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7 LEASE
RENEWAL – 35 GEORGE STREET – NATIONAL CAPITAL COMMISSION TO CITY OF OTTAWA
FOR THE OTTAWA SCHOOL OF ART RENOUVELLEMENT DE BAIL – 35, RUE GEORGE –
COMMISSION DE LA CAPITALE NATIONALE LOUANT À LA VILLE D’OTTAWA POUR L’ÉCOLE
D’ART D’OTTAWA |
Committee Recommendation
That
Council approve the Lease Renewal, from the National Capital Commission, to the
City of Ottawa, for the Ottawa School of Art building at 35 George Street,
Ottawa, at a net annual rate of $67,815 plus GST, escalating annually by the
Consumer Price Index (CPI), for a period of ten (10) years commencing 1 January
2008, as per the terms and conditions outlined in this report.
Recommandation du comité
Que le Conseil
approuve le renouvellement du bail concernant l’édifice de l’École d’art
d’Ottawa situé au 35, rue George que la Commission de la capitale nationale
loue à la Ville d’Ottawa à un taux annuel net de 67 815 $, TPS en sus, qui
augmentera chaque année en fonction de l’indice des prix à la consommation
(IPC), pour une période de dix (10) ans à partir du 1er janvier
2008, conformément aux modalités exposées dans le présent rapport.
Documentation
1. Executive
Director's report (Business Transformation Services) dated 22 May 2008
(ACS2008-BTS-RPM-0017).
Report
to/Rapport au:
Corporate Services and Economic Development Committee
Comité des services organisationnels
et du développement économique
and Council / et au Conseil
Submitted by/Soumis par : Stephen A. Finnamore, Executive Director, Business Transformation
Services / Directeur exécutif, Services de transformation des activités
Contact
Person/Personne ressource : Gordon MacNair, Manager
Real Property Asset Management/Gestion des
actifs des biens immobiliers
(613) 580-2424 x21217, Gordon.MacNair@ottawa.ca
That the Corporate
Services and Economic Development Committee recommend Council approve the Lease
Renewal, from the National Capital Commission, to the City of Ottawa, for the
Ottawa School of Art building at 35 George Street, Ottawa, at a net annual rate
of $67,815 plus GST, escalating annually by the Consumer Price Index (CPI), for
a period of ten (10) years commencing 1 January 2008, as per the terms and
conditions outlined in this report.
Que le Comité des
services organisationnels et du développement économique recommande au Conseil
d’approuver le renouvellement du bail concernant l’édifice de l’École d’art
d’Ottawa situé au 35, rue George que la Commission de la capitale nationale
loue à la Ville d’Ottawa à un taux annuel net de 67 815 $, TPS en sus, qui
augmentera chaque année en fonction de l’indice des prix à la consommation
(IPC), pour une période de dix (10) ans à partir du 1er janvier
2008, conformément aux modalités exposées dans le présent rapport.
The Ottawa School of Art
(OSA) was founded in 1879, and celebrated its 125th anniversary in 2004. In 1953, the former City of Ottawa directly
delivered visual art instruction programs in the central area, through the
Municipal Arts Centre (Ottawa School of Art).
Based upon the principle that stable, direct funding to not-for-profit
organizations was a cost and quality-effective way to ensure the delivery of
arts activities to the community, a purchase of service agreement was developed
with the newly formed, not-for-profit Ottawa School of Art organization in
1977.
Community operations are
an effective method of delivery; however, they require ongoing municipal
support in order to be sustainable. The
initial Ottawa School of Art purchase of service agreement and subsequent arts
service agreements identify a crucial, annual, municipal operating allocation
(currently at 15% of total OSA revenue) and capital contributions for lease
expenses, building management, and Life-Cycle maintenance.
Before Ottawa School of
Art occupancy in 1981, 35 George Street was considered abandoned warehouse
space. Through extensive renovation and
upgrades, OSA transformed the building into Class C office space. In subsequent years, many partnered capital
improvements have been accomplished including major renovations to gallery
space and to the ventilation system.
