ARCS File: 0201-40-EXC. Subject/Project File: 94035 -and- PRHC BOARD / EXECUTIVE COMMITTEE SUBMISSION RECOMMENDATIONS: THAT Executive Committee grants approval for the Vice President of Development and Asset Strategies to negotiate and enter into a Purchase and Sale Agreement and to subsequently negotiate and sign a Letter of Intent (LO!) and Development Agreement that is subject to approval by the Board of Commissioners, with Wall Financial Corp. for a 172-unit project with a total estimated capital budget of up to $35,928,300 at 292 East Hastings Street, Vancouver. THAT Executive Committee approves Project Development Funding (PDF) that is subject to approval by the Board of Commissioners in the amount of $6,087,000 plus GST of $304,350 for a total of $6,391,350 including GST for a land loan for PRHC to purchase the land from Wall Financial Corp. for a 172-unit project at 292 East Hastings Street, Vancouver. THAT PRHC Board approves entering into a Purchase and Sale Agreement for the purchase from Wall Financial Corp. for a 172-unit project at 292 East Hastings Street, Vancouver. PROJECT DESCRIPTION: Program: 600 New Opportunities Client Type: Homeless at Risk, Working Poor, Low to Moderate Income Individuals, Affordable Rental, Market Rental Society: TBD — currently Atira Women's Resources Society (‘Atira’) is in discussions with Wall Financial Corporation Land Owner: 292 East Hastings Holdings Ltd. (Inc. No. BC1007369); a holding of Wall Financial Corp. Project Address: 292 East Hastings Street, Vancouver Legal Description: PID 009-261-605 LOT 24 BLOCK 11 DISTRICT LOT 196 PLAN 184 PID 009-261-656 LOT 25 BLOCK 11 DISTRICT LOT 196 PLAN 184 PID 009-261-702 LOT 26 BLOCK 11 DISTRICT LOT 196 PLAN 184 PID 009-261-753 LOT 27 BLOCK 11 DISTRICT LOT 196 PLAN 184 Architect: Endall Elliot + Associates Architects ("Endall Elliot") Development Consultant: Wall Financial Corp. ("Wall / “Developer’) doing business as 292 East Hastings Holdings Ltd. (Inc. No. BC1007369) Construction Manager: TBDPROJECT SCOPE Background Doing business as 292 East Hastings Holdings Ltd. (Inc. No. BC1007369), Wall Financial Corp. (‘the Developer”) purchased the property only recently in 2074, from its previous long-term owner of 27 years. In Summer 2014, Developer, Wall Financial Corporation closed on the property purchase and proceeded after procuring clean title to submit to BC Housing directly a detailed proposal letter, outlining their intent to redevelop the properties at “292 East Hastings” for the purposes of creating Market and Non-Market housing. What has been discussed to date is the proposal for PRHC to purchase the lands and property from the Developer and negotiate the concept in the form of a Letter of Intent ("LOI") to capture the proposed business partnership, procurement mode, and terms thereof which would lead to a formal Development ‘Agreement through which the Project Team consisting of the Developer, the Provincial Rental Housing Corporation ("PRHC’, as owner), and BC Housing Management Commission ("BC Housing’, as lender), collectively known as the “Project Partners" would jointly develop the property. The prime consultant is architectural firm Endall Elliot Partners ("the Architect") who has since advanced four to five consecutive design iterations which have undergone examination through two rounds of review by BC Housing DAS project technologists. The current design is believed to be largely consistent with City and DTES Local Area Plan requirements, and only modestly challenges height and density within variances believed to be approvable by the City. The site is of significant value in the larger context of redeveloping the intersection of Gore ‘Avenue and East Hastings Streets in the heart of the Downtown Eastside ("DTES"). Currently BC Housing owns the North-West corner lands in which Orange Hall Regional Operations conducts its business in offices, provides a presence for BC Housing in the DTES and houses supportive housing units above. The North-East comer is currently owned by the Health Authority and was the site of the former Buddhist temple. The South-East comer is the First United Church (‘First United") location where they currently have a shelter and drop in centre being operated as well as congregational space for their parishioners. The current proposal with the Developer relates to the final corner on the South-West portion of the intersection. Together this intersection or the so-called “Four comers” of the Hastings and Gore intersection if viewed from a global context can play an integral part in the fabric and services that are being offered to the local community and for BC Housing's mandate to serve homeless and those at risk of homelessness. As such, the City may want to preserve some cultural aspects to address concerns over gentrification, or require additional requirements beyond what is anticipated. At this stage it is anticipated that redevelopment requirements for this site are generally known as outlined in the new DTES Local Area Plan ~ still in its infancy in terms of deployment; however, based on the municipal approvals not being completed, additional unforeseen requirements during the process could create onerous additional costs that would severely impact the capital budget. While not currently linked to the deal under consideration with the Developer, Vancouver Coastal Health Authority ("HA") has a significant presence at the “Four comers” location in that it owns and may be undertaking to consolidate and redevelop its properties in the DTES to consolidate services or expand its services for the community. The property forming the North East comer of the Gore and Hastings intersection is one such location they are potentially targeting for redevelopment. As such, itis important to recognized the broader context in which the proposed redevelopment will be proceeding. Not only is the FHA site up for potential redevelopment but First United Church Community Ministry society (on the SE corner) has also been conferring with local development consultants and the City for its proposed plans.Many overall inputs will be contributing to the big picture of the "Four corners” revitalization including those from neighbourhood groups, City planning, the Health authority, BC Housing and the societies and clients they serve. Viewed from the perspective of FHA alone, the area may represent an opportunity to tie in a variety of health-related uses coordinating the needs of ‘community and specific services targeted for local area. BC Housing is currently part of a larger group including the Health Authority, City of Vancouver and Providence Health assisting in the facilities mapping for health services in the DTES. For an example of purely speculative nature at this early stage, the HA may or may not find of interest giving consideration to in a lease or ‘ownership arrangement for the proposed 6,100sq.ft. ground floor space (with additional mezzanine space contemplated), or some portion thereof, within the proposed redevelopment, say, for services either directly administered or provided via arm's length health services providers. Overall, it may be incumbent upon City, Province and Health planners to consider the creation of new or an extension of existing partnerships with Health for a number of efficiencies and opportunities as the "Four corners” redevelopments at Gore and Hastings take shape. Given the specialised experience the Developer and BC Housing have in procurement, financing and delivering residential buildings in the downtown area, the 292 East Hastings Street proposal appears set to leverage efficiencies particularly through its unique model of procurement via PRHC ownership to address the broader context of the Four Corners and to contribute added savings to the project development. BC Housing is currently assumed to be the interim construction lender as part of an LO! and thereafter a Development Agreement to be negotiated whereby PRHC would own the property from the outset of development through completion of construction, and hold the loan facility from BC Housing. Long term take-out mortgage debt by BCH is currently not requested or required as the Developer after assisting to deliver the overall project and all components will purchase on a *put option” the Market rental and Commercial components The form of development proposed includes 6,100sq.ft. ofground floor Commercial CRUs, 4 storeys of Non Market housing (contemplated for PRHC ownership), planned outdoor courtyard garden space on Level 2, and a 7-storey Market rental component atop the NonMarket levels (for a total of 11-storeys) for long term Market rental use. Project and Society Procurement Atira Women's Resources Society (‘Atira") has been identified as the potential operator for the new development moving forward as the Developer has already engaged the Society in discussions to date as well as obtained feedback on the building's design and operations based on Atira’s operating model for the income assistance shelter-rate rental units and Housing Income Limits ("HILs") rental units. The discussions with Atira have been on-going and have transpired since the sale of site to the Developer and the relationship and initial negotiations with Atira during the redevelopment proposal. While the CPI program is not currently contemplated in the proposed LOI for the project, CPI funding and/or other program funding’ could potentially play a role in funding or financing this development (TBD). "A CPI Evaluation matrix is not included with this Executive Committee submission, on the basis that no requests for PDF funding have been contemplated to date at this early stage; such evaluations would be conducted should the request arise,Project Description ‘A mixed-use new building modeled to include market- and social- housing studios in 11 storeys, featuring rooftop and 2” storey green spaces, with 6000 square feet of street-level Commercial frontage on Hastings and Gore. Refet to Building Description and “form of development” in the Background section, Need and Demand BC Housing Research department has compiled need and demand profiles for the client populations including singles and seniors in the City of Vancouver to address this project. See attached Need and Demand Analysis prepared by BC Housing's Research and Planning Department. Site Description The subject properties consist of four separate lots and separate titles. The subject site is located on the south west comer of the intersection of East Hastings Street at Gore Avenue in the Downtown East Side (DTES) neighborhood, one block east of Main and Hastings Streets. The property is close to transportation, commercial shops and community facilities. It is anticipated that the four lots will eventually be consolidated into one lot with the consolidated lot size approximately 122'7" x 110'5" or about 13,540 ft? (1,257.9 m?) In terms of location, the 292 East Hastings site is centrally located in the downtown east side (‘DTES') one block East of the Main and Hastings intersection, on the South West comer of Main and Gore Streets, opposite BC Housing's Orange Hall office across Hastings St to the North, First United Church across Gore to the East, and diagonally opposite the Vancouver Coastal Health properties on the North East corner of the "Four comers", Proximal to the site are notable anchor tenants Rickshaw Theatre, Savoy Pub, BC Housing's Orange Hall and a number of retail shops. Proximity to transit and alternative transportation is readily apparent, as the neighbourhood is bicycle-friendly, buses travel the Hastings and nearby Cordova and Powell St corridors, and Main Street skytrain station is a 7-minute walk south. Proximity to multiple bus lines and bicycling amenities are required for LEED certification; the existing transit and alternate forms of transportation infrastructure appear to satisfy LEED requirements upon cursory review. Typical of most area buildings the property backs onto a commercial lane, and the rear lot lines at 292 East Hastings are relatively unencumbered. The 120-foot typical lot depth varies only slightly. Whereas the lot lines lie at right angles to Hastings St and the lane, the property line at Gore forms a slightly non-90 degree angle such that the lane-at-Gore is an acute angle and the Hastings-at-Gore is an obtuse angle from a bird's eye perspective. From a high level constructability standpoint, accessibility to the site should be quite good with the low-traffic Gore street providing relatively wide accommodations. BC Housing's experience in staging