Corporate Services and Economic Development
Committee
Comité des services organisationnels et du développement économique
7 September 2010 / le 7 septembre 2010
Submitted by/Soumis par: Kent Kirkpatrick, City Manager / Directeur municipal
Contact
Person/Personne ressource : Gordon MacNair, Director,
Real Estate Partnerships and
Development Office/Directeur, Partenariats et Développement en immobilier
(613)
580-2424 x 21217, Gordon.MacNair@Ottawa.ca
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Ref N°: ACS2010-CMR-REP-0045 |
SUBJECT:
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Request for Offers – Air Rights of
Residential and Office Co mponents of LANSDOWNE PARTNERSHIP PLAN
Implementation |
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OBJET :
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Demande d’offres – Droits relatifs à la
propriété du dessus pour les composants résidentiels et de bureaux dans le
cadre du Plan de partenariat du parc Lansdowne |
REPORT RECOMMENDATION
That the Corporate Services and Economic Development Committee approve the two-stage
process, which includes a Request for Expression of Interests (RFEI) stage
followed by a Request for Offers (RFO) stage for a City-initiated development
of the residential and office components of the Lansdowne Partnership Plan
(LPP) implementation as described in this report.
RECOMMANDATION DU RAPPORT
Que le Comité des
services organisationnels et du développement économique approuve le processus
en deux étapes qui comprend, comme première étape, une demande d’expression
d’intérêt (DEI) pour un aménagement initié par la Ville pour les composants
résidentiels et de bureaux du Plan de partenariat du parc Lansdowne, telle que
décrite dans le présent rapport.
On 2 September 2009, City staff and the Ottawa Sports and Entertainment
Group (OSEG) presented City Council with a plan to redevelop and transform Lansdowne
Park under a Lansdowne Partnership Plan (LPP). On 9 June 2010 an Implementation Report concerning
the Lansdowne Partnership Plan with related reports was received at a special
meeting of Council for approval (ACS2010-CMR-REP-0034).
As part of the Implementation Plan approved by
Council on 28 June 2010 direction to staff was as follows:
Authorize staff to prepare the terms and conditions for a Request for
Proposal (RFP) process for a City-initiated development of the residential and
office components of the Lansdowne Partnership Plan Implementation, as provided
for in the Business Model and Financial Terms and the Project Agreement
Framework, with a report to the Corporate Services and Economic Development
Committee (CSEDC) on the proposed RFP process in August 2010, and delegate the
authority to the CSEDC to approve the Terms of Reference for the RFP process.
A Memorandum from the Director, Real Estate
Partnerships and Development Office was sent 29 July 2010 advising the Mayor
and Members of Council that the Terms of Reference for the two-stage process
would be brought forward for consideration to CSEDC on 7 September 2010.
Within the
business terms of the LPP the City retains the air rights above the retail and
parking structures that will be constructed by OSEG at Lansdowne Park. The
Business Model and Financial Terms in the LPP Project Framework that was
approved by Council on 28 June 2010 that identifies potential revenue of $10.2M
from the lease or sale of air rights for the residential components. The sales
revenue is proposed to be used to partially fund the capital contribution of
the City and thereby lower the debt issuance. Whereas the lease of the property
rights for the commercial office component is to be included in the waterfall system
and shared by the City and OSEG through the closed system.
The purpose of this report is to provide an
overview of the recommended process and will address the general terms and
scheduling that would be employed.