Funds to cover the renovation costs have been sourced from OSA
fundraising initiatives, provincial funding sources, private sponsorships,
donated goods and services, and municipal capital self-help grants. The current 35 George Street facility
comprises 12 studio spaces, including specialized facilities for photography,
printmaking and sculpture; and the Ottawa School of Art Gallery which hosts 9
group and individual exhibitions annually.
The Ottawa School of Art
has occupied the facility at 35 George Street since 1981, through a twenty-five
(25) year Lease between the National Capital Commission and the City, and a
subsequent Sub-Lease of the building from the City to the Ottawa School of
Art. The building, which has heritage
status designation, was constructed circa 1899 and was rebuilt in 1907 after
the Lower Town fire. With an area of 22,605 ft2, the property on
which OSA is situated is tax exempt due to an extensive OSA effort that
resulted in the School’s designation as a "seminary of learning" in
1997. This annual exemption is valued at approximately $65,000 (2007).
OSA has completed
significant feasibility and survey work around its current location in the
Byward Market. It has been determined
that 35 George Street remains the preferred location for the School, in spite
of several ongoing building issues (garbage pickup limitations, disabled
access, and heat reliability in the winter).
Central location in the Byward Market, proximity to the National Gallery
of Canada, connection to the NCC Heritage Courtyards and other properties, and
transit accessibility are all viewed as positive attributes supporting a
continued occupancy.
The OSA is open 72 hours
each week, providing a year-round program of visual arts for all ages. Over 300
instructional classes are offered to an average of 3,500 students of all ages
and levels every year. The OSA on an annual basis employs over 50 local
practicing artists.
The OSA philosophy of
"Art for Everyone" manifests itself in the fact that children, teens,
adults and seniors from all parts of rural, suburban and urban Ottawa, actively
participate in OSA programs. In
addition, extensive outreach and programming are provided to children and youth
in-need and at-risk, in partnership with various social service agencies.
In 2006-2007, OSA
offered 22 barrier-free art classes, to 384 low income or disadvantaged
children, youth and young adults in partnership with Christie Lake Kids, STAR
(Skills Through Activity and Recreation) Program, the Rainbow Youth Group - Art
& Diversity, the Tungasuvvingat Inuit Family Resource Centre, the Pallister
Court Community House, the Hintonburg Community Centre, and Winthrop House
Community House. A strong bursary
program is also in place to assist those in need. The OSA commits $120,000 (10% of the School’s total expenses)
annually to its outreach and bursary programs.
In 2004, City Council
approved the selection of the Ottawa School of Art as one of six, local arts
organizations to enter into an Arts Service Agreement with the City of
Ottawa. These original six partners
were recognized as being essential to the development of a solid community
infrastructure for the arts in Ottawa.
This infrastructure contributes to the health and well being of Ottawa
as a sustainable city, as identified in the Ottawa 20/20 Arts Plan.
In 2006-2007 the School
provided the City and its residents with $1,253,183 worth of programs and
services. The City allocated $200,000,
through the Arts Service Agreement Program, to the Ottawa School of Art in
2007. This operating funding represents
15% of the School’s total annual operating revenue. The remaining 85% of OSA income is sourced from earned revenue,
fundraising, donations and other public and private funding bodies.
Maintaining occupancy of 35 George Street for the Ottawa School of Art is a priority within the Ottawa 20/20 Arts and Heritage Plan. The current 35 George Street twenty-five (25) year Lease between the National Capital Commission and the City of Ottawa expired on 31 August 2006. The City completed a market value property appraisal and a series of condition audits in late 2005 and into 2006 as part of a strategy to examine a purchase or lease. Negotiations commenced to purchase the property in 2006. The NCC eventually withdrew the purchase option pending their completion of an in-depth study of properties with national interest along the Sussex Drive corridor. The terms of the current Lease were extended to 31 December 2007 to complete lease negotiations. The rent paid over the term was $33,908 annually ($1.50 per ft2), plus operating costs and capital repairs.
