FOREWORD
Intent of Report
This report documents the process and outcome of a public/private partnership project. It is widely recognized that initiatives of this type will become increasingly common. The intent of this report is to provide a detailed description of the process and the specifics of this project, as an example for other potential project partners to learn from.
Overview
In 1994 Vancouver Resource Society initiated a housing project in partnership with a private sector developer, TDM Group Inc.. The goal was to provide non-profit housing without any capital funding from the public sector; the mechanism was a density bonus which would allow a higher number of units than the developer could otherwise achieve. Vancouver Resource Society would purchase up to six units (based on the "bonus" space) at a cost based on construction costs only, and therefore significantly less than market value.
Report Format
This report is structured into sections with a detailed table of contents to facilitate access to the pertinent information. Throughout the report a series of 13 "lessons" summarize the key learnings of this project. These are summarized below.
Lessons
| Lesson #1............ | The emerging public/private partnership initiatives increase the risk for non-profit societies developing housing, particularly if the societies are required to invest funds. |
| Lesson #2........... | A non-profit society should minimize its financial contribution and should establish a partnership position that provides the greatest security and protection of funds invested. |
| Lesson #3............ | Developing housing without public funding is expensive, risky, and challenging. |
| Lesson #4............ | Never re-submit an unchanged rezoning application. |
| Lesson #5............ | Consultation and co-operation with City staff may be important to successful project development. |
| Lesson #6............ | Listening to the concerns and suggestions of City Councillors and working to enhance their understanding of the project is important. |
| Lesson #7............ | Regardless of the community's position, consultation is always valuable and will contribute to the success of a project. |
| Lesson #8............ | There is a risk that non-profit partners may be exploited, or that there may be a public perception that societies or those whom they support, are being exploited for private benefit. |
| Lesson #9............ | Project development may require a considerable investment of time. |
| Lesson #10.......... | The contractual agreements can be complicated and the process costly and time consuming. |
| Lesson #11.......... | Development partnership requires expertise in all aspects of real estate development, including finance, law, land use, architecture, and construction. |
| Lesson #12.......... | The lesson is that we should have been more involved at the design stage. |
| Lesson #13.......... | Obtain appropriate design expertise at the appropriate stage. |
TABLE OF CONTENTS
|
Overview of Vancouver Resource Society
Recent Vancouver Resource Society Housing Initiatives
Contractual Agreements
Development Strategy
|
Design, Construction and Occupancy
Operating Model
Discussion Issues
Conclusion References |
Vancouver Resource Society was founded in 1972 by a group of young men living at Pearson Hospital. They were living there because in the early 1970's, anyone with a physical disability who needed care support had few options to live anywhere else. The group determined that the goal and objectives of Vancouver Resource Society would be to promote integration and independent living in the community. The mission statement defines Vancouver Resource Society as "a client driven organization that provides innovative opportunities for persons with disabilities to maximize their independence. This is achieved through the development of accessible housing with support services that are integrated in the community.
At its inception the Society provided a housing placement service, and in its first year relocated 150 individuals to more affordable, accessible housing. After two years of operating as a placement service, the organization decided to focus on creating its own housing. In 1974 Vancouver Resource Society leased a house and opened its first group home. The group home was the first in Canada for persons with physical disabilities and began the reversal of the trend to institutionalization. The group home provided a physically accessible environment and care services which allowed persons who had historically required institutional care and support to live in the community.
From 1974 to 1976 Vancouver Resource Society leased houses and renovated them to provide accessibility. In order to keep the housing component affordable, it became clear that ownership was preferred to leasing properties. In 1976 Vancouver Resource Society purchased its first group home. Today, the Society owns and operates 18 homes and two apartment buildings in Vancouver, providing service to over 150 individuals Housing programs include two homes for children with disabilities; four homes for assisted community living; 12 sites for independent shared living; and four sites for independent living in apartment dwellings.
HOUSING GOALS
Over the 24 years of the Society's operation, the housing goals have evolved to provide a progressively greater range of housing and support options for persons with disabilities. Originally, housing and support services were delivered through a traditional "group home" model.
The housing goals have consistently included affordability, accessibility, integration into the community, and the ability for clients to achieve their potential for self-directed and independent living. Clients' abilities vary and Vancouver Resource Society has worked to create different housing and support models to meet clients' different abilities.
In 1982, Vancouver Resource Society decided to develop a new form of housing and care which would provide greater independence while also providing support and care services. In 1990, Blair Court was opened. This apartment building provides accessible apartment units for individuals and families and includes on-site care services which are provided on an "on-call" basis. This unique approach provides individuals with greater flexibility and independence than was previously possible with shared living and care arrangements.
One of the current goals of Vancouver Resource Society is to continue to develop innovative models of housing and support. At a time of limited public funding for housing, Ken Fraser, the Executive Director of Vancouver Resource Society, intends to demonstrate the potential to create alternative approaches without significant public funding. One of the ways of achieving this goal is by creating housing through partnerships with the private sector.
DEVELOPMENT CONTEXT
The goals of Vancouver Resource Society coincide with, and are in part a response to, changes in public funding for housing, including housing for those with physical disabilities.
Changing Role of CMHC
Historically, Canada Mortgage and Housing (CMHC) funded and developed all social housing nationally. During the past several years the federal government has withdrawn from capital funding of social housing, and is currently working toward devolving all operational funding and management of social housing to the provinces.
CMHC no longer offers any form of operating or capital subsidy for new social housing projects. Its role has become one of providing information and assistance with housing development and construction.
CMHC is encouraging "Public Private Partnerships" (also called "P3's"). CMHC offers mortgage insurance, and interest free project development loans, which may be forgiven if a project does not proceed. The program is essentially a form of brokerage in which CMHC matches potential public and private partners and facilitates the relationship. The initiative is the result of a recognition that each party has resources to contribute but that neither party is likely to have the ability to independently manage all aspects of a partnership project.
Additionally, there have been efforts to utilize the corporation's land assets to create social housing with the goal of achieving it at no cost to the public.
There has been criticism of CMHC's approach and there is a perception that societies are being asked to risk assets to provide non-profit housing. Additionally, CMHC has been criticized for lacking a clear or strong focus on any social benefit component in proposal evaluation. CMHC recently held a workshop to discuss the issues and to identify strategies for CMHC and societies to work together successfully.
B.C. Housing
At this time, British Columbia is one of the few remaining provinces that continues to develop social housing, through the B.C. Housing Management Commission. However, the annual number of units is substantially lower than the rate historically achieved through federal funding.
Housing and Support
Privacy, independence, and autonomy are consumers' goals for both housing and support. Achieving these goals within funding constraints can be a challenge, particularly for consumers who require significant support.
For people with disabilities who require support, the provision of care and support can become inextricably linked to housing. The amount and type of care and support required may limit the range of housing options that are appropriate or viable.
Funding - Support funding is a constant issue, and from the perspective of consumers, the amount of care for which they are funded is frequently insufficient to permit them to obtain the form of housing that they would prefer. The process of providing support funding has changed in recent years, with increasing interest in "Individualized Funding" whereby consumers obtain their support funding directly and manage their own support.
Shared Care - In some cases, the amount of funding is not sufficient to provide support for an individual to live independently. In such cases, individuals may choose to live with others, or to participate in a "shared care" model of support, in which hours are pooled to provide sufficient overall coverage.
The concept of shared care allows individuals to share support without having to share their home. Unlike a group home, each individual can live independently in their own home, with shared support staff who are only in the home when they are needed.
With the combined changes and challenges in both housing and support, there is increasing momentum for innovative approaches to creating integrated and effective housing and support solutions.
RECENT VANCOUVER RESOURCE SOCIETY HOUSING INITIATIVES
In the past few years Vancouver Resource Society has initiated several attempts to attain housing through a private sector partnership. Each of these attempts has failed for various reasons; a brief summary of each project history serves to illustrate the difficulties of non-profit housing development through public/private partnerships.
1992 - Approached by Developer
In 1992 Vancouver Resource Society was approached by a developer who owned a development site and was soliciting investors. The developer was actively searching for partners in the non-profit sector as a strategy to retain ownership of the land and project control. In this case, because Vancouver Resource Society was approached with a proposal and the development was underway, the Society did not retain a development consultant or any other consultants to assist the Society with its role in the project.