As noted in the Memorandum from the Director, REPDO dated 29 July 2010 the intent of Council’s original staff direction was to initiate a two-stage process for the lease or sale of the air rights as an element of the LPP Implementation Plan. Staff is moving forward with the understanding that the overall objective is to maximize the financial return to the City while respecting the existing constraints of the LPP. In responding to this direction, several factors have formed part of the considerations in developing the two-stage process specifically:
· It is in the best interest of the City to encourage a fair, open and transparent competitive process;
· The City-wide Purchasing By-Law does not apply to real estate transactions including the lease or sale of air rights; however the process being recommended in this report will follow the City’s principles with respect to a competitive bidding process;
· A critical constraint on the process is the timeframe required for the selection of the Respondents for the construction of both the residential and office components. To integrate into the LPP, the Respondents must be selected by April 2011;
· Financial returns to the City will be maximized when the highest degree of certainty regarding the project can be provided to the market, thereby maximizing competition (e.g. certainty regarding the design and cost of the parking garage, design of the retail components, any potential OMB decision, etc.). The site plan and the design plan for the retail and parking components have not been finalized and thus the technical criteria will be evolving during the first stage of the process with input from various stakeholders including City staff and the Design Review Panel; and
· Due to the size of this project and the timelines involved, it is critical for the first stage to provide the earliest opportunity to potential respondents to get ready for the second stage of the process.
The process will be administered by the Real Estate Partnerships and Development Office with assistance from Supply Branch and Legal Services. The services of PPI Consulting Limited have been retained to assist in defining and carrying out the process and a Fairness Commissioner has been retained to ensure that the process will be fair, open and transparent.
The recommended two-stage process that will enable the City to achieve a competitive process that is open, fair and transparent and results in best value for the City is as follows:
Stage 1 (Request for Expressions of Interest)
A public notice will be placed with industry associations / trade publications (e.g. BOMA), local and national newspapers (e.g. Ottawa Citizen and Globe and Mail) and on Merx. The public notice will introduce the development opportunities and that the City wishes to enter into Commercially Confidential Meetings (CCMs) with potential Respondents. The CCM structure provides the quickest and most flexible means of obtaining valuable industry feedback regarding:
· The degree of interest the Respondent has in the opportunity, more specifically are they interested in both office and residential components;
· If there are perceived risks, how those may be mitigated;
· Issues regarding selling versus leasing the air rights;
· High-level (non-binding) estimates of the value of the air rights;
· Logistical requirements and constraints of undertaking this type of construction project;
· What information Respondents need in order to submit an informed proposal;
· Restraints on financing terms and conditions for leased air rights ;
· Experience with stratified projects, and;
· Any key findings that may be applicable.
The CCM process is designed to be inclusive and flexible to solicit the most relevant feedback in the quickest manner. The public notice will state that interested parties may formally request a CCM from a Supply Management representative. In order to be granted a CCM, applicants must demonstrate viability to be a potential Respondent. Evidence of viability will include for example, providing samples of two (2) concrete frame construction projects undertaken within the last five years similar in scope and scale (e.g. dollar value, materials, LEED compliance, logistical constraints, insurance, bonding, etc.) as contemplated in the RFO. The information will be assessed, in aggregate, on a pass/fail basis to determine which Respondents will participate in the Stage 1 CCM’s.
The CCM process will remain inclusive and flexible as attendance at meetings will not be mandatory for Respondents. An experienced developer, who would meet the viability criteria, has the option not to participate in the Stage 1 CCM’s. However, participation in CCM’s will be recommended and encouraged by staff in order to develop a wider understanding of the RFO process and to create a more competitive environment amongst the potential respondents. Depending on the sensitivity of information to be shared by the City during CCMs, Respondents may be asked to sign a Non-Disclosure Agreement before undertaking the CCM. Subject matter experts from the City including Finance, Legal, Real Estate Partnerships & Development Office, Supply Management, Planning and Growth Management with support from PPI Consulting Limited and the Fairness Commissioner will assist with this process.
City planning staff, the Design Review Panel, outside agencies/stakeholders, and OSEG and its consultants will be reviewing and amending the site plan design and specifications for the parking and retail components during Stage 1 of the process. The evolution of the design will continue until an anticipated Ontario Municipal Board (OMB) appeal decision is rendered in January 2011.