and construction undertakings at the Orange Hall site should be transferrable in terms of site setup arrangements. The site's small footprint and is not as constricted by tight access points as ‘would normally pose a challenge for builders in the higher density downtown areas, therefore with site planning and site access appearing straightforward to arrange, actual readiness for redevelopment construction may be free of complications in relative terms. Overall, the site appears to be staightforward to build upon and access is ample on cursory review.Current Situation The site has been home to small enterprises in a single-storey retail use format for many decades. Conditions inside the premises were not reviewed by BC Housing for the purposes of this submission. As this project is lead by the Developer under forthcoming Purchase and Sale ‘Agreement and LOI terms further investigations and due diligence on the property will be Undertaken prior to the proposed transfer of the site to PRHC for ownership throughout the development and construction phases. There are currently believed to be no residential uses on site. Letter of Intent (“LOI”) While a Purchase and Sale Agreement and the Letter of Intent has not yet been drafted by Developer for initial review by BC Housing legal counsel (Singleton Urquhart). The following ‘summary is provided to outline the major terms of the Letter of intent. * Parties to the LOI are 292 East Hastings Holdings Ltd. (Inc. No. BC1007369) (‘Wall” / “Developer”, PRHC and BCH; * LOI to be non-binding; it does not obligate the Parties to complete a Development Agreement; ‘+ As part consideration for Wall, PRHC and BCH may agree to allow Wall the exclusive right to lead the redevelopment per terms of the Development Agreement (to be drafted and finalized). ‘+ The intention is for PRHC to purchase the lands and property from the Developer at the original purchase price plus holding costs. ‘+ Atthe end of the redevelopment, the intention is for PRHC to "put" the Developer to purchase the Market and Commercial components at a pre-determined price through a Put Option. The intent is for PRHC / BC Housing to negotiate with the Developer to ensure that the put option purchase price will be the greater of the actual cost of construction versus the capitalized market value. In essence, the Developer will pay the amount equal to the cost of the Market and Commercial components even if this price is greater than the market valuation, to offset the interim construction mortgage for the cost of these units by BC Housing to PRHC is made whole through the sale. ‘As much as possible given the information at hand, Development and Asset Strategies has tried to incorporate into this submission all potential costs, risks and schedule impacts based on the potential ownership arrangement and the potential negotiation and execution of an LOI and ‘subsequent Development Agreement; however as the Purchase and Sale Agreement, LOI and Development Agreement draft is not yet been finalized, this information is provided as a business case scenario based upon typical process and terms on comparable projects. As further negotiations and detailed terms and documents are drafted and finalized, Development and Asset Strategies staff will report the details in subsequent Executive Committee and/or PRHC Board submissions for information. Land Tenure ‘The four parcels that comprise the Site are owned in fee simple by Developer's holding company “292 East Hastings Holdings Ltd.” Expected to be forthcoming is a Purchase and SaleAgreement and an LO! outlining the Developer's offering the Lands together with closing costs directly attributable to the Lands, at what will become a fixed price on the Land Transfer Date (TBD), currently estimated at $5.865M? (subject to those attributable costs) for a proposed Development Agreement. Subject to the detailed terms of any Development Agreement, the Lands will be consolidated and upon project completion, title(s) provided by way of air parceling and potential stratification. Prior to 292 East Hastings Holdings Ltd owning the land, the properties were owned by Fan ‘Tower Inc. for a lengthy duration from 1987 through to 2014. While adjustments to the charges on title occurred once in 1998, and again once in 2014 following acquisition by the Developer, the lands have been owned by no other parties besides the two aforementioned since 1987. At this time no further due diligence has been undertaken to research the history of the land holdings prior to 1987. It is noted the original buildings on site were constructed in 1940 according to municipal taxation records, and these are believed to be the buildings in existence today, although major renovations were undertaken in 1987 at the time of purchase and sale. The proposed acquisition entails BC Housing providing a loan facility to PRHC with which to purchase the lands and fund the development stages of the proposed project. While PRHC will remain the sole owner of the property from early in the development stages through to completion of construction, both PRHC and BC Housing will be partners through the potential LOI and subsequent Development Agreement with the Developer, therefore enabling entitlement by the project partners to the benefits of PRHC ownership including substantial tax savings. Thereafter following the put option sale of Market Rental and Commercial components to the Developer, the proceeds of such sale wil offset the interim construction financing/funding provided by BC Housing to PRHC for the costs of the Market Rental and Commercial ‘components. On similar projects an environmental consultant has been retained to perform potentially valuable due diligence in the form of historical research only. It may be possible through historical records and site investigations to confirm possible historical or recent-term contamination from neighbouring properties by (i) examining tenant records dating back to the original build year of 1940, and (ii) using a geological approach, noting potential directions of groundwater flow. Going forward additional due diligence will be undertaken to establish risks pertinent to the lands including unforeseen ground conditions. Refer to the Environmental and Hazardous Materials sections of this submission. Charges on Title The charges on title have not been reviewed by BC Housing's legal counsel as part of this Executive Committee submission. A title review will be completed prior to the entering of the Purchase and Sale Agreement for the lands and property from the Developer. Development and Asset Strategies was able to verify the only Lien on title is by Wall's holding company, 292 EAST HASTINGS HOLDINGS, simply stating the owner will not be bound by any Liens that should materialise unless the work was commissioned at their express written consent. The following charges are noted as of August 4, 2015, PID 009-261-605 Legal Desoription: TITLE CA4058620 (from Title CA3877617) 2 Current Land Price of $5,885,000 is carried in the Developer's capital budget, to which DS' Budget Analysis clarifies Servicing and Connections costs are excluded in Land costs but Acquisition and Closing costs ara included,LOT 24 BLOCK 11 DISTRICT LOT 196 PLAN 184 Registered Owner in Fee Simple: 292 EAST HASTINGS HOLDINGS LTD., INC.NO. BC1007369 3502-1088 BURRARD STREET VANCOUVER, BC V6Z 2R9 Legal Notations * Notice Of interest, Builders Lien Act (S.3(2)), See CA3877621 Filed 2014-07-31; Charges, Liens & Interests * Mortgage CA4143811 (HSBC Inter Alia) Registered 2014-12-17 + Assignment of Rents CA4143812 (HSBC inter Alia) Registered 2014-12-17 PID 009-261-656 Legal Desoription: TITLE CA4058621 (from Title CA3877618) LOT 25 BLOCK 11 DISTRICT LOT 196 PLAN 184 Registered Owner in Fee Simple: 292 EAST HASTINGS HOLDINGS LTD., INC.NO. BC1007369 3602-1088 BURRARD STREET VANCOUVER, BC V6Z 2R9 Legal Notations ‘+ Notice Of Interest, Builders Lien Act (S.3(2)), See CA3877621 Filed 2014-07-31; Charges, Liens & Interests + Mortgage CA4143811 (HSBC Inter Alia) Registered 2014-12-17 * Assignment of Rents CA4143812 (HSBC Inter Alia) Registered 2014-12-17 PID 009-261-702 Legal Description: TITLE CA4058622 (from Title CA3877619) LOT 26 BLOCK 11 DISTRICT LOT 196 PLAN 184 Registered Owner in Fee Simple: 292 EAST HASTINGS HOLDINGS LTD., INC.NO, BC1007369 ‘3502-1088 BURRARD STREET VANCOUVER, BC V6Z 2R9 Legal Notations ‘* Notice Of Interest, Builders Lien Act (S.3(2)), See CA3877621 Filed 2014-07-31; Charges, Liens & Interests + Mortgage CA4143811 (HSBC Inter Alia) Registered 2014-12-17 + Assignment of Rents CA4143812 (HSBC Inter Alia) Registered 2014-12-17 PID 009-261-753 Legal Description: TITLE CA4058623 (from Title CA3877620) LOT 27 BLOCK 11 DISTRICT LOT 196 PLAN 184 Registered Owner in Fee Simple: 292 EAST HASTINGS HOLDINGS LTD., INC.NO. BC1007369 ‘3502-1088 BURRARD STREET VANCOUVER, BC V6Z 2R9 Legal Notations ‘© Notice Of Interest, Builders Lien Act (S.3(2)), See CA3877621 Filed 2014-07-31; Charges, Liens & Interests + Mortgage CA4143811 (HSBC Inter Alia) Registered 2014-12-17* Assignment of Rents CA4143812 (HSBC Inter Alia) Registered 2014-12-17 Appraisal A property appraisal report will be required for the four (4) properties comprising the subject site, The appraisal will be required to conclude the current market value based on a range of possible FSR outcomes for the development. From the 2015 BC Assessment, the Assessor's ‘opinion of the property value (not necessarily reflective of market value) is: Land $4,769,000 Improvements 23,200 BC Assessment: $4,792,000 (2015 BC Online Assessment Roll) ‘The 2015 Assessment increased the Land values and overall Total Assessment Value, without altering the value of buildings, such that the total increased from $3,911,000 for Land since 2013, an increase of $858,000. Itwill be a condition of the Purchase and Sale Agreement that an updated appraisal is performed which considers the impact and effect that any proposed restrictive covenants to be registered on title will have on market value. ‘An appraisal of the completed development in full will be procured including appraisals of each of the three (3) project components at timing of construction completion, which will contribute towards establishing the put-option purchase price to be paid by the Developer as part of their obligations to purchase the Market Rental and Market Commercial components at time of construction completion. Geotechnical No geotechnical reports have been completed at this time to conclude that the Sites can support the proposed structure. The Developer and the construction manager will be required to follow certain recommendations outlined in the geotechnical engineer's report(s), once received, as the findings and recommendations will be incorporated into the architect's specifications as design development proceeds. Environmental All standard modes of environmental inquiry will be employed on this project. To date no testing has been carried out. Based on the primary year of construction of 1940, the original shell building construction pre-dated the use of asbestos containing materials (ACM's), and although itis possible that renovations in the interim years may have incorporated ACMs, the recent major renovation year of 1987 in and of itself would appear to present a “safe” post-ACM year of renovation Testing will be carried out to ascertain the extent of Hazardous Materials on site (see Hazardous Materials section below). Further work by environmental consultants will include detailed investigations in due course as the project proceeds. Even given no abnormally high levels of Hazardous Construction Materials, certain elements including asbestos-containing materials (ACMs), lead paint, and suspect trace-amounts of PCB (inside old lamp ballasts) would not be uncommon, typical of buildings of this age.Hazardous Materials See Environmental section above. Typical of redevelopment projects of this nature, the Project Partners would as prudent owners for development undertake hazardous material assessments of the buildings on the Sites prior to demolition to determine if there are any hazardous materials that need to be removed, Municipal Approvals The project will require a Development Permit and a Building Permit. At this time, Developer is rocess of preparing to submit inquires to the City regarding a development permit for the site redevelopment. At a currently proposed height of 116 feet within the DEOD zoning permitting 30M or 99°, the project is believed to fall within height variances approvable by the Director of