Vancouver Resource Society was able to secure project development funding of up to $75,000 from CMHC through it's Public/Private Partnership program. This money was an interest free loan which would be forgiven if the project failed. CMHC also offered mortgage insurance. Vancouver Resource Society invested additional funds which were secured through a mortgage against the property.
As the project proceeded, there were concerns about project management and about the terms under which financing was being provided. As a result, Vancouver Resource Society withdrew from the project and recovered its investment.
At that point another society, which also provides housing and support to persons with disabilities, became involved and invested funds in the project. That society attained a total of ten units at a cost of $40,000 each. Measures to provide protection of the investment included a mortgage registered against the property to secure the pre-payment and a restrictive covenant on the units enacted by the municipality. The development was problematic, and a court order for foreclosure was issued against the developer. The society did not share any of the liability and was able to successfully protect its investment and achieve its goals, although it required a lot of maneuvering to achieve a safe position. While the society would undertake a similar project in the future, they would require a different structure to make the society's position safer. It was the position of the executive director that it is not appropriate for a non-profit society to undertake risk.
An additional aspect of this project was that a marketing study (Strategic Development Services, 1994) was conducted which specifically evaluated the impact of integrating people with physical disabilities. The findings provide evidence of additional challenges to successful private sector partnerships.
The marketing research found that 25% of people felt that there was a less than 50/50 chance that they would buy in a building where 10% of the units are occupied by people with physical disabilities. The chances of a buyer buying in a building with units for people with physical disabilities decreased as the number of units occupied by people with physical disabilities increased. About 10% of all potential condominium buyers indicated that they felt uncomfortable being around people with physical disabilities.
The marketing study summary stated:
1993 - CMHC Proposal
In 1993 Vancouver Resource Society submitted a bid in response to a CMHC proposal call to develop a property on a leasehold basis. For this project, Vancouver Resource Society used a development consultant; the Society was, in effect, the developer.
The site was one of several which CMHC held in the area. The sites were acquired and developed in the 1950's as housing for veterans. In 1990, CMHC decided that the accommodation was no longer appropriate and decided to build barrier-free housing for the remaining aging veterans. One of the objectives of the re-development was that it be at no cost to the public. This goal resulted in the sale and lease of most of the lands at market values. A second goal was to facilitate social housing by providing some land on a leasehold basis. The assumption was that leasehold would reduce land costs, resulting in a lower rent or purchase price. Two co-ops have been built: one is a B.C. Housing Management Commission rental project, and the other an equity co-op. All projects were sold or leased at market values and there was no subsidy component.
Vancouver Resource Society was awarded the property and developed a plan to build a 38 unit building with 30 units to be sold at market value and eight to be purchased by Vancouver Resource Society at reduced cost, based on the profits from the 30 units. Using a Special Projects Fund raised by the Society, and project development funding from CMHC, the society invested substantial and unsecured funds in the project. The marketing failed and with only two pre-sales, the project was converted to an equity co-op. At that point, funding was critical and was conditional on a fixed number of pre-sales. CMHC agreed to provide construction financing with 26 pre-sales; the project achieved 21. An effort to obtain provincial funding through the New Options for Home Ownership Program (administered through B.C. Housing Management Commission) failed. Without financing from either B.C. Housing or CMHC, Vancouver Resource Society was unable to proceed with the project prior to the December 31, 1995 deadline and ownership of the land reverted to CMHC.
Vancouver Resource Society incurred a loss of about half a million dollars on the project; a significant loss for a non-profit society. CMHC retained $100,000 of the project deposit on the grounds that Vancouver Resource Society had held the land for two years.
The Society, with its development consultant, had prepared a proposal that was judged by CMHC to be viable and was thus awarded the land. However, the Society also believed that CMHC, given its historical goal of providing social housing and the stated objective of achieving a "social benefit" out of any projects, would have a more significant role in providing expertise and assistance to ensure the success of the project. The failure of this project is perceived to have been, in part, the fault of CMHC. Some of the other projects on land held by CMHC have also experienced problems and there may have been flawed assumptions on the parts of all parties regarding leasehold land values and the market response to that approach.
In early 1996 the site was re-tendered, this time on a freehold basis. There were ten proposals, including four from non-profit societies. The highest bidder was selected and CMHC is currently negotiating with that developer. The site will not provide any non-profit housing or other social benefit.
1994 - Partnership with Church
In 1994, Vancouver Resource Society partnered with Canadian Memorial United Church which held three adjoining properties at 16th and Burrard. There appeared to be a mutually beneficial fit between the two organizations and the church was willing to subsidize the development of non-profit housing. For this project, the church was acting as the developer, and Vancouver Resource Society was in a virtually "turn key" relationship in which it simply received a benefit without an active role in the development. The Society would benefit because the church wanted to achieve a social objective in its redevelopment. Although the Society's role was minor, they did retain a development consultant to guide the process, particularly the rezoning.
The church properties included a heritage building, an annex and a parking lot. A density bonus was applied for during the rezoning process; this would be the mechanism for achieving the required space and development economics to provide units for the Society.
A rezoning application was submitted requesting an FSR (Floor Space Ratio) of 1.45 to create a four storey building, to preserve the heritage building and to create six units of non-profit housing. Vancouver Resource Society and the church held public information meetings; at that time there did not appear to be any community opposition. The Society and the church assumed that the public hearing would be a formality and anticipated success. There was no attempt to lobby councillors on the merits of the project. About a week before the public hearing, the church and society became aware that there would be opposition, but at that point it was too late for discussions with either the opponents or councillors. At the public hearing, 12 members of the public spoke to oppose the project.
The opposition was perceived to be a byproduct of the contentious Arbutus Lands upzoning, which had recently been approved. Community groups were already organized and may have directed residual resentment toward the Canadian Memorial United Church site at 16th and Burrard. Council approved the rezoning application with a reduced density. The reduction in density eliminated the economic viability of the subsidized units and Vancouver Resource Society withdrew from the project.
The church subsequently sold some of the land for private sector development. The heritage building has been renovated to create 19 market dwelling units, and a Christian education and community services centre were built on the property retained by the church.
Both Vancouver Resource Society and the church were extremely disappointed with the failure of the project. The good fit between the two organizations, the location, and the heritage preservation were all regarded as valuable elements, in addition to the creation of non-profit housing.
Summary
Cumulatively, these failed development attempts have been costly in terms of financial and other resources. Each project had merits and each project had risks. Each project was unique and there is not a clear pattern to indicate reasons for failure. Vancouver Resource Society recognizes that developing housing without public funding is expensive and risky. Experience to date has shown that it is also a formidable challenge.
PROJECT OVERVIEW - BLOOMFIELD GARDENS HOUSING PROJECT
In 1994, Vancouver Resource Society identified an opportunity to purchase, together with a private sector developer, three contiguous properties on Oak Street, just north of 41st Avenue. The properties were purchased, and Vancouver Resource Society submitted an application to rezone the properties from their current use as single family dwellings to a higher density for multiple dwelling units. Initially the Society retained the same development consultant who had assisted with the other initiatives.
VRS Units
Vancouver Resource Society and developer negotiated an agreement whereby the Society would purchase six units at a reduced cost, approximately equal to the construction cost. The figure of six units was based on a model of shared care which required a minimum of six clients in order to provide economically viable care 24 hours a day. An important goal for Vancouver Resource Society was to provide both housing and care, since for many of their clients community living was not viable without care and support services. With fewer than six units, it would be possible to provide housing for persons with disabilities, but the client profile would be limited to those who could live independently without shared care. The provision of six units became a critical feature of the overall development scheme.
First Rezoning Application
Density Bonus
The rezoning application proposed a four storey dwelling with an FSR (Floor Space Ratio) of 1.68. The goal was to provide a total of 35 dwelling units, six of which would be purchased by Vancouver Resource Society. The requested FSR of 1.68 assumed a density bonus. The additional space represented space the developer could not otherwise achieve and therefore represented a "bonus" for the developer and "free space" for the Society. The only cost of the additional space would therefore be the construction costs, whereas the other units would carry land and project development costs and a profit margin in addition to the construction costs.
Oakridge Langara
At the time of the rezoning application the City of Vancouver Planning Planning Policy Department was in the process of completing a Planning Policy for the Oakridge Langara area, of which the three properties were part. Because the eventual densities which would be recommended for that block were not yet defined, the Planning Department specified that the rezoning application should be submitted for the entire block and that it would require the approval of each property owner. While the majority of owners approved of the rezoning application, it was not unanimous. Additionally, the owner of the immediately adjoining property was an elderly resident who had lived there for over 40 years. She was greatly distressed by the possibility of construction noise and a large building next to her home which would create shadowing on her property.
