics of Developmentby the Alliance for Building a Better Ottawa
6
Off
er
Inve
sti
ga
tio
n
Du
e D
ilig
en
ce
Pu
rch
as
e t
he
La
nd
Ap
pli
ca
tio
ns
Fin
al
Ap
pro
va
l
Le
ga
l Cle
ara
nc
e
Re
gis
tra
tio
n
Bu
ild
ing
Pe
rmit
Co
ns
tru
cti
on
Co
mp
leti
on
Ha
nd
ove
r
Pro
ject
Wra
p-u
p
Draft Plan (12 months)
Zoning Amendment (9 months)
Site Plan (6 months)Off
er
Inv
es
tig
ati
on
Du
e D
ilig
en
ce
Pu
rch
as
e t
he
La
nd
Ap
pli
ca
tio
ns
F
ina
l A
pp
rov
al
Le
ga
l C
lea
ran
ce
Re
gis
tra
tio
n
Bu
ild
ing
Pe
rmit
Co
ns
tru
cti
on
Co
mp
leti
on
Ha
nd
ov
er
Pro
jec
t W
rap
-up
Draft Plan (12 months)
Zoning Amendment (9 months)
Site Plan (6 months)
Development Timeline & Expenses
Jun. 1, 2011 Jun. 1, 2013Day 240 Day 970
Ap
pli
ca
tio
ns
F
ina
l A
pp
rov
al
Le
ga
l C
lea
ran
ce
- Official Plan Amendment - Subdivision- Draft Plan of Subdivision - Site Plan- Zoning Amendment - Servicing Agr.- Site Plan- Condominium
* P
ublic
Con
sulta
tion
Draft Plan (12 months)
Zoning Amendment (9 months)
Site Plan (6 months)
Approval Required for the following Reports/Studies - Planning Rationale - Engineering Plans - Landscape Plans - Composite Utility Plan - Architectual Drawings - Light & Shadow Study - Stormwater Management Plan - Watermain Report - Geotechnical Report - Tree Conservation Report - Hydro One Agreement - Noise Study - Traffic Study - Archeological Report - Cultural Heritage Study - Environmental Study
* S
taff
App
rova
l
* C
omm
ittee
App
rova
l
* A
gree
men
t
* S
taff
App
rova
l
* C
omm
ittee
App
rova
l
* A
gree
men
t
* A
gree
men
t
* S
taff
App
rova
l
* C
omm
ittee
App
rova
l
Ma
rke
tin
g R
ele
as
e *
The Economics of Developmentby the Alliance for Building a Better Ottawa
7
Off
er
Inve
sti
ga
tio
n
Du
e D
ilig
en
ce
Pu
rch
as
e t
he
La
nd
Ap
pli
ca
tio
ns
Fin
al
Ap
pro
va
l
Le
ga
l Cle
ara
nc
e
Re
gis
tra
tio
n
Bu
ild
ing
Pe
rmit
Co
ns
tru
cti
on
Co
mp
leti
on
Ha
nd
ove
r
Pro
ject
Wra
p-u
p
Draft Plan (12 months)
Zoning Amendment (9 months)
Site Plan (6 months)Off
er
Inve
sti
ga
tio
n
Du
e D
ilig
en
ce
Pu
rch
as
e t
he
La
nd
Ap
pli
ca
tio
ns
F
ina
l A
pp
rov
al
Le
ga
l C
lea
ran
ce
Re
gis
tra
tio
n
Bu
ild
ing
Pe
rmit
Co
ns
tru
cti
on
Co
mp
leti
on
Ha
nd
ove
r
Pro
ject
Wra
p-u
p
Draft Plan (12 months)
Zoning Amendment (9 months)
Site Plan (6 months)
Development Timeline & Expenses
Jul. 7, 2013 Aug. 7, 2013 Aug. 21, 2013 Jul. 1, 2014 Jul. 15, 2014Day 1005 Day 1035 Day 1050 Day 1350 Day 1365
Le
ga
l C
lea
ran
ce
Re
gis
tra
tio
n
Bu
ild
ing
Pe
rmit
Co
ns
tru
cti
on
Co
mp
leti
on
Ha
nd
ov
er
Pro
jec
t W
rap
-up
- File Legal Docs. - Building construction - Reimbursement of any frontend infrastructure - RoW - Release of letters of credit - maintenance - Discharge of agreement obligations - survey plans - etc.
The Economics of Developmentby the Alliance for Building a Better Ottawa
8
000 000 Off
er
Inve
stig
atio
n
Du
e D
ilig
enc
e
Pu
rch
ase
th
e L
an
d
Ap
plic
atio
ns
F
ina
l Ap
pro
val
Le
gal
Cle
aran
ce
Reg
istr
atio
n
Bu
ildin
g P
erm
it
Co
ns
tru
ctio
n C
om
ple
te
Han
d O
ver
Pro
ject
Wra
p-u
p
2 million
4 million
6 million
8 million
10 million
12 million
14 million
16 million
18 million
20 million
22 million
24 million
26 million
28 million
Draft Plan (12 months)Zoning Amendment (9 months)
Site Plan (6 months)
First home closing / Lease commencement
Residential model shown.