Planning and the Development Permit Board. The development concept proposed accomplishes § main objectives: (i) To increase the supply of quality, non-market housing by building self contained units (31,795 sq.ft. in 104 units including studios, 1-bedroom and 2-bedroom units); (i) To increase the rental stock in Vancouver (39,918 sq.ft. in 68 units including studios, 1-bedroom and 2-bedrooms units) consistent with such City of Vancouver housing incentive programs which may be available, eg: Rental 100 or Social Housing policy programs. (li), To improve the Commercial fronting onto both Hastings and Gore by improving the design and public safety of the Commercial space including an integrated landscaping plan consistent with City requirements; (iv) Toundertake redevelopment consistent with a vision for overall improvements to the Hastings and Gore intersection projects. The proposed development will consist of 31,795 sq.ft. of net rentable Non Market housing (104 units), 39,918 net rentable sq.ft. of Market rental housing (68 units), and 6,100 sq.ft. of Commercial ground-floor retail space. Developer is expected to be seeking the following from the City in support of a development permit application: (a) Approval from the Development Permit Board for the height and density. Developer is not seeking a rezoning for the project; (d) Approval of the market rental under any potentially available City incentive programs, for example Rental 100 or Social Housing incentive programs; (f) Planning exemptions on loading and parking requirements; (g) DCL exemptions on the Non Market Housing component; (h) CAC waivers (although the current proposal includes amenities these are yet to be scrutinized by City Development Permit Board and staff of the Director of Planning). Further informatic City based on will be provided to BC Housing once Developer receives responses from the initial development permit application inquiry. Zoning The 292 East Hastings site does fall within the catchment of the new DTES Local Area Plan (LAP). Under the newly adopted LAP, rather than taking a prescriptive approach, the City retains discretion over FSR for on certain sites. Otherwise, the DEOD zoning for Downtown East Side Oppenheimer District provided guidelines prior to the newly adopted LAP.10 A rezoning process is not anticipated for the proposed form of development. Under the DEOD zoning bylaw, the maximum density permitted on a site is specified at FSR 5.0 maximum for the types of social housing in a mixed use setting consistent with that being proposed; and the maximum building height under the subject DEOD zoning is 30 metres (99 feet), while the project is proposed in 11 storeys which slighty higher, at116 feet. Under the LAP, the Developer is required to provide 60% of the units in the redevelopment to be Social Housing with 40% potentially for market housing. Based on these requirements the Developer is targeting 104 units out of the total 172 units or 60.4% of the units as Income Assistance or shelter rate rental (34 units) and Housing Income Limits (70 units). While the Developer has achieved this requirement, the actual square footage allocation between the Social and Market rental units differs from this ratio based on the Social units being ro suites and the market units enjoying much larger configurations. The square footage ratio is closer to 44% (Social) to 56% Market. As the City also exempts many new redevelopments from mandatory parking requirements under the DTES LAP, there are minimal parking requirements under the zoning (27 parkings stalls plus one accessible parking stall). Preliminary assessments by Development and Asset Strategies have not considered parking rental enterprises to be viable given the costs to procure underground parking in new buildings with the constraints of this site. Currently, the Endall Elliot concept drawings contemplate parking on site at a minimum, of 26 stalls plus 1 accessible aking stall Building Description In the current proposal, the Non Market and Market rental components appear appropriate to be parcelled out as air space parcels, with the remaining Commercial components stratified and sold to the Developer. For building description refer to the attached drawings dated April 27, 2015. Refer to the link on the signature page of this submission. Unit Mix - Proposal of 11 storey, 116’ height New Building ‘Component Unit Type ‘Average® Unit Area| __# of Units Non Market | Studio — Shelter rate 263.4 Er Housing —_| incl. 2 Accessible Units 335.0 (4 Storeys; Levels 2-5) [Studio — HILs™ 263.4 70 incl, 2 Accessible Units 335.0 Subtotal 104 NM Market ‘Studios 432.3 2 Tower (6 > BCH Orange Hall Regional Operations suggests HILS units be larger than the shelter rate units; as compared to the market studios, the square footage is significantly less yet the rents are comparable at $800 and $1000 respectively,il Storeys; 1 Bedroom 553.0 24 Levels 6-11) 2 Bedroom: 770.0 22 Cy Subtotal Market Total Qty of 472 Units Note: There is a variable range of unit sizes within each category, Studios range (253 — 304sf); 4 bedrooms range (548 — 567s\); 2 bedrooms range (697 ~ 840s) Sustainability ‘The capital budgets estimated by both the Developer and BC Housing currently do not carry sufficient allowance to provide for LEED compliance and certification. The City has not yet made clear what requirements for sustainability will be, but LEED Gold is the standard and should be expected. The Developer's budget to date has not been provided in a detailed format sufficient to establish what allowances may or may not be accounted for to represent such costs as: LEED certification, a Sustainability consultant, and a project accountant (as LEED registration often entails greater accounting requirements) — however these are minor items in relation to the $1.9M BC Housing's estimated additional cost to provide LEED Gold. The Developer has included a budget of $240 per square foot construction costs for the Shelter Rate rental and HILs units, and $210 per square foot for the market rental units compared to $255 per square foot for a BC Housing typical building including LEED. A 51% factor was used in the BC Housing budget comparison to the developer's budget as the Developer seems to show pricing to include some sustainability measures. For some time it has been contemplated that consideration for “equivalent alternatives” to LEED, in order to achieve the same energy and efficiency savings but at a lower cost to the definitive LEED pathway, could lead to project cost savings on the order of magnitude of 10- 15% (eg: ~$200,000 on $2M) should it be possible to achieve reductions in LEED overhead and certification costs while maintaining all Gold-level green building guideline intents. Specifically, BC Housing has sought to study lessons leaned and expended options to achieve energy performance instead of LEED only compliance. As per Note 1 under the Capital Budget, should the City not require LEED certification per se, and BCH concur, there exists potential to take some portion of the LEED cost as a net savings and in lieu, providing equivalent, measurable sustainablity items on the basis of cost- and environmental- effectiveness rather than the prescriptive LEED approach. One critique from ‘some Vancouver-based engineering firms is that the LEED formula is not locale-specific and may overlook other energy considerations / factors. While the Canadian Green Building Council does allow for equivalencies to be submitted for approval, doing so requires case-by-case consideration, significant documentation, and even higher overhead costs. The design does not provide for a future District Energy Utility (DEU) connection by way of a dedicated DEU Room adjacent the Water entry room, in the building's 1-Level basement. However, should the City deem this a mandatory requirement in the Development Permit and/or12 Prior To conditions, a full-fledged DEU item alone could be substantial. Development and Asset Strategies finds both the BCH benchmark cost and the Developer's budget (despite a healthy Contingency) inadequate to absorb DEU-related undertakings of any significant proportions. Providing a DEU “future connection only" may be the maximum undertaking the project budget might absorb; anything beyond this would be a major Capital Budget line item revision. Procurement Strategy ‘At this time it remains to be determined and it could be a possibilty that the Developer would act as "Construction Manager at Risk” during the preliminary and pre-construction phases of development; however, the exact model of procurement has not been determined to date and options will need to be considered and vetted as part of the contemplated LO! negotiations and finalized in the terms of any Development Agreement. Endall Elliot Partners Architects is the Project Architect and sub-consultants have yet to be identified to BC Housing. BC Housing is currently assumed to be the interim construction lender to PRHC who will hold the property from inception through to construction completion, thereupon being reimbursed by the Developer for the Market rental and Commercial ‘components at a price established through a valuation process to be determined. Therefore, long term take-out mortgage debt is not currently required. However, this does not preclude PRHC from providing placing a long term take-out mortgage on the completed units to be debt serviced through the operating net incomes produced. FINANCIAL IMPLICATIONS: There is no current demand loan request however a tentative outline Interim Development Budget has been outlined in the Financials section, AAt this stage the intention is for PRHC and the Developer to enter into a Purchase and Sale Agreement and a Letter of Intent with PRHC and BC Housing. The Developer has requested that BC Housing pay out the land financing from HSBC through the purchase of the lands and property by PRHC, for which the loan balance of approximately $5.83M plus some additional costs is requested. Architecture fees and other soft costs continue to be borne by the Developer. Development and Asset Strategies estimates the demand loan at a maximum upset price at $6,087,000 plus GST of $304,350 for a total of $6,391,350 including GST for a land loan for PRHC to purchase from Wall Financial Corp. for the proposed 172-unit project at 202 East Hastings Street in Vancouver. Risks associated with the Land Loan are discussed in the Risk Register. The PDF demand Land Loan will be not be secured against ttle to the four (4) parcels as PRHC will become the owner of the titles. Development and Asset Strategies has completed a financial feasibility analysis based on the current proposed PRHC ownership structure and redevelopment framework to give an indication of the potential outcomes, financial risks and equity required to participate, as well as operating scenarios based on the information provided by Developer. Further financial analysis and due diligence will need to be completed as design development moves forward, and further implications assessed after the final Development Agreement, financial proforma and financing arrangements are established with Developer in due course, This submission does not constitute an approval of the Project as submitted by the Developer; rather it sets out an analysis for PRHC and BC Housing to enter into the Purchase and Sale ‘Agreement, LOI and subsequent Development Agreement. Further requirements which the Developer must meet to receive provisional or final project approval from BC Housing will be13 provided in future Executive Committee submissions for the approval process with BC Housing when interim construction financing is requested. Based on the current ownership framework each component will be separately owned, and each component may or may not affect the other components in terms of their capital budget breakdowns, any potential net proceeds of the Market rental and Commercial units to offset any BC Housing interim construction mortgage, and the equity required by each Project Partner for their respective components. To date the “put option sale” strategy has been chosen to ensure the Developer confirm in advance the exit strategy on the Market and Commercial units upon construction completion to allow for proper retirement of any interim construction financing administered via PRHC from BC Housing. It is anticipated that along with the development of the other legal documentation including the Purchase and Sale Agreement, LOI and Development Agreement, that a put option sale document also be completed