After polarized presentations from the community and the proponents, City Council rejected the rezoning application on the basis that it lacked the consent of all property owners and was premature relative to the policy being developed. As a result, the development process could not continue and Vancouver Resource Society and the developer were in a position of holding the land and paying financing costs until the Oakridge Langara Planning Policy was established.
Second Rezoning Application
By the early spring of 1996, the Oakridge Langara Policy had been approved by City Council and a flood of rezoning applications for the area began. Vancouver Resource Society resubmitted their rezoning application unchanged. The density requested was significantly higher than the density proposed in the Oakridge Langara Policy, and the issues of shadowing and the neighbouring property owner remained. Following rejection of the previous rezoning application, the Society had terminated their development consultant, and chose to rely on the developer to ensure successful delivery of the project.
Oakridge Langara Planning Policy - The Oakridge Langara Planning Policy was reviewed and policy statements that both supported and contradicted the rezoning application were summarized. It was recognized that the excess density would be the most contentious issue, and the policy document was used in preparing a defence of the requested density.
The policy specified an FSR of 1.0 to 1.2 for the subject site, "with potential for up to a 20% increase for the provision of City desired public benefits", resulting in an FSR of 1.44. At 1.2 FSR the project would be economically viable for the developer, but would not create any opportunity to provide units to Vancouver Resource Society at a reduced cost. At 1.44, it would be possible to provide some additional units, but it would be less than the six units which were critical to the project goals of providing both housing and care.
Other policy statements appeared to offer some potential for support, specifically:
It became clear that these policy statements did not carry the same weight as the one which specified the density (FSR); however, they became valuable tools in building a justification for the density bonus. Overall the Oakridge Langara Policy served both to provide arguments in support of the project, and to define the specific project features which were not in compliance with the objectives of the Planning Department.
Planning Department
In discussions with staff at the Planning Department and the Housing Centre, Real Estate Division, it became clear that there was considerable concern that the rezoning application had been resubmitted unchanged. It became clear that this was a significant error and that it indicated a failure to respond to the concerns expressed by the community and by City Council. Staff warned that the Society was at risk of jeopardizing City Council support, and Vancouver Resource Society was strongly encouraged to amend the submission.
A meeting was arranged at City Hall with Vancouver Resource Society, their private sector development partners, TDM Group Inc., the architect, and staff from the Planning Department, the Housing Centre and Housing and Properties. City staff articulated their concerns and described the issues that needed to be addressed with the rezoning application. Following this meeting, the design was substantially revised, including a reduction in the density and in the number of units; and the massing was modified to reduce the shadowing on the neighbouring property. All of these changes impacted the cost estimates and more broadly, the financial viability of the project.
The density remained higher than specified in the Oakridge Langara Policy but had been reduced from 1.68 to 1.55. Because of the policy, the planning department was unable to support a proposal for a density above 1.45. However, the changes in the rezoning submission reduced the discrepancy between the requested and recommended FSR, addressed other concerns, and generally demonstrated responsiveness on the part of the applicant. The City's Real Estate Division reviewed the pro-forma cost estimates to assess the financial implications of the project. Additionally, a Housing Agreement was prepared by the Housing Centre and this contract between the owner of the units (Vancouver Resource Society) and the City was a condition of the rezoning.
Through these discussions both City staff and the project proponents came to a better understanding of each other's positions and this may have contributed to the successful result.
City Council
Once the issues cited by City staff had been addressed, the next focus was on soliciting the support of City councillors. Information packages were prepared for each councillor which articulated the unique features of the project and provided a brief discussion of the issues which would determine the success or failure of the application. It was recognized that in most cases, this would be the only contact with councillors and therefore considerable effort was directed to creating a package that was succinct and informative.
Three councillors agreed to meet with Vancouver Resource Society. The Society's project was explained to them, and their advice and feedback was solicited. The councillors were candid with both advice and opinions, and asked well informed questions. At the conclusion of the meetings, it seemed that the councillors who had been briefed were familiar with the project and with the relevant issues. Additionally, their advice was valuable in planning the strategy for the public hearing.
For those councillors who were not available, Ken Fraser, Executive Director of Vancouver Resource Society, personally attempted to contact each one to discuss the merits of the project. In most cases, this resulted in a voice mail message, and it is difficult to evaluate the impact.
Contact with the Community
In many ways this project was unique in terms of the community relationships. Firstly, it was occurring within the context of the Oakridge Langara Policy. Despite substantial public consultation, there remained strong and well organized opposition to the policy, and City staff and councillors were uncertain of how widespread the opposition was. Secondly, the proposed project was principally a private sector condominium development and not a social housing project. Typically, social housing projects have been particular targets of NIMBYism (Not In My Backyard).
Media Coverage - Because the first hearings following adoption of the Oakridge Langara Policy were imminent, there was relatively ample media coverage in the local community papers. There were several articles about Oakridge Langara development initiatives and activists opposed to development obtained substantial coverage. Vancouver Resource Society contacted the media and offered information and interviews about the housing project and its unique features, but there was no response.
A Tool for Non-Profits The provincial government had recently prepared a package ("Toward More Inclusive Neighbourhoods") intended to be used as a tool to assist non-profit housing development. The report was created in response to concerns that "opposition to new proposed non-profit rental and special needs housing projects was creating enormous time delays, increasing project development costs and most importantly, compromising the non-profit sector's ability to actually build and provide housing." This report was reviewed to determine how it could be applied to the Vancouver Resource Society project; while many of the general recommendations were valuable and had already been achieved by the society, the focus on the non-profit sector made some elements less relevant. For example, property values, one of the most controversial issues with non-profit housing, were not an issue with this project because it was a private sector project and the rezoning had created the potential for increased land value for the adjoining properties.
The recommendations for building relationships with the community and neighbours were reviewed and evaluated. Because the site was bounded by a service station, a transit service facility, single family dwellings, and a residential care facility across the street, there were relatively few neighbours in the immediate community.
In 1994, at the time of the first rezoning application and prior to the completion of the Policy, Vancouver Resource Society had held community consultation meetings and presented their plans and goals. Particular effort had been devoted to the immediate neighbours because the consent of each property owner was required as a condition of approval of the rezoning application. The neighbours, and their positions, were unchanged at the time of the second public hearing.
Community Opposition - What had changed in the community was that the Oakridge Langara Policy process had been completed and through it, a well organized opposition had formed a group called the Oakridge Langara Planning Group. The group planned to attend every public hearing for developments in the area; the goal was to challenge CityPlan objectives and fight the developments. A representative of the group was quoted in the media as saying that "plenty of evidence suggests that the neighbourhood views [planned projects] with overwhelming distaste, and the city bureaucracy with fear and loathing" (The Vancouver Courier, June 12, 1996).
After considering the advantages and disadvantages of holding a community meeting, it was determined that there would not be any benefit for the project. It was decided that it would be more effective to focus on direct contact with activists and with the neighbours. Individually addressed letters were sent to each neighbour and the Executive Director of Vancouver Resource Society attempted to reach each property owner by telephone. There was difficulty both in contacting owners and with language barriers. Limited interest in the project did not necessitate detailed discussions. The Executive Director also called some of the community activists to communicate the Society's plans and goals, and to learn about the activists' position on the project. Indications were that the Oakridge Langara Planning Group was planning to focus its attention on the larger projects which were also being presented at public hearings.
The general development situation was highly volatile and controversial, and there was uncertainty about the role of the Vancouver Resource Society project within that context. The consultation with neighbours and community activists was valuable in that it provided an opportunity to identify any issues that could be discussed, and served to position Vancouver Resource Society in a proactive role of communicating their plans to those who might oppose them.
Additionally, the earlier community consultation (at the time of the initial rezoning application) was undoubtedly effective in achieving a measure of support for the project, and probably served to diminish opposition from neighbours at the second public hearing. In this particular situation with a previous public hearing, the organized community groups, and the newly adopted planning policy, the positions of those involved tended to be relatively fixed. In this respect, this project was probably unique and these factors significantly impacted on the potential for community contact. Overall, the community contact was not particularly effective in terms of building support, but was a valuable part of the project development and contributed to the success of the rezoning application.