Bre
ak E
ven
CO
ST
TIME
Developers start to break even only when:
- Leases commence (end of construction)- Home sales are finalized & closed (end of construction)- Developments are completed
The Cost of Development over Time
$ 28,000,000 TOTAL
$ 3,500,000 Profit (15%)
$ 15,000,000 House Construction
$ 2,100,000 Development Charges
$ 3,750,000 Servicing
$ 400,000 Municipal Fees
$ 3,250,000 Land
$ 28,000,000 TOTAL
$ 3,500,000 Profit (15%)
$ 15,000,000 House Construction
$ 2,100,000 Development Charges
$ 3,750,000 Servicing
$ 400,000 Municipal Fees
$ 3,250,000 Land
The Economics of Developmentby the Alliance for Building a Better Ottawa
9
Risks & Delays
material or labour shortagesweather
market changesstaff shortage
interest rate changesprocess delays
referral to the OMBowner/tenant makes changes
TIME
Changes assumptionsChanges assumptions – and financing is dependant on those assumptions
Added costsAdded costs – financing costs, increased labour costs to meet deadlines
End users are notified & affected End users are notified & affected - tenants may back out, homeowners may have sold previous house
=
The Economics of Developmentby the Alliance for Building a Better Ottawa
10
Sample Impact of Delays
Project is scheduled to begin infrastructure servicing in the summer and asphalt paving in October Delays of 2-3 weeks are encountered twice annually during the two to three year duration of the development process As a result, the asphalt paving is pushed 3 months into January
Asphalt plants only open May to December = delay escalates Schedule revised from October paving to May = 8 months
Other impacts include: Contractors scheduled to start work in October cannot start until June – temporary lay-offs may occur Building permits fees, DCs, and revenue opportunities lost for 8 months Homeowners are notified and affected by the delay
Residential
The Economics of Developmentby the Alliance for Building a Better Ottawa
11
Sample Impact of Delays
Lead tenant for a new development has a fixed occupancy date which forms part of the binding agreement with performance milestones Delays in the front end of the development process extend the project schedule As a result of the delays, the developer cannot meet the tenants’ milestones or occupancy date Developers choice:
Option 1 - pay additional costs to attempt to expedite project Option 2 - terminate the project
Option 1 may result in a non- competitive development Option 2 is a lost opportunity for the development industry and City’s economic development and revenue
Commercial
The Economics of Developmentby the Alliance for Building a Better Ottawa
12
000 000 Off
er
Inv
es
tig
ati
on
Du
e D
ilig
en
ce
Pu
rch
as
e t
he
La
nd
Ap
pli
ca
tio
ns
Fin
al
Ap
pro
va
l
Le
ga
l C
lea
ran
ce
Re
gis
tra
tio
n
Bu
ild
ing
Pe
rmit
Co
ns
tru
cti
on
Co
mp
le
Ha
nd
Ov
er
Pro
jec
t W
rap
-up
1 million
2 million
3 million
4 million
5 million
6 million
7 million
8 million
9 million
10 million
11 million
12 million
13 million
14 million
Draft Plan (12 months)
Zoning Amendment (9 months)
Site Plan (6 months)
Risk MitigationWhy don’t developers just wait until they’re completely approved to go on sale?
Establish market position and capitalize on opportunities
Commit to buyers or tenants occupancy requirements
Receive input on design from the market and tenants
Shorten the development timeline i.e. reduce interest on construction loan
Be positioned for financing i.e. meet pre- leasing or pre-sales requirements
CO
ST
TIME
Developers need to assume risk in initiating developments
Development process & spending need to start prior to full approvals in order to:
At Marketing Release: $5M spent
Residential model shown.
The Economics of Developmentby the Alliance for Building a Better Ottawa
13
000 000 Off
er I
nve
stig
atio
n
Du
e D
ilig
ence
Pu
rch
ase
the
Lan
d
Ap
pli
cati
on
s
F
inal
Ap
pro
val
Leg
al C
lear
ance
Reg
istr
atio
n
Bu
ild
ing
Per
mit
Co
nst
ruct
ion
Co
mp
leti
on
Han
d O
ver
Pro
ject
Wra
p-u
p
2 million
4 million
6 million
8 million
10 million
12 million
14 million
16 million
18 million
20 million
22 million
24 million
26 million
28 million
30 million
32 million
34 million
36 million
Draft Plan (12 months)Zoning Amendment (9 months)
Site Plan (6 months)
CO
ST
TIME
The Financial Impact of Delays
Money that could be better spent on innovation, sustainability, land mark sites for Ottawa
The Economics of Developmentby the Alliance for Building a Better Ottawa
14
Development must be ahead of the market since the process takes years Specific commitments are needed for development financing Development time line must be maintained to align with market demand Together, we need to keep Ottawa competitive and affordable We need to provide an environment that encourages economic development and growth (Greater Ottawa, 2010: 16 400 jobs on site; 13 700 indirect jobs, 30 100 total)
Cost efficiency leads to innovation, land mark development and a vibrant City
Summary
The Economics of Developmentby the Alliance for Building a Better Ottawa
15
Cal Kirkpatrick | President | Colonnade DevelopmentJack Stirling | Vice President, Land Development | Minto Communities Inc.Stephen Martin | Vice President, Development | Minto Commercial Properties Inc.
Thank youQuestions & Answers
Top Related