Consequently, an integral part of the process over the months of September to December 2010 will be to refine the technical specifications underlying the development of the air rights together with the legal partnership agreements that will integrate the development of the residential and office components into the LPP contracts and construction schedules. During this period, there will be the ability to consider input from the CCMs to ensure that the air rights, together with the technical and scheduling constraints will have the broadest appeal to the market. The specifications and legal agreements will frame the Terms of Reference in the RFO when issued in January 2011. Prior to issuing Stage 2 – Request for Offers, staff will report back to Council in early January 2011, on the outcomes of Stage 1 and seek approval for the Terms of Reference for the RFO including the mandatory requirements and evaluation criteria.
Stage 2 (Request for Offer): This stage entails the City issuing a public, open Request for Offer that will be structured to maximize the financial contribution for the air rights. This document will be posted to Merx and advertised in the same manner as the RFEI. The specific details of this document are not known at the present time and will emerge from the industry consultation and CCM’s in Stage One. In general terms the document will include:
· An overview of the opportunity based on final design plans of the parking and retail structures from OSEG ;
· Terms of Reference for this process, including mandatory technical criteria requiring the Respondent to demonstrate specific prior experience (size and scale of completed projects) and technical capabilities (e.g. LEED) and other general requirements (e.g. good financial standing, ability to meet insurance requirements, etc.);
· A selection methodology to maximize the value of the air rights and determine which offers will provide best value for the City ;
· Evaluation criteria based on feedback received from the RFEI and in consultations with the Fairness Commissioner, Design Review Panel, PPI Consulting Limited and subject matter experts from City Staff ;
· A financial assessment that will compare the value of a sale of the air rights vs. the leasing of the air rights; and
· Draft Legal Agreements.
A potential respondent who does not participate in a CCM during the Stage 1 process is not precluded from participating in Stage 2. A similar viability test, augmented with additional criteria captured in the CCM’s and from industry consultations, will be employed as mandatory criteria in Stage 2. Optional CCMs are also planned in the RFO process for Stage 2. Again, subject matter experts from the City including Finance, Legal, Real Estate Partnerships and Development Office, Supply Management, Planning & Growth Management with support from PPI Consulting Limited and the Fairness Commissioner will assist with this process.
Document 1, Concept Plan and Development Density illustrates the current iteration of the blocking plan and the anticipated development capacity that will be offered for lease or sale in the process. The compensation for the air rights will be based on the density (the gross developable area established for each building envelope as per zoning criteria) and from consultations from the DRP.
Although there are three residential density components (low, medium and high), there are two distinct residential blocks of air rights. The residential densities along Holmwood Avenue are combined into Block A to account for the LPP staging and construction schedule. The office component is Block B is located over the future Bank Street retail. There remains a high density residential parcel of air rights over the planned parking garage at the southwest corner of the site at Bank Street and the Rideau Canal shown as Block C. This parcel is outside the LLP and development is at the discretion of the City. The process to sell or lease Block C is identical to Blocks A and B and this report recommend that the same two stage process apply.
An important consideration in selling the air rights will be the parking allocation to each block. The maximum parking attributable to the Block A residential is estimated at 220 spaces available for purchase. Residential Block C has an estimated maximum number of 60 parking spaces available for purchase. The commercial/office development will have 90 spaces allocated for office uses. Below is a chart outlining the 3 blocks and amount of developable density that can be offered for lease or sale in the RFO process.