Public Hearing
The public hearing was scheduled for June 27, 1997. It was the first public hearing on any development under the newly adopted Oakridge Langara Policy. The date also meant that if there was opposition it would be easier to arrange speakers because it was early in the summer holiday season. There were several agenda items, including a public hearing on Oakherst, a large development within the Oakridge Langara area. On the night of the public hearing, there was a substantial turnout of speakers for the Oakherst project. However, due to delays on previous agenda items, the Oakherst agenda item was deferred to a later date and the speakers left council chambers prior to the Vancouver Resource Society item.
Vancouver Resource Society had carefully planned their presentation and speakers. The goal was to be as succinct as possible and to focus on the key features critical to the project's success. This included linking the bonus density to the provision of six units; six being the critical number of clients in order to achieve a viable shared care model. The presentation also described the changes to the rezoning application since the first public hearing.
One of the principal concerns for Vancouver Resource Society was that Council would be hesitant to deviate from a newly adopted policy on the very first rezoning application. Specifically, there was concern that Council would be compelled to reject the higher density because it would set a precedent for subsequent applications, several of which were also requesting higher densities.
The Executive Director of Vancouver Resource Society addressed this in his presentation, noting that if other developers provided such substantial benefits the City would have "single-handedly resolved the affordable housing crisis", and that if it did serve as a precedent it would create "an environment where developers are trying to outbid each other by providing the greater social benefit".
Vancouver Resource Society arranged for a limited number of other speakers to support the project. Careful consideration was given to the number of speakers and their roles. The Chairman of the Board spoke and noted that the City staff report indicated that the six units could not be achieved at less than the requested density; he challenged the councillors by reminding them that non-profit societies could not continue to devote resources to project development schemes without council support.
A local resident who was also a member of Vancouver Jaffa Housing Society spoke in support. Jaffa Housing Society provides housing services to Jewish persons with disabilities and is highly interested in the provision of housing and care services in the area which includes a large Jewish community.
Consideration was given to having potential clients of the housing and care program speak, but it was determined that there would be no additional benefit and the strategy appeared to have some potential risk. At the previous public hearing, at which potential and current clients of other Vancouver Resource Society housing had spoken, there was some perception that the speakers were not independently representing themselves and that they had been coerced into a display intended to provoke a sympathetic response.
This public response echoes the findings of the market research, demonstrating the continued lack of public understanding and acceptance of the capabilities and desires of many individuals with disabilities. This point also relates to a risk for non-profit societies in partnership arrangements. There is a potential risk that development partners may seek to exploit a Society's reputation, or the clients that it serves, in order to achieve favourable development conditions.
Overall, it was felt that the councillors sufficiently understood the very real need to provide housing and care services to persons with disabilities and that there was no need for additional speakers to address that issue.
Only three speakers opposed the project. It is probably fair to assume that there would have been a higher number had the Oakherst agenda item not been deferred and the speakers left. Of the three, two represented the resident of the adjoining property. They reiterated their concerns about shadowing and about construction noise. The project architect and the planner noted that the shadowing issue had been resolved with design modifications, and council noted that the neighbourhood is in transition and that there will be construction in the area, if not on the adjoining site. The final opponent simply stated that she opposed any four storey project and hoped that "there's nothing going up there around my place".
The planning staff clearly indicated that the only issue was the non-conforming density, particularly given that it was the first application to be heard under the new policy. However, staff also stated that "it is the deep subsidy of the rental units that pushes the density to 1.55 FSR".
The planning staff confirmed that the design met all urban design guidelines, that the shadowing issue had been addressed and that the design fit well with the adjoining property. The presentation was concluded by saying that the planning department was sympathetic to the proposal and that it had merit and social benefit.
After a few questions, Council moved to accept the application. Several Councillors spoke highly of both Vancouver Resource Society and the proposed project, terming it "wonderful" and "worthwhile". Council agreed that this was a particularly difficult decision due to the context as the first application to be heard under the policy, and as the third attempt by Vancouver Resource Society to achieve a successful project through a private sector partnership. There was some discussion about the challenges of providing an appropriate solution for a segment of society that requires care. As one councillor noted, failing to provide the housing and care raises a question about "where do they live?"
One councillor opposed it. While he agreed that there was a strong rationale on both sides in the context of the policy, he felt that if the first act was to contradict the policy it would be a violation of the integrity of the community consultation and planning process. Additionally, he noted that the project would remain viable, if less optimal, with a reduced density.
After a relatively brief public hearing, the rezoning application was approved by City Council, and Vancouver Resource Society was finally able to move to the next stage of the development process, three years after the Society had initiated the development partnership.
CONTRACTUAL AGREEMENTS
Following the approval by City Council, the parties formalized the development agreements. This process took several months and involved several parties and their respective lawyers.
In total, there were over 34 agreements pertaining to the legal and financial transactions for the development of the property. These included mortgage terms, a general security agreement, indemnity agreements, consent resolutions, and several other declarations, opinions and certificates. From the perspective of the Vancouver Resource Society, three agreements were particularly salient: a restrictive covenant on the property, a Housing Agreement, and the joint venture agreement.
Section 215 Restrictive Covenant
A restrictive covenant was enacted on the advice of a City lawyer, because it appeared that following the rezoning hearing, the City would be unable to complete approval prior to an election. Failure to approve the application would require that it be re-submitted to the newly elected Council. The owner granted to the City a covenant under Section 215 of the Land Title Act which provided that the six units designated for Vancouver Resource Society could not be separately transferred or sold.
Registering a restrictive covenant against the property served to permit the rezoning to proceed but also froze the site and prevented any development until the conditions set out in the minutes of the hearing had been met (Appendix A). These conditions included:
* consolidation of the three properties,
* paving the lane,
* arranging for underground electrical and telephone cables,
* execution of a legal agreement providing that families with
children will not be discriminated against in the sale of the
property,
* dedication of a portion of the site for the widening of Oak
Street,
* execute a 215 Covenant regarding stratification of the project,
* provide the City with an option to purchase the six accessible
units,
* a housing agreement and 215 Covenant for parking facilities.
Housing Agreement
The Housing Agreement comprised five conditions of enactment required in order for the Housing Centre to support the project. These included approval of the purchase price of the units; a restriction on resale to preserve their status as the property of a non-profit society; control on resale prices; restriction on rental prices and tenancy; and specification of parking allowances. The agreement also stipulated that the development would include a total of six units "designed for a person who uses a wheelchair". It further specified that five units would be one bedroom units and one would be a two bedroom unit. The enactment of these conditions would ensure that the project's goals would be met and could not later be eliminated.
The agreement specified that rents could not exceed the monthly Social Assistance shelter allowance or 2.5% of the preceding year's gross annual income, not to exceed the average monthly market rent for a comparable apartment. The traditional approach to subsidized rents is that it is a proportion of income; the rent thus increases or decreases as a function of changes to income. Vancouver Resource Society argued that in this type of project in which a fixed mortgage would be payable, they could not afford to have unanticipated reductions in rental revenue. Therefore, a clause was added to the Housing Agreement that "the rental rates agreed at tenancy shall not be reduced".
The Housing Agreement also provided the City with the option to purchase the Vancouver Resource Society lots if the Society defaulted on any of the agreements established at the rezoning hearing or in the Housing Agreement.
Development Joint Venture Agreement
A joint venture agreement was negotiated to articulate the terms of the purchase and development of the property. This agreement formalized the relationship between Vancouver Resource Society and the developer.
The financing of the project required an equity contribution from Vancouver Resource Society which was the equivalent of purchasing their units prior to construction. This was because the developers did not have the resources to secure project financing independently and needed a partner to share the risk. Vancouver Resource Society agreed to provide $521,250 for construction financing; the document also stipulated that this was the purchase price for the six units which would be owned by Vancouver Resource Society.
By providing construction financing, the Vancouver Resource Society was exposed to risk of financial loss in the event that the sales revenues were not achieved, or the project became otherwise financially encumbered. However, this risk was balanced by the fact that the Society did not make its financial contribution until the developers had been able to secure their own financing, and had obtained sufficient pre-sales to initiate site development. This meant that the bank had deemed the project to be a viable risk. Historically, non-profit organizations have not undertaken financial risk and this approach raises questions about changing roles and the potential implications of these changes.