to solidify the terms of the put option for the Developer to purchase the Market and Commercial units from PRHC following construction completion. Interim Demand Loan Budget While Developer is currently carrying the land cost and land component, itis anticipated that following the execution of an LO! and finalization of a Development Agreement and other legal documents, a Purchase and Sale Agreement for transfer of the property title to PRHC will occur at which point full interim financing may be required at project commencement; however, no mortgage will be registered on title, The full interim demand loan budget below (ie. $13M) is only an estimate of the potential development costs leading up to start of construction and the approval of interim financing. The estimate is based on Development and Asset Strategies’ analysis of the full capital budget costs based on the anticipated schedule for design development and approval of municipal processes. Further analysis of the development budget will be completed prior to requesting additional approvals to proceed. In the meantime, the Developer and PRHC request a PDF land loan (for $6,087,000 + GST) for PRHC to pay out the existing mortgage with HSBC, through the PRHC purchase of the lands and property which has been included as part of this Executive Committee submission. The timing and details of an interim demand loan to PRHC will be driven by the Purchase and Sale Agreement, LOI signing and Development Agreement terms and conditions as well as the execution and registration of transfer documents for the transfer of the Site lands to PRHC and discharge of the existing mortgage currently being requested. Further information and a formal approval process will be submitted to Executive Committee for its consideration as the proposal moves forward and as BC Housing is able to complete its due diligence and review of the Site.14 Development Budget PRHC may require a demand loan which is interest bearing at a term to be 24 months. Should the need arise to advance PRHC funds with which to reimburse the Developer in essence financing development costs, the PDF budget would appear thus: Hypothetical | PDF PDF Development Budget 1 Potential | Budget —_| Approved Current 11 storey, 116" Building | PDF Budget | Requested | to Date ‘Appraisal $7,000 _ $7,000 Municipal Fees 91,823,273 ‘Architect $7,000,000 Structural $70,000 Mechanical $450,000 Electrical $65,000 Tandscaping $45,000 Building Envelope $45,000 TEED & Sustainability Consultants $95,000 Surveyor 375,000 Environmental Consultant $50,000 Geotechnical Consultant $30,000 Other Consultants $308,000 Disbursements $250,000 | _ $10,000 Insurance $90,000 New Home Warranty $146,701 Legal Fees $85,000 | $50,000 Development Manager $1,658,010 Property Taxes $300,000 Public Art Fee $246,055 Consultant Contingency $300,000 | $190,000 ‘SUB-TOTAL $6,837,039 GST $347,852 TOTAL $7,176,851 Land Transfer Price curent-to-date | $5,630,000 | $5,830,000 TOTAL $13,008,807 | $6,087,000 GST $304,350, TOTAL including GST $6,397,35015 Developer's Capital Budget showing Break Out of Component Types: Gross Capital Market Shelter Budget Rental Rate Rental HIL Commercial Total ‘Appraisals/Studies $0 $0 $0 $0 $0 ‘Acquisition & Servicing $3,050,000] _$798,000| _$1,613,000| _$369,000| $5,830,000 Municipal Fees $257,500] $67,500] _ $137,000] $117,300] $579,300 Utiity Fees, $0 $0 $0 $0 $0 Design Consultants $515,000 | __ $135,000 $274,000 $76,000 |_ $1,000,000 Consultants (Note 3) | $1,708,000] $448,000| $909,000] _ $251,000 $3,316,000 Mise. Soft Costs (Note 1) s907,500| __$67,500| _$137,000 $38,000 | $1,150,000 Borrowing Costs $772,500 |__ $202,500 $411,000 $114,000 |_ $1,500,000 Construction $10,850,000 | $3,240,000 $6,600,000] $1,068,000 | $21,758,000 Building Start-up $0. $0. $0 $0 $0 Project Contingency | g4o9,000| $107,000] $218,000 $61,000| $795,000 Total Project Costs | $18,469,500 | $5,065,500 | $10,299,000 | _ $2,094,300 | $35,928,300 "Put Option™ Developer Purchase Market Component (Cap Rate @ 4.5%) _| $18,631,000 $0 $0. $0 | $18,631,000 “Put Option” Developer Purchase CRU Component (Cap Rate @ 5.0%) $0 $0 $0| $2,095,000 | $2,095,000 Society Equity $0 $0 $0 $0 $0 Developer ProForma Valuation of PRHC Components $5,440,000 | _ $11,200,000 $0 | $16,640,000 Developer ProForma ‘Actual Cost of PRHC Components $0 | $5,065,500 | $10,299,000 $0 | $15,364,500 Lease Up Income $0 $0 $0 $0 $0 Fundraising 0 $0 0 0 $0 Total Equity (Note 2) (Developer Purchase Price + PRHCs Cost) | $18,631,000 | $5,065,500 | $10,299,000 $2,095,000 | $36,090,500 Financing Required (Take-out) $0 $0 $0 $0 $0 PRHC's Total Cost $15,364,500 Financing Required (Interim) (Note 5) $18,469,500 | $5,065,500 | $10,299,000| _ $2,094,300 | $35,928,30016 Hard Construction Cost per sqft (Based ooo $209.98| __ $240.00 $240.00 $175.08 | _ $220.29 Cost per unit; Total = Avg based on Cost NIC CRUs _| $271,610.29 | $148,985.29 |_$147,128.57 | $2,094,300.00 | $196,709.30 Price per uni Total = Avg Price based on Valuation NIC CRUs $273,985.29 | $148,985.29 |_ $147,128.57 | $2,095,000.00 | $197,648.26 GLA (sq.ft) 51,672 13,500 27,500 6,100 98,772 ‘The following Notes apply to both Gross Capital Budets, above pertaining to the Component Break-outs and also to the below Development Strategies’ analysis of the Developer's Budget: Note #1: Miscellaneous Soft Costs currently include taxes such as PTT and GST, the latter of which may be expected to be close to net zero, due to procurement via PRHC ownership recognized by CRA for GST purposes as holding equivalent to Municipal status, Note #2: Total Equity represents Developer Purchase Price plus PRHC’s Cost (ie excluding Developer's Valuations of PRHC Components). Development and Asset ‘Strategies has not currently factored in potential grants of up to $10k per door from the City of Vancouver and matching grants from Streetchomes in the analysis. Should the project become successful in obtaining these grants, these amounts will be further equity to be contributed to the project that would reduce the overall equity contribution from PRHC to the project with the caveat of ensuring that any contributions will not be saddled with covenants or conditions for ongoing support services. Note #3: While the Construction Management ("CM") Fee in the Developer's Gross Capital budget is currently carried at $0 it should be noted that the Consultants line item of $3,316,000 includes a 10% Developer's DM Fee which, based on comparable projects recently procured in the local area, should represent sufficient fee to cover both Development Management and Construction Management for the duration of the project's procurement through completion of construction and handover. The most recent comparable of a mixed use building, which also entails procurement through an LOI involving BC Housing and PRHC, established DM and CM fees at 3% each, for a total of 6%; furthermore, the CM fee is to be calculated upon hard costs alone. Note #4: BC Housing budget of PRHC $17,607,130 “Actual cost of PRHC components” is based on 50/50 split of the gross capital budget variance of $4,485,261 equal to $2,242,630 or ¥%s of the 11.1% (5.55% premium). This assumption is based upon relatively equal cost of the gross PRHC versus Developer components at a macro level simplified for budget purposes at this early stage of development. Note #5: Difference between the "Total Project Costs” for the Market rental of $18,469,500 vs "Put Option” figure of $18,631,000 and similarly, difference between the Commercial component where “Total project Cost" is $2,094,300 vs "Put Option’ figure is $2,095,000. Simply, whereas “Total Project Cost” of these components represents gross capital cost budgeted to complete, “Put Option” prices represent cap-rate valuations based on 4.5% for the Market rental and 5.0% for the Market Commercial space. See page 20 for Sensitivity Analysis on Cap Rates.17 Developer's Gross Capital Budget vs. Budget Analysis by Development Strategies: Developer BC Housing Gross Capital Budget - 110° Scenario Budget_| Variance | Budget Appraisals/Studies $0] camrying $0 ‘Acq n & Servicing $5,830,000. carrying | _ $5,830,000 Municipal Fees: $679,300| __$25,515| $604,815 Utility Fees: $30 | carrying $0 Design Consultants $1,000,000 | _ $440,000 | _ $1,440,000 Consultants (Footnote 3, Page 6 - DM Fee) $3,316,000 | _-$994.800| _ $2,321,200 Misc. Soft Costs (Note 7) $1,150,000 | _ $280,000 $1,380,000 Borrowing Costs $1,500,000 | _$195,000| _ $1,695,000 Construction $21,758,000 | $2,428,860 | $24,186,860 Building Start-up $0 | __ $487,000 | __ $437,000 CM Fee (Footnote 3, Page 6 - DM Fee) $0| carrying $0 Leasing & Marketing Costs $0] carrying $0. Project Contingency $795,000 | $1,723,686 | $2,518,686 Tenant Improvements - Commercial CRU only $0 included BCH Adjustments - Durability, Design Factors $0 included BCH Adjustments - LEED [LEED Note] 51% $0 included ‘SubTotal Project Costs [Note 2] $35,028,300 | 94.485.261| $40,413,561 111% "Put Option” Developer Purchase Market Component, (Cap Rate @ 4.5%) $18,631,000 carrying |_ $18,631,000 "Put Option” Developer Purchase CRU Component (Cap Rate @ 5.0%) $2,095,000] carrying | __ $2,095,000. Society Equity $0. $0 Developer ProForma Valuation of PRHC Components $16,640,000 | _carrying |_ $16,640,000 ‘Actual Cost of PRHC Components (Note 4) $15,364,500 | $2,242,630| $17,607,130 Tease Up income 50 $0 Fundraising $0. $0 Total Equity (Note 2) (Developer Purchase Price + PRHCs Cost) $36,090,500| carrying |_ $36,090,50018 Financing Required (Take-out) $0 $0 Financing Required (Interim) $35,028,300 | 94,485,261 | $40,413,561 111% Hard Construction Cost per sqft (Based on GLA) $220.29 $24.56 9244.87 GLA (Sq.Ft) 98,772 = 98,772 Market Tower Valuation perUnit@4.5%Cap,68 Units $273,985 = $273,985 Gommercial GRU Valuation perSaFt @5.0%6Cap, $344 = 3344 100s Developer Valuation of PRHC Components, perUnit $160,000 : $160,000 “Valuation of PRHC Components, perSqFt (41,000st) $406 = $406 Cost of PRHC Components, @CostBudgeted perUnit $147,735 | $21,564] $169,209 Cost of PRHC Components, @CostBudgeted perSqFt $375 364 $429 The capital budget was reviewed against the criteria set out in the DS Capital Budget guidelines. GST Note: Advantages to the proposed procurement pathway via PRHC ownership include significant tax and interest savings to the gross capital budget. The Developer has included $650,000 for GST self- supply presumably on its components. This allowance represents 3.5% of the Developer's “put option” costs on the Market residential alone, or 3.1% on both Market and Commerical holdings the Developer will retain. PRHC retaining ownership of its components should be a net zero GST balance. LEED Note: BCH Budget prepared by Development and Asset Strategies Include premiums for LEED Gold on the PRHC components only, factored at 51% of the 1,922,468 projected LEED cost. This 51% in included within the 8C Housing Budget Construction line item (see Sustainability and additional notes on LEED options). The Developer has included a budget of $240 per square foot construction costs for the Shelter Rate rental and HILs units, and $210 per square foot for the market rental units compared to $255 per square foot for a BC Housing typical building including LEED. As such a 51% factor was used as the developer's budget seems to show pricing to include some sustainability measures. Note 3: for Market tower valuations see Sensitivity Analysis and Operating Budget for Net Operating Income (NO!) assumptions Revenue Essentially the current arrangement involves a one-time equity contribution from PRHC upon project completion. After the Developer purchases its Market components through a valuation process to be determined in the put option document, the costs remaining will represent PRHC's purchase “at cost" as the remainder sum. As ongoing operating revenues from the Non Market units (to be PRHC- owned) are mainly based on a mixed shelter-rate and HILs rental model for 34 (shelter rate) and 70 (HILs) of the total 104 units, these units will not have the ability to debt service a long term take-out mortgage for the entirety of the costs of the Shelter rate rental and HILs units; therefore, an initial equity injection is required for the Non Market units. Further evaluation of the Non Market units’ operating budget and operating model is provided in the following operating sections. Based on having no long-term debt and PRHC ‘ownership outright of the Non Market components, the Shelter-rate rental units and HILs units should be self-sustaining based on the rental income. There is