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AIR RIGHTS DEVELOPMENT DENSITIES |
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Building Type |
Gross Developable Area (Sq. Ft.) |
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A Residential – High Density |
67,000 |
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Residential – Medium Density |
102,000 |
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Residential – Low Density @ Holmwood Ave. |
49,000 |
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Total Resdiential for Holmwood/Bank |
218,000 |
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B Commercial Office |
90,000 |
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C Residential – High Density @Canal/Bank St. |
84,000 |
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Total
Estimated Development Density |
392,000 |
It is the City’s intention to seek the best value for the air rights and thus the terms of reference in the RFO cannot be too restrictive or narrow in scope such that they preclude sectors of the development industry from bidding. The technical components in the call documents will detail what is being offered by the City and under what terms and conditions. The LPP Project Framework requires OSEG to provide the City with the ability to offer the air rights to the open market. This requires the provision of suitable structures within the parking and retail buildings in order to maximize the development of the air rights. Prior to issuing the RFO, knowledge of the vertical penetrations and building constraints will be required. In this respect staff will work with OSEG and its consultants to ensure that the design is practical and align with the LPP.
In order for the City to obtain best value for this project, the terms of reference may need to be flexible enough to allow respondents to offer on the office and two residential elements of the development separately, as well as together. For example, one may be able to offer the best price for the office construction (Block B) and another Respondent may offer the best price for the residential construction (Blocks A and C). The RFO will allow for a proposal on the sale or the lease of the air rights and the documents will be structured such that the City will have the right to accept the offer or offers that reflect best value to the City, as determined by the City.
The LPP development schedule contemplates construction of the parking garage to commence in May 2011. OSEG is planning for the stadium to be ready for the 2013 Canadian Football League season. For stadium operational requirements, it is preferred that all construction be substantially complete by June 2013 so that access to the site will not be impeded by construction equipment. As a result, staff has created an aggressive schedule for completing the process and the Respondents construction schedule working backwards from a target date of 7 June 2013. Document 2, Request for Offers Process Schedule, outlines the schedule and critical milestones for the RFO process in order to complete respondent selection by April 2011, consistent with the LPP implementation plan. The targeted milestones are summarized as follows:
In summary, to seek best value for the City’s air rights, under the LPP schedule, REPDO staff recommend that CSEDC authorize staff to move forward to undertake the two-stage RFO process, with the guidance and assistance of a Fairness Commissioner, Supply Branch and PPI Consulting Limited and report back to Council on the results of Stage 1 in early January 2011 and based on the recommendations contained therein proceed with Stage 2 and report back to Council with the final recommendations in early April 2011.
N/A
The process will include a media announcement in September as an opportunity overview for potential Respondents followed by the scheduling of Commercially Confidential Meetings to ensure an informed development community prior to release of the RFO.
Councillor Doucet has been made aware of this report as part of the Implementation Plan approved by Council on 28 June 2010 and the follow up Memorandum to Council from the Director, REPDO on 29 July 2010.
There are no legal/risk management impediments to implementing the recommendation in this report. Commercially Confidential Meetings are permissible in a competitive process when structured appropriately.
The proposed development of air rights with the LPP aligns with the City Strategic Plan. The development program respects the existing urban fabric, neighbourhood form, and the limits of existing hard services, so that the revitalized Lansdowne is integrated seamlessly with both the local community and larger city fabric.
Many key technical
issues and considerations associated with the Lansdowne development related to
matters such as transportation, adequacy of services, and stormwater management
have been addressed through the work undertaken to develop the LPP and to
respond to Council’s November 2009 directions. Other technical issues more
specific to determining development details and conditions for development will
be addressed through the Site Plan and Building Permit approval process.
The City has hired a Fairness Commissioner and PPI Consultants Limited to aggregate the RFP specifications, evaluation criteria and selection methodology at an estimated cost of $75,000. These costs are included in the LPP project budget.
There
will be no financial implications subject to achieving the sale of the air
rights at the forecast amount of $10.2M. In the event that this forecast amount
is not received the City will be obliged to find other sources to finance the
shortfall of the residential component under its contribution requirements to
the LPP agreement.
Document 1 – Concept Plan and Development Density
Document 2 – Schedule for Stages 1 and 2
Subject to Committee
approval, staff will proceed with the implementation of Stage 1 and report back
to Council in January 2011 on the Results of Stage 1 and seek approval for the Terms
of Reference for Stage 2.
Document 1
Document 2