Negotiating the joint venture agreement was more challenging than anticipated, and served to reinforce both the complexities and the principles of non-profit/private sector partnerships. Both parties must act in their own best interests and those interests do not always coincide. Both parties want to minimize their costs and risk, and maximize their benefit.
In this case, the developer needed the partnership with Vancouver Resource Society in order to obtain the equity for construction financing. Vancouver Resource Society needed the developer because it wanted only six units. The Society did not have the resources, or want to undertake the risk, of developing the entire project, nor was it viable to purchase six market units.
The negotiations were difficult in terms of defining default clauses (issues of relative risk and equity exposure), negotiating whether or not Vancouver Resource Society should pay any of the cost of the land, and the cost of the units. Initially, there was a formula for calculating the Vancouver Resource Society contribution (actual building cost plus ten percent), which meant that their total cost was not fixed. Eventually this clause was replaced with fixed fee clause which also made provision for changes if construction costs exceeded the estimates that the fixed fee was based on. Negotiations also involved determining a reasonable construction cost estimate.
The final clause was as follows: that Vancouver Resource Society would pay "the lesser of (a) $521,250 (based on 4,170 square feet at $125 per square foot), and (b) the total of construction cost plus 10% thereof. If actual construction costs exceed $125 per square foot Vancouver Resource Society will be permitted to alter the finishes in the Vancouver Resource Society units to reduce the cost. If the total of construction cost and 10% thereof is greater than $521,250 Vancouver Resource Society will consider relinquishing its right to a laundry room and office but in such case the Vancouver Resource Society units shall include washers and dryers of the same standard as in other strata lots."
The negotiations consumed several months and contributed to delays in development, thus increasing development costs.
DEVELOPMENT STRATEGY
Land Value & Buildable Area
One of the reasons that the developer needed Vancouver Resource Society as a partner was because of speculative land purchasing. The site had been purchased for $2,300,000 on the assumption that the FSR (allowable amount of floor space) would be between 1.6 and 1.8. Subsequently, the Oakridge Langara Policy Plan was completed and the approved densities were significantly lower than anticipated in response to community opposition to the draft plan. As a result, the value of the land diminished, and the developers had less opportunity to make a profit. An appraisal valued it at $65-$70 per buildable square foot.
Density and Land Value Calculations
|
|
|
|
| Maximum Building Footprint |
22,090 |
|
| Buildable Area at 1.20 FSR |
26,508 |
$1,802,544 |
| Buildable Area at 1.55 FSR |
34,240 |
$2,328,286 |
| Difference (0.35 FSR) |
7,732 |
$525,742 |
| Less 15% Circulation/Amenity |
1,160 |
|
| Marketable Bonus Area |
6,572 |
|
| Allocation of Marketable Bonus Area | ||
| Vancouver Resource Society |
4,191 |
|
| Marketable Bonus Area to Developer |
2,381 |
As the above figures show, the land value based on the buildable area at 1.20 FSR was significantly below the purchase price. The increase in land value with the 20% bonus for "social benefit" and the additional 0.15 density bonus is $525,742, approximately equal to the Vancouver Resource Society contribution of $521,250. The land value with the FSR of 1.55 was approximately equal to the price paid by the developer.
In effect, Vancouver Resource Society paid an amount which equaled the land value of the total bonus area. In exchange, they obtained six finished units which required approximately two-thirds of the marketable bonus area, while the developer retained one third.
Development Costs
In return for its contribution, Vancouver Resource Society obtained a total of six finished wheelchair accessible units: five one-bedroom units and one two-bedroom unit. The units range in size from 634 square feet to 955 square feet.
The calculation of the Vancouver Resource Society contribution was based on construction costs plus 10%, and zero costs for land. The Society argued it had earned its interest in the land by representing the project in successfully achieving the rezoning and the density bonus.
Vancouver Resource Society calculated the construction costs for their units to be $123.93 per square foot, based on the project pro forma and the proportionate share of the saleable area being obtained by Vancouver Resource Society. Initially, negotiations were based on "cost plus 10%"; at $123.93 per square foot, this would have totalled $568,475.18. However, this approach also meant that costs were not fixed and if construction costs were higher, the proportion owed by Vancouver Resource Society would also increase. As a result, the final negotiations established a fixed fee based on $125 per saleable square foot, for a total fixed cost of $521,250.00.
In calculating the cost of the Vancouver Resource Society units, most development costs were shared, but some were excluded: land, marketing, management, general and office expenses.
Project Pro Forma
| Project Costs |
|
|
|
| Land |
$2,300,000 |
||
| Hard Construction Costs |
$3,298,295 |
$3,298,295 |
@$91/s.f. @ 36,245 s.f. |
| Engineering |
$52,100 |
$52,100 |
|
| Geotechnical |
$2,650 |
$2,650 |
|
| Architects |
$90,000 |
$90,000 |
|
| Landscape |
$7,400 |
$7,400 |
|
| Certified Professional |
$15,000 |
$15,000 |
|
| Legal |
$16,000 |
$16,000 |
|
| Marketing |
$85,000 |
||
| Accounting |
$13,600 |
$13,600 |
|
| Management |
$96,000 |
||
| General and Office |
$31,000 |
||
| Insurance |
$10,000 |
$10,000 |
|
| Interim Taxes |
$20,000 |
$20,000 |
|
| Fees and Permits |
$20,000 |
$20,000 |
|
| DCC's |
$75,000 |
||
| Homeowner Insurance |
$21,000 |
$21,000 |
|
| Contingency |
$160,000 |
$160,000 |
|
| Subtotal |
$6,313,045 |
$3,726,045 |
|
| Financing |
$161,485 |
$161,485 |
|
| Total Project Cost |
$6,474,530 |
$3,887,530 |
Cost Comparisons
Market Housing The current sale revenues are estimated to range from $235 - $300 per saleable square foot, which would translate into a market value between $984,885 and $1,257,300. The difference between the market value and the actual cost is between $463,635 and $736,050.
Publicly Funded Housing - Alternatively, the cost - $521,250 - can be compared with six publicly funded wheelchair accessible units. Based on the 1996 Maximum Unit Prices for B.C. Housing, five one-bedroom and one two-bedroom wheelchair accessible units would have been allocated a budget of $727,000. With the full 12% MUP bonus for accessible units, this figure would increase to $814,240, $292,990 more than Vancouver Resource Society paid. However, the B.C. Housing unit allocations include land value, which in this case was zero as a function of the density bonus mechanism. At 4,191 square feet, the B.C. Housing funding would have equalled $173/square foot, insufficient to cover both land costs and construction costs, but more than the price that Vancouver Resource Society negotiated.
Construction Financing
Vancouver Resource Society secured construction financing through a conventional bank loan, securing it against a property owned by the Society. The Society was responsible for 13% of the construction costs, based on the square footage that they would own at completion. The construction financing was the riskiest component of the project, because the construction cost is greater than the land value. If the project were to default at this stage, the Society was at risk of losing the property it used to secure the construction loan.
Mortgage
Once construction was completed and Vancouver Resource Society took possession of the units, the construction loan was discharged and the property which had been held has security was discharged. The loan was converted to a mortgage with the units as security.
VanCity partnered with Vancouver Resource Society and used the VanCity Community Investment Deposit Fund to create a 1% interest rate subsidy. The mortgage is at 5.2% with a 25 year amortization.
Other Development Costs
In addition to the $521,250 for the units, this project involved legal costs of more than $16,000 for Vancouver Resource Society. The legal costs were necessary because of the number and complexity of the various partnership contractual and financial agreements.
The City charged Development Cost Charges on all units, and Vancouver Resource Society is currently working with the Housing Centre at the City of Vancouver to obtain an exemption on the charges against the Vancouver Resource Society units.
DESIGN, CONSTRUCTION, AND OCCUPANCY
The final stages of the project: design, construction, and occupancy, are generally less difficult than the negotiations, rezoning, financing, and other development preconditions.
However, in this case the design and construction was more critical because it was important to ensure that the units owned by Vancouver Resource Society were accessible and appropriate to the needs of persons who have physical disabilities.
Design
Both the developer, TDM Group Inc., and the architect, Ekistics Architecture Inc., recognized and supported the specialized design requirements of the units for Vancouver Resource Society.
The Society had opportunities to be involved in the development of the building and unit design; Ken Fraser acknowledges that the Society failed to adequately exploit the potential. "We fell down by not being at the table for the detailed design of the units."