also potential for some of the19 surplus income to debt service a portion of the costs of the Non-Market units should PRHC wish to pursue this route. The one-time purchase and sale net proceeds from the Market and Commercial units will determine the potential amount of equity that PRHC would be required to contribute towards the Non Market units. The main factor that will affect the valuation of the Market units and their ‘subsequent proceeds’ contribution to PRHC Is the assumed “put option” purchase price. The intent is for PRHC / BC Housing to negotiate with the Developer to ensure that the put option purchase price will be the greater of the actual cost of construction versus the capitalized market value. In essence, the Developer will pay the amount equal to the cost of the Market and Commercial components even if this price is greater than the market valuation, to offset the interim construction mortgage for the cost of these units by BC Housing to PRHC to ensure that PRHC and BC Housing is made whole through the sale. Currently while the process for finalizing the put option purchase price has not yet been fixed upon, a capitalization rate- based method has been used to determine the potential final sale value for the Market units as an alternative to cost method. Development and Asset Strategies has completed a sensitivity analysis to assess the potential fluctuations in equity requirements as it affects the Non Market units and their equity required. The Market units are currently believed earmarked for Market rental purposes only. There is potential that the Developer instead of keeping the units may change the deal structure such that they are sold to an investor, an investor group, or arranged to be sold by Developer, regardless, long-term financing from a 3 party financial institution will potentially need to be put in place by the Developer upon final sale of the Market units from PRHC, along with equity sufficient to pay the final sale put option purchase price. These proceeds, along with the Developer's contribution for the Commercial component, and BCH/PRHC’ contribution for the Non Market component, will be used to offset the capital costs of the Project. While the final equity contribution of the Non Market units is not yet determined, itis anticipated that the equity required will be “at cost.” Note: a capitalization rate of 4.5% on Market units and 5.0% on Commercial space is what the Developer is carrying in their budget currently shown highlighted in the below table.20 Sensitivity Analysis - Cap Rate and Income variables: ‘Sensitivity Analysis: Be for Market Tower Valuation and CRU Valuations | yousing's | Developer's | “What It” floating at 4% above Tower Valuation as per | projectiontot | Projection | Scenario of Developer proforma assumptions; income @| income@| Income @ BCH Budget Spsf CRU projected income in $2.20 pst &| $240 psf &| $2.60 psf & proposed scenarios to mimic Rental returns Stops CRU | Si8pstCRU| _$20psf CRU CRU NO! $93,120 | __ $104,760 $116,400 Developer's Budgeted Cost of Construction | $35,928,300 | $36,928,300 | $95,928,300 Tess Market Rental sale proceeds Valuation @4.25% | $18,082,988 | $19,726,894 | $21,370,800 Tess Market Commercial sale proceeds Valuation @ 4.75% | $1,960,421 | $2,205,474 | $2,480,526 *PRHC Cost” after Developer's sale proceeds | 15,a84,801 | $13,995,932 | $12,106,074 Developer's Budgeted Cost of Construction | $35,998,300 | '$36/928,300 | $35,928,300 less Market Rental sale proceeds Valuation Sees ae @4.5% | $17,078,378 | $18,631,000 | $20,183,533 Tess Market Commercial sale proceeds " Valuation @ 5.0% | _ $1,862,400 | $2,095,200 | $2,328,000 *PRHG Gost” after Developer's sale proceeds | 16,987,522 | $16,209,100] $13,416,767 Developer's Budgated Gost of Construction | 35,928,300 | $38,928,300 | $35,028,300 Tess Market Rental sale proceeds Valuation @ 478% | $16,179,515 | $17,650,379 | $19.121,242 Tess Market Commercial sale proceeds Valuation @ 5.25% | $1.773,714| $1,995,429 | $2,217,143 *PRHC Cost” afler Developers sale proveads | $17,975,070 | $16,282,492 | $14,589,015 Developer's Budgeted Gost of Construction | $35,028,300 | sas 928,300 | $35,928,300 Tess Market Rental sale proceeds Valuation @ 5.0% | $15,370,540 | $16,767,860 | $18,165,180 Tess Market Commercial sale proceeds Valuation @ 5.5% | $1,693,091 | $1,904,727 | $2,116,364 "PRHC Cost” affar Developar's sale proceeds | ¢19, 064,669 | $17,255,713 | $15,646,756. Note: At $2.20psf_ NO! $768,527 At $2.40psf_ NOI $838,393 At $2.60psf_ = NOI $908,259 from from from 39,918sf Market Rentable 39,918sf Market Rentable 39,918sf Market Rentable2 Based on blended Vacancy (1.5%), Operating Expenses (26.6%) and Miscellaneous income, proportionally at 27.7% blended rate, $2.20 psf. _is BC Housing's projection for conservative comparison case $2.40 psf _is the Developer's proforma expectation $2.60 psf _ was BC Housing's projection for conservative comparison at 23- 51 W Cordova where the Developer projected $2.85 expected in their proforma. DAS projected that comparable at $2.65psf and a What If Scenario at $2.45. Note: At $16psf NO! $93,120 from 5,820sf Market Commercial At $18psf NOI $104,760 from 5,820sf Market Commercial At $20psf NO| $116,400 from 5,820sf Market Commercial Development Cashflow The Developer has not yet provided a project cash flow, however, such cash flow is expected to be based on a model in which BC Housing is financing 100% of the project’s capital budget. The approval of financing by BC Housing has not been completed, nor may BCH be able to provide financing for 100% of all components; BCH has yet to determine whether the ‘Commercial and/or Market components will meet BC Housing's lending criteria, but under the umbrella of PRHC ownership this should be possible. These assessments and various factors will need to be confirmed, with the cash flows and gross capital budget adjusted accordingly. Given the current potential ownership structure with PRHC to be purchasing the lands and property, itis anticipated that BC Housing will be providing 100% of the interim construction financing to PRHC for the project. The preferred procurement path for reasons of tax and interest savings, and is what is expected to be proposed by a Purchase and Sale Agreement and LOI to be forthcoming, Based on the information available, there exists a range of between $2,095,000 (Commercial) and $20,726,000 (Total of Developer's Market rental valued at $18,631,000 and CRU ‘Component valued at $2,095,000) in possible cash flow outcomes that the Developer will need to manage as its part of the put option purchase price and its own take-out financing, depending if the Developer keeps or sells the Market and Commercial units. It is assumed the majority of exposure will be offset by the various legal agreements, guarantees and individual financing arrangements which the Project Partners will be determining in due course. ‘Once the legal documentation to put into place, and the PRHC ownership structure, LO! terms and Development Agreement are confirmed, the Developer and BC Housing will need to address the air space parcel / stratification or subdivision processes which are expected to ‘occur as well as the valuation and determination process for the put-option purchase price. The results of these discussions and further terms and conditions will be part of the final project approval process. Further analysis is provided in the underwriting section. As part of the terms and conditions of any future approval for financing to PRHC, BC Housing would request periodic updates from the Developer to better understand the status of the Developer's design development, municipal processes and the capital budget confirmations.22 Operating Model ‘An outline of how the project will be operated and the types of agreements that will be required is presented based on partial information presented by the Developer and discussions to date between Development and Asset Strategies and Orange Hall Regional Operations staff. The Developer intends to own and operate the Commercial and Market rental components. BC Housing through PRHC intends to own and operate the Non Market units, and as explained in the Revenue section, BC Housing will own the Non Market units “at cost" after receiving the Market and Commercial units’ sale proceeds from the Developer upon completion of the put option purchase. Development Strategies provides only discussion on the Non-Market units for the Operating Model below. The early stages of the redevelopment present an opportunity to refine the selection process for a new operator, and BC Housing typically uses the opportunity to identify Non-Profit Operators who will operate a new facility and house tenants potentially including clients with additional needs; as such, delivering service to clients long term may be an area that a prospective society may receive consideration for vis a vis their operating experience in this capacity. BC Housing has not yet formally confirmed the operator of the 104 Non Market units, and BCH Regional Operations recommends an RFP process for the NP operator for all developments. Currently, Atira Women’s Resources Society ("Atira’) has been working with the Developer on the design development plans and operating model and are in negotiations and discussions with the Developer on the project. The formal establishment of Atira’s status as operator of the new Units will be based upon requirements established more formally going forward as the development process proceeds; however, one of these requirements will be confirming the Society's constitution and bylaws are acceptable to BC Housing. Another critical factor is that any Operator that BCH is considering entering into an agreement with should be in satisfactory financial and operational standing. To date it is known the Society has been in ongoing discussions with CRA, and Atira’s arm's length “Atira Property Management” group may also be reviewed as their involvement pertains to delivery of services. Also of note the most recent financial review of Atira showed that the Society is high risk financially. Additional requirements and the decision for formal acceptance will be confirmed as the development process progresses. The present operating model provides the following: ‘© PRHC will retain long-term ownership of the Income Assistance ("l.A.”) (shelter rate rental) units and the HILs units ‘+The current site provides around 104 units of housing including (in the current 11 storey, 116’ model) provision of: © 34 self-contained studio units at $375 shelter rates (approximately 263 sq.ft. each) © 70 self-contained studio units at HiLs rates (also approximately 263 sq.ft. each) © Note: the Project Partners intend to conform to City requirements - which may result in having to maximize the number of $375 housing units andlor the number of housing units at HiLs rates (or some proportion thereof) in relation to the total number of units in the redevelopment. The City may contribute input further altering the unit mix in regards to Non-Market units, yet to be determined. + An Operator agreement will be put in place with potentially Atira as the operator for a term of typically 10 years (5 years plus 5 year renewal option or other combination as agreed between the parties).23 * As PRHC's contribution is contemplated to be a straight equity contribution with no take- out financing planned at this stage, the Operating Budget will not require net operating income from the Non-Market units to debt-service a long-term mortgage ‘* Upon completion of construction, the remaining Market portions of the project, (i.e. Market rental tower units and ground floor Commercial CRU space) will be sold to the Developer for their ownership and operation through a put option agreement and put option purchase price. With the administration of property management services on the site across the components, there could be savings generated through operating economies. Without the requirement of debt servicing, the operating revenues from the Non Market units should be sufficient to offset any deficits in the operations of the Non Market component ongoing Atthis time, itis undetermined if the City will require that an operating management plan be provided for the Non Market units. Once determined and if required, a draft operating management plan and operator agreement will be completed with the awarded Non-Profit operator prior to final project approval. Depending on City of Vancouver and BC Housing requirements including the determination of the new units