The National Capital Commission and the City has agreed in principle, to the following Lease Renewal terms for 35 George Street:
Minimal Base Rent Balanced With Operating Liability
In considering the renewal of the Lease for the Ottawa School of Art property, it is important to note that the base rent net cost of $3.00 per ft2 is below typical Class C office space rent. Market rent for similar accommodation is estimated at $7.00 to $10.00 net per ft2 for a comparable term. The negotiated rent reflects the City being responsible for both the higher operating cost owing to age and design and the substantive transfer of capital cost liability, from the Owner (NCC) to the City, which is similar to the previous lease arrangement.
In addition to the annual base rent of $3.00 per ft2, the City will be obligated to fund both the facility operating and capital asset renewal costs, for the initial ten (10) year term of the Lease. Further, the City must ensure compliance with legislation, regulation and codes impacting the safe and proper operation of the building. The element of risk to undertake capital lifecycle renewal and compliance issues over the lease term is estimated at $2.50 per ft2 in additional costs. Typically this is the responsibility of the property owner and not the tenant. The net lease cost for the City over the renewal term will average $5.50 per ft2 by absorbing the lifecycle renewal component, which is below market rent as noted earlier.
35 George Condition Audits and
Capital Renewal Costs
As a prelude to re-negotiation of the Lease, RPAM conducted four distinct condition audits of the 35 George Street property, including a General Condition Audit, a Life safety Systems Audit, an Elevating Devices Audit and an Accessibility Audit. These audits established the requirement for a total capital renewal (Life-Cycle) investment, of some $545,000 during the initial ten (10) year term of the Lease. The City will also be responsible for any additional costs related to revisions defined by the “Accessibility for Ontarians with Disabilities Act” (AODA).
Since the Lease obligates the City to complete the works identified in this investment profile, and since the facility in question is a Heritage property, RPAM will support this mandatory work from the annual Heritage Building Life-Cycle Renewal program, administered by the Comprehensive Asset Management Division. RPAM will, therefore, designate the forecast events for 35 George Street as "due diligence items" within its capital asset planning system. This designation ensures that obligatory life-cycle events for the Ottawa School of Art facility will be assigned high funding priority within the associated capital budget program in any given year.
In addition, RPAM will
appropriately define and manage future capital life-cycle renewal budget
submissions to ensure that the requirements for the Ottawa School of Art
facility are integrated with the priority needs of heritage facilities within
the City inventory.
Based on the negotiated Lease Renewal terms,
the City will incur a base rent forecast of $207,815 in year one. The rent will
increase each year based on CPI for the City of Ottawa. As previously outlined,
this total cost comprises:
The Ottawa School of Art carried out extensive surveys of current OSA members related to the feasibility and desirability of remaining at 35 George Street, or seeking new premises. This consultative piece resulted in positive feedback on the current OSA Byward Market location. The Ottawa School of Art Executive Director and Board of Directors have been kept informed of the Lease Renewal process and resulting negotiation.
A Corporate City of Ottawa team, comprised of representatives from Comprehensive Asset Management, Real Estate Services, Program Properties and Cultural Services has worked collaboratively and consultatively on this Lease Renewal project. Cultural and Real Estate representatives from the National Capital Commission have been consulted and negotiated with throughout this Lease Renewal process. Consultation was also made with independent appraisers in the Real Estate Industry.
The City’s Arts, Heritage and Culture Advisory Committee received a verbal presentation on this report at its meeting of 22 June 2006. Confidentiality around lease renewal negotiation did not allow for distribution of the written Council report to the Committee at that time.
The ward Councillor is aware of the collaborative efforts to renew the lease and is in support of the Ottawa School of Art remaining in the present location.
FINANCIAL IMPLICATIONS
Funds are available within the 2008 Real
Property Asset Management operating budget, to cover the cost of the
Lease. RPAM will include in its ten
(10) year capital forecast for Life-Cycle repairs – heritage buildings, the
additional Life-Cycle requirements as identified in the Lease Agreement.
SUPPORTING DOCUMENTATION
N/A
DISPOSITION
Following City Council approval, Legal Services will finalize the Lease Agreement and Real Estate Services will execute the Lease Agreement with the National Capital Commission. Cultural Services will inform the Ottawa School of Art of Lease Renewal results. RPAM will identify related cost centres and will plan and implement the building program for 35 George Street.