The design process occurred concurrently with the joint venture agreement and those negotiations were particularly challenging and time consuming. At least in part due to the negotiations and to the rapid design process, the Society did not dedicate the requisite resources to the development of the design at the appropriate stage.
Once the City had approved the rezoning application, the developers and the architect expedited the design process, using a Certified Professional and submitting plans prior to completion of the Housing Agreement.
In retrospect, all parties: the developer, the Society, and the architects agree that timely involvement in the design process by a consultant representing the interests of the Society would have been beneficial to the design of the Vancouver Resource Society units.
In terms of designing the Vancouver Resource Society units, the size of the units was fixed, based on the pro-forma agreement between the developer and the Society. The unit sizes presented a design challenge from the outset, and demanded an efficient layout.
The architectural team at Ekistics Architecture visited Blair Court, another wheelchair accessible housing project developed by Vancouver Resource Society, and used design guidelines and standards for the design of the wheelchair accessible units.
Most of the literature is based on design guidelines rather than descriptions of how people use the built environment, and the design guidelines are based on individuals with specific disabilities, generally paraplegia.
For this project, all of the tenants require personal assistance with such tasks as personal hygiene, dressing, and eating. Therefore the design requirements for accommodating these activities are significantly different than for an individual who can complete these tasks independently.
As an example, the architect specified modular shower stalls from a company which specializes in accessible products. However, the shower stalls included a modular seat which could not be moved, and there was not sufficient space for a commode chair. As a result, the showers would not be usable by any of the potential tenants, none of whom would be able to transfer to and sit, unsupported, on a shower seat. Although the architect endeavoured to meet all principles of access, this incident resulted from a lack of highly specialized functional knowledge.
Design Modifications
An architect retained by Vancouver Resource Society to oversee the construction phase identified some urgent design concerns and design modifications were made as a result. The architect had experience with wheelchair accessible design and a strong understanding of the functional requirements of the unit occupants. He worked with the architect and developers to identify design modifications which would enhance the accessibility and functionality of the units, and these changes were incorporated into the construction.
Both the developer and the architect were strongly supportive of this input and recognized its value. However, the timing resulted in higher construction costs relative to input at the design stage.
The final unit configuration and design was compact, but efficient and functional. All of the units had wheelchair accessible bathrooms with wheelchair accessible showers, fully equipped wheelchair accessible kitchens with dishwashers, wall ovens and cooktops, and accessible storage drawers and counterspace. The small bedrooms are the only design compromise, and are a function of the relatively small unit size. Because the units were part of a market housing project, there were features such as gas fireplaces, bay windows, and trim along the walls, which contribute to a relatively luxurious appearance.
For this project, there was a third phase following the design and construction: each unit was customized after occupancy, with features that suited each tenant's unique needs, such as the positioning of grab bars and provision of other accessibility features.
The overall result is considered to be highly successful by the Society, the developer, the architect, and the tenants.
Tenants have expressed appreciation of the design features, especially the fireplace, the quiet relative to their previous homes, and their enjoyment of a place that is new. One tenant, who had previously lived in a group home arrangement, was particularly thrilled to have his own kitchen: "It's my kitchen and I don't have to share it with anybody". He was excited about having the opportunity for increased independence and responsibility.
Several tenants particularly enjoyed the convenient and desirable location, and the easy access to shopping.
Construction
At the construction stage, Vancouver Resource Society retained an Tone Management Inc. to act as "Ken Fraser's eyes and ears on the site". The consultant ensured that the Society was kept informed regarding the construction process. This role was critical at the construction phase, but added to the Society's development costs.
While the bank retains a quantity surveyor to monitor the construction draws, there is no breakout between the joint venture partners, therefore it was important to protect the Society's interests and ensure due diligence by independently monitoring the construction financing draws.
Ken Fraser, the Executive Director of Vancouver Resource Society was not able to directly monitor the construction because the site was not wheelchair accessible. Additionally, it was appropriate to retain a consultant with design and construction expertise.
An additional goal was to ensure that the Society had a presence on the site and to reinforce that the details of the design and construction of the Vancouver Resource Society units were important. At the end of the process, the units had to meet the tenants' needs.
The construction phase went well, and although there were issues, they were resolved promptly and to the satisfaction of the Society. In large part this was due to the positive partnership between Vancouver Resource Society, TDM Group Inc., Ekistics Architecture, and Tone Management, all of whom were highly committed to demonstrating the success of this initiative.
Although this project was successful due to the co-operative approach, Brad Tone of Tone Management Inc. recommends that as a rule partners should ensure that the contract negotiations include a construction holdback clause to rectify any deficiencies.
Project Management Role
The consultant assumed his role of monitoring the construction at the initial construction stages. The role was immediately expanded as a result of initial design concerns which led to design changes.
It became clear that there was a need for the Society to have a greater role in the design and construction process. In retrospect, the consultant feels that it would be more beneficial and appropriate for the Society to retain a consultant in a project management position, to consolidate the development, design, and construction phases. This would contribute to the timely identification and resolution of issues, and would facilitate efficient and cost-effective construction.
Based on the experience with this project, TDM Group Inc., Ekistics Architecture, and Vancouver Resource Society all agree on the value of committing the resources to ensure that the Society's needs are met appropriately.
Building Occupants
All of the units are strata titled. In the case of the six units owned by Vancouver Resource Society, the occupants will be tenants and will pay rent to Vancouver Resource Society. The six tenants, five men and one woman, range in age from their late twenties to late forties. Of the six, three were previous tenants supported by Vancouver Resource Society prior to moving into the new units. Of the other three, one had been living in a wheelchair accessible unit in a co-op, one had just completed rehabilitation at G.F. Strong, and one had lived for fifteen years with a roommate in a house in Dunbar.
All have spinal cord injuries and require several hours of care and support daily. All use wheelchairs (and commode chairs for the toilet and the shower). Some tenants have become disabled recently; several were injured between 13 and 25 years ago. Some are employed, some are attending school, and some are focusing on their rehabilitation. One is a recovering drug addict; one found that his living arrangement was no longer appropriate because he needed increasing care, and he spent months in various facilities before construction was completed at Bloomfield Gardens. Each of the tenants has a different story about how he or she came to be at Bloomfield Gardens, but for all of the tenants, it is the combination of housing and the support available 24 hours that enabled them to live independently in the community.
OPERATING MODEL
Support and Care
Vancouver Resource Society acted as the developer and owns the units. The Society acts as the landlord and as a consultant resource to Living Independently Society, which manages the shared care model.
The operating model of care and support is an innovative new approach that provides the following key features:
* each tenant hires, manages, and directs his or her own staff
* staffing is independent of the housing program
* some care is pooled to provide 24 hour on-call coverage
This innovative model provides tenants with the opportunity for maximum control of their care, combined with the security of 24 hour coverage. Additionally, tenants enjoy the independence and privacy of living in their own home.
Support Funding - All of the tenants have their own direct funding for their support. Two tenants have Workers' Compensation Board settlements. Four of the six tenants are funded through the Community Supports for Independent Living (CSIL) Program, administered by Continuing Care, The Ministry of Health. This program evaluates a client's care needs and funds for that number of hours at a set fee of $25/hour. Clients then retain their own staff, and negotiate wages and working conditions.
Support Staffing - Each of the tenants are responsible for recruiting, training, scheduling, and managing their own staff, using their own funding. Tenants have varying support requirements, ranging from 4 hours a day to 24 hour staffing. In addition to their own scheduled staff, there are staff available on a shared, on-call basis, 24 hours a day. It is this feature that is unique and offers an optimal balance of independence and privacy together with safety and support.
Shared Care - Creating housing that included a shared care model was a key goal of Vancouver Resource Society for this project. The Society had identified that this was the greatest unmet need in terms of housing and support options for people with physical disabilities, and would provide the greatest benefit. It was this shared care concept which necessitated a minimum of six units, in order to achieve an operationally viable mix of tenants.
The model is based on each tenant contributing one hour per day to a pool of shared staffing hours.
Administration - As part of the CSIL program, clients are responsible for administration and must file monthly reports; clients may pay up to $100/month to have another organization or individual complete the administrative work. Tenants on the CSIL program pay Living Independently Society to manage their administrative requirements.
Living Independently Society is responsible for working with the tenants to co-ordinate and manage the shared care program. This ongoing liaison and facilitation is critical to the continued success of the shared care model. Vancouver Resource Society acts as a consultant resource to Living Independently Society and receives $1,800 per month for consulting services.