as "supportive" or “social” housing, budgetary limitations or other factors, an operating pro forma may or may not need to be developed by BCH Orange Hall Regional Operations in conjunction with Development Strategies staff to allocate for specific support services. Currently the budget does not provide for supports of any significant extent. In regards to Operational inputs into design phase planning, Orange Hall Regional Operations previously noted on comparable projects that a single amenity space for all Non Market units will not suffice; and that one amenity area for each internal community may be required. Design drawings have currently been provided to Orange Hall Regional Operations for review and comments on the design suitability and practical aspects of the proposed floor plans including amenity rooms and kitchens. ‘Should the City mandate the project meet District Energy Ultlity4 (DEU) requirements, Operations also previously commented in reviews of comparable projects that they have witnessed such costs on recently completed BC Housing projects come in extremely high. Operating Proforma Development and Asset Strategies has conducted an analysis of the operating Proforma, BC Housing's review of the operating expenses is based on the Operating Cost Target Framework. Please see attached operating budget analysis for specific details. Orange Hall Regional Operations will complete a preliminary review of the operating budget. Further analysis of the operating budgets and operating management plan will need to be conducted prior to sign-off and Final Project Approval. * Currently, the Developer's budget holds zero ($0) allowance for DEU undertakings of any significant proportions.24 Lending typically recommends further analysis of the LOI, Development Agreement, capital budget and operating budgets and financing model to assess the financial viability and risk elements of the project. Underwriting analysis PRHC will be the owner throughout the development process for any PDF monies requested and the interim construction financing. It is contemplated that take-out financing will not be provided by BC Housing; instead arranged by the Developer if the Developer decides to sell the Units rather than continue to operate the units after completion. in any event, the Developer will need to either obtain its own take-out financing or ensure an investor purchaser completes its own take-out financing for the Market and Commercial units. Underwriting analysis ~ Demand Loan At this stage PRHC will be negotiating and entering into a Purchase and Sale Agreement, a Letter of Intent and a subsequent Development Agreement with the Developer, PRHC and BC. Housing. Developer has requested that BC Housing pay out the land financing from HSBC should PRHC purchase the lands and property, for which the loan balance of approximately $5.83M plus some additional costs is requested. Architecture fees and other soft costs continue to be borne by the Developer. Development and Asset Strategies estimates the financing at a maximum upset price at $6,087,000 plus GST of $304,350 for a total of $6,391,350 including GST for PRHC to purchase the lands and property from Wall Financial Corp. for the proposed 172-unit project at 292 East Hastings Street, Vancouver. Risks associated with the Land purchase financing are discussed in the Risk Register. Please note because PRHC will be the Potential owner of the property, the interim financing will not be secured against title to the four (4) parcels identified in the Land Tenure and Charges on Title sections. If requested in future and if Executive Committee agrees, the up to $13,008,891 cost advanced to PRHC could allow the Developer to complete design development work required under the to be negotiated and finalized LO! and Development Agreement prior to construction start, without separate development finance request to BC Housing or a third party lender. Given the current analysis by Development and Asset Strategies staff on the Developer's capital budget cost, variances of overall 11.1% between the two budgets are manageable and could be sufficiently mitigated through value analysis and further due diligence. However, the factors affecting valuation of the Market component will need to be carefully considered, as a slight discrepancy in assumptions on market factors or the capitalization rate can lead to different net sale proceeds from the put option purchase price to be returned to PRHC to offset the interim construction mortgage to be advanced. Because the Put Option is a legal agreement whereby the Developer is obligated to complete purchase of the Market Rental and Commercial units upon completion, itis believed the Put Option terms will address risks associated with potential withdrawal or failing to complete the put option purchase by the Developer. Should there be additional circumstances under which BC Housing should be prepared to increase an equity injection (up from front-end loading of $0, contemplated for the Non Market units), or alternately be prepared to commence operating the Market and Commercial units in place of the Developer on an ongoing basis, these circumstances will be evaluated as the LO! and Development Agreement terms are assembled.25 Regardless of that decision to provide equity earlier or not, BC Housing will need to provide 100% financing for the project potentially as its responsibilty as the owner of the lands and property but knowing that the Developer will have the obligation to be put to purchase the Market and Commercial units at the put option purchase price. BC Housing would complete a further underwriting and financial impact and risk analysis to determine the best course of action and provide alternatives for Executive Committee to decide upon as part of the final project approval process. Savings would also be dependent on the final form development, design efficiencies, determination of the put option purchase price and any value analysis during the design development stages. In all circumstances, PRHC would stil be required to provide an equity contribution to pay for the Non Market units as the owner for that component of the project. Underwriting Analysis — BC Housing Interim Construction Financing The Developer intends to request that BC Housing, as a Project Partner, provide 100% financing for the three (3) Project components to facilitate project completion, with PRHC’s purchase of the lands and property to be identified as an equity contribution for the Non Market Units. The final method of financing for the project has not yet been determined, but itis contemplated that BC Housing will provide 100% interim construction financing to PRHC as ‘owner. However, BC Housing's approval will be required in due course as the project financial and design development take place to determine the final amounts to be approved for any interim construction financing by BC Housing,26 Developer's Sensitivity Description (Based on full project) Proforma Analysis Effective Gross Revenue $2,096,398 $2,096,398 Total Operating Expenses -746,495 -861,970 Net Revenue surplus 1,349,903 4,234,427 Debt Servicing Costs (based on $35,928,300 | @ 4.25%) 1,946,409 1,964,409 DCR Calculations 0.6935 0.6283 Reverse Calculations based on NOI: Maximum loan based on DCR 1.1 @ 3.0% $26,644,520.88 $24,365,253.63, ‘Surplus 7 (Shortfall) Equity & Fundraising requirement ~$10,721,643.98, ~$12,791,400.24 Maximum loan based on DCR 1.1 @ 3.5%. $24,832,019.75 $22,707,792.63, ‘Surplus / (Shortfall) Equity & Fundraising requirement. “$12,534, 154.12 “$14,448, 861.24 Maximum loan based on DCR 1.1 @ 4.25% $22,444,755.10 $20,524,743.84 ‘Surplus / (Shortfall) Equity & Fundraising requirement “$14,921,418.77 $16 631,910.02 Maximum loan based on DCR 1.0 @ 3.0% Surplus / (Shortfall) Equity & Fundraising requirement $29,308, 982.87 ~$ 8,057,190.99 '$26,801,778.99 ~$10,354,874.87 Maximum loan based on DCR 1.0 @ 3.5% $27,316,221.72 $24,976,571.89, Surplus / (Shortfall) Equity & Fundraising requirement. -$10,050,952.14 ~$12,178,081.98 ‘Maximum loan based on DCR 1.0 @ 4.25%. '§24,689,280.61 $22,577 218.25 ‘Surplus / (Shortfall) Equity & Fundraising requirement ~$12,676,943.26 “$14,579,435.6427 BC Housing Developer's ‘Sensitivity Description (Based on PRHC portion only) |_Proforma’ Analysis $ 830,000.00 $ 830,000.00 Effective Gross Revenue Total Operating Expenses incl. Vacancy -423,250.00 -528,250.00 Net Revenue surplus 406,750.00 301,750.00 Debt Servicing Costs (based on $15,564,500 | @ 4.25%) 840,066.60 840,066.60 DCR Calculations 0.4841 0.3591 Reverse Calculations based on NOI: Maximum loan based on DCR 1.1 @ 3.0% $_8,028,470.13 $5,955,970.16 Surplus / (Shortfall) Equity & Fundraising requirement -$_8,611,529.87 -$9,408,529.84 Maximum loan based on DCR 1.1 @ 3.5% $_7,482,328.63 $5,550,811.71 ‘Surplus / (Shortfall) Equity & Fundraising requirement -$_9,157,671.37 -$9,813,688.29 Maximum loan based on DCR 1.1 @ 4.25%. $_ 6,763,003.39 $5,017,175.84 ‘Surplus / (Shortfall) Equity & Fundraising requirement -$_9,876,996.61| _-$10,347,324.16 ‘Maximum loan based on DCR 1.0 @ 3.0% $_0,891,317.14 ‘$6,551,567.17 ‘Surplus / (Shortfall) Equity & Fundraising requirement -$_7,808,682.86 -$8,812,932.83 Maximum loan based on DCR 1.0 @ 3.5% $_8,230,561.50 $6,105,892.89 ‘Surplus / (Shortfall) Equity & Fundraising requirement 8 8,409,438.50 -$9,258,607.14 Maximum loan based on DCR 1.0 @ 4.25% $ 7,499,303.73, $5,518,893.42 ‘Surplus / (Shortfall) Equity & Fundraising requirement -$ 9,200,696.27 -$9,845,606.58 The above table shows that in all projected interest rate take-out scenarios, and on both the Developer's and BC Housing's revenue and Net Income projections, the project will require significant equity contributions from the Project Partners and while this may seem like @ significant equity funding gap, this is @ procurement "at cost’.28 Operating Budget Revenue and Operating costs - by Component (Latest 116" Height Scenario): Developer's Market Shelter HIL (70 CRU Total Operating Budget Rental (68 | Rate (34 | Units) —_| ($18psf) Units) Units) Developer's Budget ‘Avg. Revenues PUPM 30,918sf of Net Market Rental x$2.40psf x12 mos); 5,820sf of Commercial; “Total” vg NIC Commercial (172 Units) $1,408.87| _$375.00| _$800.00| 8,730.00| $1,007.46 Rent Revenue $1,149,638 | $153,000| $672,000 | $104,760 | $2,079,398 Mise (eg Laundry) Revenue | 542,000 so| $5,000 $17,000 Less Vacancy @ 1.5% on Market, 1.0% on Non- Market units $17,245 |__-$1,530|__-$6,720 -$25,495 ae $1,144,303 | $151,470 | $670,280 | $104,760 | $2,070,903, Less Expenses Operating Coste -$306,000 | -$170,000 | -$245,000 $o|_-$721,000 PUPM (Total represents average of 172 Housing units NIC Commercial) -$375.00|_-$416.67|_-$291.67 $0] -$349.33 Net Operating Income $838,393 | -$18,530| $425,280 | $104,760 | $1,349,903 Debt Services “Annual Principal and Interest Payment; $35,928,300 @ 35 year amortization, 4.25 %la. $1,964,409 Deficit (Note 1) (614,506) ‘Annual subsidy (Note 1) Per unit per month subsidy ($298) (172 units) Underwriting analysis Debt Coverage Ratio (Net Operating Income/Total 069 Debt Service) Loan to Value Ratio 10.00% Loan to Cost Ratio 100.00%29 Note #1: The deficit and potential annual subsidy is based on a worst case scenario wherein the Developer does not purchase the Market or Commercial components and PRHC is debt servicing the fill project costs of $35,928,300. Note #2: BCH Orange Hall Regional Operations suggests that a determination for housing to be Social housing per se makes sense for the housing model proposed, in which the model is, social housing with very light supports on the shelter rate units only. Light supports would not qualify as true supportive housing (ie. 24/7 supports, potential meal provision, etc) which the current operating budget does not support. BC Housing Lending department was consulted to review this Executive Committee submission. Lending has had input into the analysis of this pro forma and has reviewed the financial content of this document as at August 12, 2016. Affordability Actual Affordability levels are being set as per the pro forma currently pre- determined at $375 Shelter rates and $800 for HiLs to achieve the net operating income (NOI) noted in the Operating section above. For the Market tower, this component is not contemplated as a low end of market rental per se but currently the Developer is carrying these rental units at $2.40 per sq.ft. which equates to $1037 for Studios (432sf), $1327 for 1-bedrooms (553s!) and $1848 for 2-bedrooms (770sf) While most of the project’s affordability considerations apply to the Non Market component; a “low end of market" affordability scenario may be achievable on the Market tower should BCHIPRHC wish to finance and operate the tower long-term to underwrite such benefits (under situation of default or in this case withdrawal from the project by the Developer) however Development and Asset Strategies has not undertaken analysis of these scenarios for the purposes of this submission. BUDGET AND COST MANAGEMENT Cost Target Framework Development and Asset Strategies has established a Cost Target Framework tool which projects are reviewed against during their initiation and/or development stages to determine if the project is within BC Housing targets for building area, efficiency and project costs (hard and soft costs excluding land). The project has been reviewed based on this Framework. Project costs are within the cost targets set by the Framework, with the following notes: 4. Building area and overall building efficiency are on par with the Construction Target Framework; the Developer appears to be assuming an 84.7% efficiency which is ‘somewhat aggressive but once the CRU floor area is backed out appears to be 77% which should be readily achievable; 2. Base Hard Construction Costs are within an acceptable range of { $212 to $220 } per sq.ft, including:30 a. Zero ($0) allowance for District Energy Utility (DEU) undertakings or future connections thereto; b. LEED factors are accounted for in the capital budget at a total cost of 51% representing a proposed BC Housing share of the full $1,922,468 which DAS Construction Cost Target Framework projects to be the full cost of LEED Gold. This 51% in included within the BC Housing Budget Construction line item (see Sustainability and additional notes on LEED options); ©, Durability factors are not currently in the Developer's budget, but are included the BC Housing budget analysis by Development Strategies; 3. Soft costs fall within an acceptable range, on the high end of the range at { 35.7% } of, Total Hard Costs at the Developer's current fee of 10%, which if reduced to 7% would reduce Soft costs as a percentage of Hards to 32.9%. While air space parceling is an additional complexity to be addressed, the Developer is accustomed to such legal undertakings, and the budget includes for Legal costs, which the Developer will need to assure BCH is sufficient. 4, Total Project Cost is reflected currently in a variance of 11.1% between the Developer and BC Housing budget analyses. Development and Asset Strategies staff recommends approval of the capital budget and building design to date, noting all caveats, line notes, and risk considerations highlighted in this Executive Committee submission. Construction Procurement The Developer, proposes in its current pro forma to provide development management (OM) services directly, with a contemplated remuneration fee®of 10.0%. Developer has not yet clarified whether CM fees or other relates fees/costs will be included in this amount and need to be clarified moving forward. Development and Asset Strategies has made recommendations regarding the remuneration fee in this report. will Development and Asset Strategies recommends that BC Housing may wish to contemplate requesting the Developer fix their fee (as a fixed price), as is common practice in the market. This provides a measure of price certainty, and generally protects the owner (BCH) from upward movement should hard costs rise. In return, the Developer gains a measure of price certainty as well, in the event that hard cost savings are realized, common arrangements include for the Developer to be incentivized (keeping a negotiated % share of the savings) or otherwise need give nothing back on its fee. As the project becomes ready to tender, it is presumed the Developer would conduct an invitational tendering of the construction works. Once sub-trade pricing has been established, it is anticipated a CCDC-2 construction contract may be drafted between Developer and PRHC / BC Housing for the project scope of work. It is noted that Atira is currently the operator that i discussions and negotiations with the Developer but Atira would not likely be named party to contracts under the arrangement currently contemplated. * Refer to non-Draft LO! Typical Outline Term Paragraph 8.31 While not stated explicitly, since the Developer appears essentially to be proposing an integrated delivery process, drawing upon its in-house services and those of its consultants, although BC Housing should clarify whether a scope of “pre-construction services” will fall under those services covered by Developer's DM fee, or whether an additional CM at an additional cost would come on board for this purpose concurrently with development as the design team approaches 75% drawings, as is typical of an integrated delivery process. As CM fees for pre- construction services would be on an order of magnitude $100,000-200,000, the cost would appear absorbable in the context of a 10% DM fee. Development and Asset Strategies suggests BC Housing needs to clarify the Developer's intent to provide pre-construction services: () whether pre-construction services will be on a pro bono basis, equivalent to being “included” in Developer's Development Management Fee" of 10.0% [see above, order of magnitude $100,000-200,000}; or (i) whether CM feeds during construction will be at an industry-practice fixed price to be shared by the parties on completion, or included in the DM fee of 10.0% The 10% sum currently represents $3,316,000 to Wall Financial. Finally, depending on the outcome of the above, Developer should clarify whether for the early stages of pre-construction CM services will these be formalized with a CCDC-5 contract as is typically drafted between CM and PRHC/BC Housing for the project scope of work, or optionally, if Developer absorbs this relatively low-cost monthly fee in its various billable services (see (j)) both the Developer and BC Housing may prefer a simpler contract without introducing a standard form CCDC-5 unnecessarily. Legal counsel will be consulted on these and other items in due course. Of note for negotiating LO! and Development Agreement terms, while the 100-200k Pre- construction Services fee typically paid to CM's may seem inconsequential in proportion to the 10% $3,316,000 Developer's fee, CM Pre-Construction Services arrangements, in the variety of ways in which these can be formalized, can establish a “Contract A" precedent, therefore careful review of these agreements will be undertaken as the project moves forward, Plan Reviews Development and Asset Strategies has conducted two (2) plan reviews to date based on the preliminary schematic / draft Development Permit Application drawings. Additional reviews and sign-offs will be completed at the pre-determined milestones established by BC Housing guideline. Issues arising from review(s) will be provided to the Design Team and Developer/Construction Manager. Comments pertaining to durability and accessibility have been provided to the Design Team, along with feedback based on BC Housing Design guidelines. Some issues with minimum outdoor space being provided have been raised on the smaller residential units, © Development Management Fee of 10.0% is on the total of hard and soft costs (including financing costs: currently including 50% of Land costs) for day-to-day management of and implementation of the development and ‘construction of the Project. Market rates for CM fees range from 2 to 4% and average 3% on large projects of this nature, plus markups for profit and overhead on all changes.32 Any units to be retained by PRHC- ownership will need to comply with BC Housing's Design Guidelines, hence the Project Specifications will need to be approved by Development and Asset Strategies. Development and Asset Strategies has currently included Durability- and BCH Design- related provisions in BC Housing's development budget for the project (refer to Capital Budget), but LEED is accounted for at 51% of the full cost projected to be $1,922,468 which DAS’ Construction Cost Target Framework projects to be the full cost of LEED Gold. This 51% in included within the BC Housing Budget Construction line item. The Developer's share of LEED is excluded from BCH Budget currently. As mentioned BC Housing's capital budget analysis accounts for a 51% factor was used as the developer's budget seems to show pricing to include some sustainability measures. Quantity Surveyor Quantity Surveyor “QS" reviews will be employed to review the construction costs throughout the design phases of this project. A review will be undertaken at predetermined milestone stages and the QS shall confirm that the Construction Manager's construction cost estimate is in line with the estimated market price of this project, and appropriate contingencies are in place. PROJECT RISK / PARTNERSHIP RISK Refer to the attached Risk Register. We note the more salient risks based on the recommendation to enter into a Purchase and Sale Agreement, Letter of Intent, and subsequent Development Agreement and based on the fact that a land loan for mortgage discharge is requested but the full bridge demand loan and interim construction financing have not yet been requested. Further due diligence and financial feasibility analysis will continue to be completed as the Developer completes the design development and municipal approvals process and provides further information to BC Housing. ‘* Current LOI Terms — Developer's exclusive authority. Of particular concem is the concept that Developer may possibly lead the development particularly such that Developer may write into the LOI the Developer's right to have exclusive authority to direct the Prime Consultant (Architect and Certified Professional), even on areas of the project which are to be procured for the exclusive ownership and benefit of PRHC / BCHMC. Should such a contemplated loss of direct control over the Prime Consultant ‘occur, itis a contractual liability to the Owner; ifit is not raised and negotiated to the satisfaction of PRHC / BCHMC in early stages. Doing so at a later date could possibly jeopardize the Project Partners’ relationship and potentially lead to Developer walking away. To mitigate this situation, the finalization of the Development Agreement between the Project Partners would need to outline in greater detail these relationships, the reporting structures and rights of each of the Project Partners when it comes to final decisions of the design, construction and potential changes to the scope being provided by the affiliated companies. ‘+ Forthcoming Draft LOI Terms — Conflict between Developer and Construction Manager (‘CM"). Where scopes of work are to be paid-for and title ownership is to be had on an air space parcel shared with the Developer, who in turn has relationship with the CM sharing costs with PRHC upon completion, there exists a potential imbalance of contractual control which could peak during the course of construction. This imbalance may lead to decisions which benefit the Developer both in short term / long term (construction cost savings vs. overruns passed to PRHC / BCHMC left holding the liability down the road). The Development Agreement and related negotiated agreements will spell out more details as the project moves forward; however it may be33 advisable to retain some (not all) levels of control(s) normally afforded to the Owner which could include, for example, retention of Owner Cash Allowances at the Owner's sole discretion and approval, such that any billing(s) against cash allowances require fixed price proposals for these scopes, to be reviewed and approved in advance of any actual work and billing thereof. Most CM's are familiar with these terms, albeit with some reluctance, as the onus is on the CM to do a little more leg work, to be organized on costing all scopes with Cash Allowances ("CAs") in advanes, etc. Project timelines: The project is stil in early stages of the development process. As a result, assumptions pertaining to the capital budget have a potential to change before they are committed by way of contract or agreement. The Developer has not committed to a capped capital budget and will be looking to the Project Partners to finance or provide its share of any additional costs above the $35.9M either from BC Housing's interim construction mortgage or with additional equity resources from the Project Partners. BC Housing will perform additional feasibility analyses and assess additional impacts and risks to the feasibility of the project