Economic and Actual Rent
Summary of Revenue and Expenses
Rental Revenue
| Unit |
|
|
|
|
|
| 102 |
$77,593 |
634 |
$875 |
$729 |
$600 |
| 105 |
$78,262 |
653 |
$925 |
$751 |
$325 |
| 107 |
$79,278 |
638 |
$900 |
$734 |
$900 |
| 202 |
$83,343 |
644 |
$950 |
$741 |
$325 |
| 205 |
$80,283 |
667 |
$960 |
$767 |
$325 |
| 206 |
$118,032 |
955 |
$1,335 |
$1,098 |
$325 |
| Total |
$516,791 |
- |
$5,945 |
$4,820 |
$2,800 |
| Annual Expenses | |||||
| Mortgage Interest |
$26,343 |
||||
| Mortgage Principal |
$10,435 |
||||
| Property Taxes |
$7,200 |
||||
| Insurance |
$1,500 |
||||
| Strata Fees |
$7,560 |
||||
| Maintenance |
$3,000 |
||||
| Property Management |
$1,485 |
||||
| Annual Expenses |
$57,523 |
||||
| Annual Rent Revenue |
$33,600 |
||||
| Annual Deficit |
- $23,923 |
||||
| Annual Management Consulting Revenue |
$21,600 |
||||
Economic Risk and Benefit - Although the construction is now complete and Vancouver Resource Society has secured ownership of the units, risk remains. The mortgage is based on a 25 year term and the current economic rents are based on 5.2% interest. An increase in interest rates would increase the economic rents and potentially increase the operating deficit.
Additionally, other expenses such as property taxes and maintenance fees may increase. Vancouver Resource Society as a strata owner, would be liable for any special assessments or other levies against the strata corporation.
Conversely, the long term benefit is that as the mortgage is paid down, the economic rent will decrease, as will the operating deficit, and in the long term, there will be an operating surplus.
Additionally, these units are covenanted for non-profit use in perpetuity. This means that, unlike land held by the federal government's social housing agency, Canada Mortgage and Housing Corporation, which is now being sold for maximum return, these units cannot be sold for profit.
Property Taxes - In terms of property taxes, Vancouver Resource Society is currently being charged property taxes on the full market value of the units. At this time, the Society is preparing an appeal on two grounds. Firstly, it would like to obtain a full exemption from property taxes as a registered charity that is not receiving senior level government funding for these housing units. Secondly, if the first argument is not successful, then it will be argued that the restrictive covenant which preserves the non-profit status of the units, significantly reduces their market value.
DISCUSSION ISSUES
The Bloomfield Gardens public/private partnership project has been a successful initiative in many respects, and may serve as a model for other innovative joint ventures and partnerships with the non-profit sector. The project also illustrates a number of issues to be considered in evaluating the role and value of public/private initiatives.
Housing Affordability
Bloomfield Gardens One of the key goals of this project was to demonstrate that the construction and operation of non-subsidized units was viable. From a long term perspective it must be recognized that the six units have been secured for non-profit housing in perpetuity, and that once the mortgage has been paid it will be financially feasible to rent the units at a core subsidy rate. However, in the intervening years, the mortgage must be paid, and the amount owing will vary with interest rates. This raises the question of affordability. Initially, these units will not be affordable for those with low incomes unless there is some form of subsidy or an operating deficit. The current model operates at a deficit without the consulting revenues paid to Vancouver Resource Society by Living Independently Society.
In social housing projects, there is typically protection for tenants in that if their income decreases, their rent will also be decreased proportionally. Vancouver Resource Society successfully argued that this feature would not be viable for this project because it does not have access to any form of subsidy. Therefore those tenants who are not on fixed incomes may be at risk of eviction if their incomes decrease.
For the Bloomfield Garden project, the long term housing affordability is assured by the restrictive covenant that preserves the non-profit status of the units. In the short term, the affordability of the units will vary with operating costs, including mortgage interest. Currently four units are rented at the core subsidy rent and two units are rented at market rent.
Millars Pond - In Whistler, B.C., affordable housing has been a significant issue for the municipal government. The community has very high land values and a wide income range, with many low income service industry workers who live in the community. In order to achieve increased affordability without additional public funding, the municipality reduced the land value by a specific ratio. This ratio was incorporated into a restrictive covenant on the properties to prevent future windfall profits and maintain affordability relative to the market. This model has subsequently been replicated with other municipal projects in Whistler.
Housing for Single Mothers - A relatively recent project in Vancouver stimulated the debate about affordability. In 1996, a 15-unit market housing project was completed on the west side of Vancouver through a partnership between a developer and VanCity Enterprises. The goal was to provide housing for single mothers, and several potential projects were explored. A site was rezoned to allow a density bonus, and the "subsidy" created by the bonus was concentrated into four of the 15 units. As a result, the four units were available for ownership to single mothers with incomes between $29,000 and $40,000. The buyers paid 10% down, and subsequent resale of the properties is restricted to prevent windfall profits. The resale price will be set as the same proportion of market value as the initial sale. While some criticized the prices and pointed out that buyers could purchase a home in the suburbs, one new owner argued "why should single mothers be relegated to the sticks? I work downtown, my son's daycare is in Point Grey, and I lived in a basement suite in Kitsilano for four years. I want to stay in Kitsilano and was so excited when I read about this project" (Vancouver Courier, July 3, 1996). There was also criticism that this was not "real social housing" because of the affordability issue. However, it was not market housing and it provided a new home ownership opportunity for a target group that is vulnerable to housing problems. This is equally true for the Vancouver Resource Society project.
The Edge - The City of Vancouver recently completed an agreement to obtain units within a 126 unit co-op housing development. The land was rezoned by the City from low value industrial zoning to high value residential zoning, creating an economic benefit to the owner through upzoning. The City negotiated to obtain 22 units at no cost in return for the increased value achieved through upzoning. In addition to the 22 units, the City will purchase eight units; the mortgages will be covered by the rents of the total 30 units, most of which will be low to modest rent based on income.
Development Partnership Issues
With the project successfully completed, Vancouver Resource Society and the developer regard this as a highly successful partnership and are considering further partnership opportunities. Both parties feel that this project demonstrates an exciting new model of public/private partnership.
However, there were challenges during the development process. The legal negotiations regarding the joint venture partnership were much more difficult than Ken Fraser had anticipated, and on several occasions he felt that the project nearly collapsed. Additionally, there was "very little goodwill left" by the time the negotiations had been completed, although subsequent to the completion of the negotiations, the working relationship remained strong and the goodwill was rebuilt.
Ken Fraser, the Executive Director of Vancouver Resource Society, feels that he has learned a lot through this public/private partnership project. In retrospect, Mr. Fraser says that he is "starting to think it can't be a straight market deal - it needs a conscience component, you need a lot of goodwill".
The developers felt that they "hit it off" with Ken Fraser and could work well with him. Additionally, as a growing firm, they required a joint venture partner in order to complete the project. Vancouver Resource Society offered the developers increased equity (and reduced development and marketing risk), and an opportunity for increased revenue through the increased density, which was shared between the Society and the developer.
The negotiations involved both parties attempting to maximize their relative return on their investment - Vancouver Resource Society needed to make its units as affordable as possible, to ensure that they could achieve a viable operational model, and the developer sought to maximize the development equity contribution and the density contribution from Vancouver Resource Society.
Alternative Development Strategies
With decreasing public funding for social housing, there is increasing interest in public/private partnerships. There are several different approaches to this type of public/private partnership. The difference in approaches is the balance of risks and benefits for the partners.
Joint Venture Partnership - The Bloomfield Gardens project can be termed a joint venture partnership. Vancouver Resource Society contributed equity at the project development stage, and participated in the development, specifically the rezoning process. A successful joint venture partnership requires that the non-profit partner have the resources to negotiate the terms of project development and to ensure that its interests are protected and its needs met by the partnership. This is the most potentially challenging and risky approach, for both the non-profit partner and to a lesser extent, the private partner. In a joint venture partnership, the goal of both parties is to maximize their benefit, and there may be competing goals.
A joint venture partnership is most beneficial for the private sector partner as it offers the opportunity to reduce development risk by having a partner that contributes capital at the development stage.
Turn Key Basis - A simpler, and more straightforward approach is a "turn key" partnership. In this type of arrangement, the society enters into a pre-construction arrangement to purchases units based on agreed terms, but has no other involvement. This approach offers several potential benefits for the public sector partner, including the potential for significant control of the design of the units, and for protection of the non-profit partner's interests through a partnership agreement. The greatest benefit, however, is the potential for less or no development risk, depending on the payment terms negotiated.
For the private sector partner, this approach may offer less benefit, depending on the capital terms negotiated, and other benefits or incentives.
Friendly Partnership - A "friendly partnership" involves a partnership with a developer who is prepared to engage in a partnership in order to achieve a social benefit. A "friendly partnership" is the most optimal arrangement for the public partner because it offers the potential for less or no risk, the goals of both partners are most likely to be compatible rather than competing. The partnership should have the synergy of a "win-win" arrangement.
For the private sector partner this approach offers the opportunity to demonstrate corporate social responsibility. The project and the partnership may be used as some form of marketing tool. There are no known cases of this type of partnership.
New Approaches for Public Funding
The public/private partnership model discussed to this point is predicated on no direct senior level government funding. An alternative approach is to consider options for new approaches to including public funding within the context of a partnership. B.C. Housing is moving towards this approach as a strategy to maximize the number of units obtained with the available funding. There are several recent examples of this approach.
Woodwards - The Woodwards project included provincial government funding, a private sector development partner, and City contributions. The failure of that project demonstrated the complexities and challenges of balancing the competing risks and benefits of all the parties involved.
St. George's Place - St. George's Place, a public housing project combined with a multipurpose worship space, is a partnership between B.C. Housing, St. George's Anglican Church, and B.C. Rehabilitation Foundation. The housing is designed to provide accessible and adaptable units for people with disabilities. In this project, the church contributed the land in order to make the project economically viable.
City/Provincial Partnerships - In December, 1997, the provincial government and the City of Vancouver announced a new partnership to provide 288 units, including 200 units for low income single adults (100 units in Downtown South and 100 units in the Downtown Eastside), and 88 family housing units at Concord Pacific Place on False Creek. For these projects, B.C. Housing will fund the construction costs and provide operating subsidies. The City contributed the land and an agreement with Concord Pacific Place. B.C. Housing and the City of Vancouver both committed to continued partnership to develop affordable housing in downtown Vancouver.
Public and Private Benefits and Risks
Bloomfield Gardens In the case of the Bloomfield Gardens project, the developer benefited through the partnership in two ways.
Firstly, Vancouver Resource Society was able to achieve a density bonus for social benefit, and the bonus was shared so that the developer obtained one third of the bonus marketable area. This one third share of the bonus area represented a significant potential profit to the developer because the units would be sold at the same price as the other units, but the construction costs would not include the cost of land.
Secondly, Vancouver Resource Society contributed equity at the critical and risky project development stage. The equity contribution and the pre-construction sale of six units both served to reduce development risk for the developer, although it entailed development risk for Vancouver Resource Society which secured its construction financing against a property it held.
Conversely, there were increased risks and additional costs for the developer, including additional design work, additional legal costs, and significant delays in obtaining approvals from the City.
For this project, there was also a risk of marketability. The research for a previous project indicated consumer resistance to integration of people with disabilities. For the Bloomfield Gardens project, the disclosure statement indicated that people with disabilities would live in the building. However, the developers did not perceive that there had been any market impact, either negative or positive, as a result of the inclusion of the units.
Vancouver Resource Society benefited by attaining six units at significantly below market value, and at less cost than an equivalent allocation for public housing.
However, the Society also undertook risk. At the development stage it risked $500,000 in equity secured by a property. At the operational stage, there is continued risk because of an operating deficit, despite market rental revenue from some units. If the mortgage interest rate were to increase during the 25 year amortization period, it could impact the affordability of the units, if the rents had to be increased to cover increased interest payments.
The balance between public and private benefits and risks achieved in a public/private partnership development is one of the central issues for this approach to development.
Private Sector Partner - Generally, there is little incentive for developers to partner with public sector partners such as Vancouver Resource Society. For the developer, such a partnership entails additional risk, including the legalities and negotiations of partnership, potential complications and delays for approvals, and additional design and construction details. There is also the potential for public opposition.
For a private sector partner to participate, there must be a benefit. Benefits may include development capital, bonus density, or other incentive, but a pure "social benefit" without some form of fiscal incentive is unlikely to be successful except in the very rare case of a friendly partnership.
As Ken Fraser puts it: "Vancouver Resource Society has to be able to offer something to a partnership - we're not going to get many opportunities by requesting charity."
From the perspective of the developer, the argument was "why would a developer invest the time and energy and expense to build something bigger if the profit would be the same?"
Public Sector Partner - The public sector partner, generally a non-profit society, is in an inherently unequal position. Societies typically lack the development expertise to successfully negotiate with developers, and often lack the fiscal resources to retain development consultants.
Additionally, societies often lack access to development capital. If they do have funds to contribute, they are generally secured by assets, and the society is therefore at risk of losing assets if the development fails and the costs exceed the assets.
The one thing that societies have to offer is social benefit. This however, also entails risk for the society. There is the potential that developers may promote the social benefit aspect in order to achieve financial benefit, potentially jeopardizing the integrity of a society's reputation.
Balancing Risks & Benefits - In summary, a public/private partnership achieves social benefits at no direct public cost. However, there is increased private benefit and increased public risk (to the non-profit public partner) relative to a publicly funded project.
Role of the City
Public/private partnerships can present a challenge to the City, which is required to evaluate the public and private benefits, and determine a fair and economical balance that meets the public interest.
At the same time, the City must deal with two parties which typically have different roles and expectations. Both parties may hold an expectation that the role of the City is to facilitate and expedite the project on the grounds of the proposed social benefit. In some cases the society may depend on the City to safeguard its interests in the negotiating process. Additionally, there may be an expectation that the City should take a more proactive role in facilitating and managing public/private partnerships. This expectation demands a fundamentally different, and expanded role, for the City.
In this case, the developers perceived that they had provided a significant social benefit and felt that the City should be contributing more to the process, including facilitating the project with a more streamlined and less complicated process. Their experience was that the process was more complicated due to the provision of a social benefit.
If projects are more complicated and more risky because they are a public/private partnership and provide a social benefit, then this would be a significant impediment to public/private partnerships.
The City of Vancouver has demonstrated considerable flexibility, creativity and innovation in the Bloomfield Gardens project, and in other affordable housing initiatives.
The City recognizes the need to achieve social benefits through development, and has instituted Development Cost Charges, Community Amenity Contributions and a requirement that up to 20% of unit allocations in large redevelopments be assigned to social housing. These strategies have provided revenues for the City to contribute to projects. Additionally, the City provides incentives, as a strategy to leverage social benefits. To date, these have included density bonuses or density transfers. These incentives are provided in return for the provision of a public benefit.
In the context of government "downloading" there is concern at the municipal level about increased roles and responsibilities. The approach of the City of Vancouver has been to work in partnership with other levels of government to share costs and responsibilities. This approach combines a response to emerging needs and problems with a shared responsibility for funding.
The emerging strategy of public/private partnerships will create new and changing demands on the City, particularly in relation to the planning, negotiating, funding, and approval of specific projects.
CONCLUSION
The goal of public/private partnerships is to achieve social benefit without additional public funding.
As a public/private partnership, Bloomfield Gardens is regarded with pride by both the developer and Vancouver Resource Society; all parties are pleased with the success that has been achieved.
At the same time, the Bloomfield Gardens project, together with other initiatives, demonstrates the challenges of public/private partnerships. There are risks and benefits for both parties, and any successful partnership requires that both parties have the capacity to understand and negotiate the terms of development.
The area of public/private partnerships is growing. With each new project, alternative development models will emerge, and public and private partners will gain expertise.
In summary, the key to a successful process is a partnership in which both parties' interests are protected, and needs met. A successful outcome is contingent on an appropriate balance between public and private benefit and risk.
REFERENCES
Burnaby City Club - Market Survey. Strategic Development Services Limited. 1994.
Oakridge Langara Policy Statement. Planning Department, City of Vancouver. November 1995.
Vancouver Courier. "Public payback pondered as building booms" June 12, 1996.
Vancouver Courier. "Single moms home at last" July 3, 1996.
Toward More Inclusive Neighbourhoods. Ministry of Housing, Recreation and Consumer Services, Province of B.C. 1996.