for increased costs during the Provisional Project Approval process. Interim Financing Model terms and conditions. Analysis of the interim financing underwriting has not been fully flushed out at this early stage. Based on the final financing requirements to be determined, the final financing structure could pose more or less risk to BC Housing depending on the final put option purchase price for the Market. and Commercial components purchase by Developer to PRHC (the currently expected arrangement). f BC Housing does approve financing of 100% of the project, risk mitigations would include ensuring that the Developer has identified take-out financing to complete the purchase and sale of the Market units and the Commercial component and a 3rd party lender has provided a firm commitment to complete take-out financing sufficient to retire the outstanding balance for the BC Housing interim construction mortgage to complete the put option purchase. As a Project Partner, BC Housing and PRHC could have to bear additional increased costs in the interim construction loan facility, but these would be expected to be modest sums. Put Option Purchase Price - Market and Commercial Components’ Sale Valuation - The contribution from net proceeds of the Market and Commercial units is in direct correlation to the assumptions used to value the Market and Commercial units and the ultimate put option sale price of the Market and Commercial units. Fluctuations in the assumptions on the capitalization rate to determine the valuation for the put option sale price can strongly affect the final net proceeds back to PRHC that may be totally independent of capital budget costs relating to the project delivery being held on time and on budget. While the capitalization rates will be dependent on comparable market sales and on market conditions now and in future which holds an element of uncertainty, demand is expected to remain high and good need and demand analysis as well as proper due diligence through market data, a market rent appraisal and CMHC reports should mitigate risk in this area as well as determination of the valuation process in the put option agreement to determine the put option purchase price. The intent is for PRHC / BC Housing to negotiate with the Developer to ensure that the put option purchase price will be the greater of the actual cost of construction versus the capitalized market value. In essence, the Developer will pay the amount equal to the cost of the Market and Commercial components even if this price is greater than the market valuation, to offset the interim construction mortgage for the cost of these units by BC Housing to PRHC is made whole through the sale.34 * Capital Budget Pressures. While the Development Strategies analysis of the capital budget appears to align with the Developer's budget estimate, and BC Housing's Cost, Framework, the estimated capital budget is still in its infancy and there are multiple factors that could affect and significantly impact the capital budget. Further to this there are several liabilities that could contribute to cost overruns that include but not limited to tender pricing, LEED requirements, DTES LAP / DEOD zoning, other municipal requirements, municipal approvals on height (currently 116° with 99° permitted) and density, project specifications and other factors. * Developer will be instrumental to the development and construction process and insuring competitive pricing is received for the Project Partners. Should Developer decide not to proceed with the project, it is unclear if the project will be feasible, as PRHC may not be able to operate the Market rental units as an affordable or LEM component based on the projected rents based on the 68 units (Refer to the Affordability section). The Developer's non-participation at some point after project commencement represents one of the greater project risks, and although the security for same is believed adequate, analyses have yet to be confirming those potential operating parameters. In the event that Developer is unable to continue project participation or if the Developer is unable to buy out the BCH/PRHC Market and Commercial component net proceeds, it would be conceivable that PRHC could become party to a scenario involving long term rental of the Market and Commercial units. This event would also involve PRHC having liability for any long term take out mortgage that would be required, or additional equity contribution or monthly subsidy in order to retire any interim construction mortgage associated with the Market and Commercial units. In addition, there could also be long term operating costs or losses depending on the Net Operating Income of the Market Units and the final take-out rate on the long term mortgage. Furthermore, the fact that PRHC may not be able to have ownership of “Market Rental Units” as part of their mandate, may also pose an additional hurdle to this risk. PRHC or BC Housing would need to review the options at that time, including providing additional equity, identifying a Non-Profit entity to transfer the Market and Commercial units, identifying operating or ongoing subsidy dollars, or potentially selling the units at a loss. While these mitigation strategies inherently pose a potential financial burden to PRHC or BC Housing, the main mitigation strategy would be to ensure through legal documentation (currently put option agreement) on the Market and Commercial units well in advance of construction completion to allow for proper retirement of any interim construction mortgage from BC. Housing. ‘© Municipal Approval - 11 storey, 116 foot scenario. The financial feasibility is tied to a number of municipal approvals and relaxations, such as approvable heights, parking relaxations, no DEU requirements as well as density allowable. While these factors could ultimately impact on the financial feasibility of the project, Developer and its design team have experience in working with the City of Vancouver to satisfy the City’s approval requirements. Recently, the City has granted permission based on the current design iteration to proceed to a Development Permit application, which appears to bode well in terms of early considerations for the design details presented to date; Endall Elliot Partners Architects are proceeding to commence detailed design of units and floor plans.35 Municipal Requirements — Unforeseen DTES LAP / DEOD zoning or other requirements. At this stage it is anticipated that Heritage requirements do not apply whereas other requirements for this site are generally known as outlined in the new DTES Local Area Plan which is still in its Infancy in terms of deployment; however, based on the municipal approvals not being completed, additional unforeseen requirements during the process could derail the process or put onerous requirements that would severely impact costs and the capital budget. The site is of significant value in the larger context of redeveloping the "Four corners” of the Hastings and Gore intersection, and the City may want to preserve some pre-existing cultural or other values or require additional requirements beyond what is anticipated. PRHC Site Ownership ~ Timing and Approvals. At some point in time PRHC will take over the land ownership and depending on the timing of tite transfer in regards to the progression of other legal and agreement documents, there are a range of agreements including LO! terms, details of the negotiated Development Agreement and so forth which have yet to be determined, but which will need to be coordinated presumably prior to the City granting approval on development factors such as height, density and other requirements as discussed above. Should the developer for any reason terminate the partnership prior to municipal approvals being in place, PRHC would wish to have options vetted in advance, which DAS will explore going forward, in regards to exit strategies including potential to sell the lands in their entirety, some portion thereof, or retain the full sites to develop a mixed-use development where PRHC could potentially sell portion of the development while retaining another portion as affordable rental stock as originally planned upon construction completion. Long-term financing is not required; however the Developer's long-term lender has not yet been confirmad in the event the Developer wishes to finance the purchase of the Market and Commercial units through the put option. The Developer or a party investor will have to identify a long-term lender in due course depending on the the Developers option to keep or sell the Market and Commercial units. If the Developer cannot source a firm take-out commitment then repayment in full of BC Housing’s financing at construction completion may be delayed and the resulting extended timeframe on the interim loan could impact BC Housing's cash flow position. Long-term Financing interest rates play a lesser role in the viability of the project dependent on the final exit strategy option chosen by the Developer. At the same time, interest rates will play a major role for the valuation of purchase of the Market units and Commercial component which could then impact the final net proceeds from the put ‘option purchase price from the Developer to offset any outstanding interim construction financing provided by BC Housing to PRHC. The interest rate fluctuations will be less of an impact compared to the Market Unit Sale Valuation assumptions as determined for the put option purchase price. Housing Agreement; itis unknown whether the City will have additional requirements and requirements potentially regarding a Housing Agreement or other covenants or requirements of the development permit application process. The objectives of such a housing agreement have not been outlined nor has a draft housing agreement with specific terms been provided. This could have implications for the operating Proforma especially around additional rental restrictions or rent levels to either of the project partners. The intent is that for any Housing Agreement to be registered on title, PRHC / BC Housing will ensure that any ongoing supports do not bind PRHC or BC Housing.36 * City of Vancouver and Streetohome grants; At this time, Development and Asset Strategies analysis has not included any potential grants from the City of Vancouver (up to $10k per door) or a matching grant from Streetohomes. As such, the final equity contributions could be further offset should the project be successful in obtaining these grants. In addition, PRHC would also need to consider the risks associated with accepting such grants especially from the City of Vancouver, should they require as a condition of the grants to provide ongoing support services in the Housing Agreements. Development and Asset Strategies will review and monitor these applications and contributions as the project moves forward. + NIMBY: The project will require development permit application and Director of Planning approval, and the project will be required to complete a Development Permit and Building Permit process along with community consultation as directed by the City. While we are currently unaware if there are any community groups that do not agree with the development of the project as currently proposed, there is stil a possibility that these groups may exist and would oppose the project's redevelopment, given the historical and heritage significance of the property. There could still be opposition leading up to the rezoning, development permits and building permits being received, completed, and approved by the City. ‘* Development Agreement and legal documentation: While the parameters of the Development Agreement are not yet drafted nor are the preliminary terms of a Purchase and Sale Agreement and LOI, there are still many terms and conditions as well as details not negotiated that will need to be sorted out between the Project Partners within the Development Agreement or other legal agreements to finalize the intent of the purchase and LOI. These other legal agreements include offer to purchase and sale agreements, potential equity contribution agreements, potential tripartite agreements, cost overrun agreements, Project Partner covenants and guarantees or a whole host of other legal documentation that have not yet been established or finalized. These agreements will be crucial to determine the terms, conditions and obligations of the Developer, BC Housing, PRHC and the requirements around affordability, financing and ‘economic feasibility for the project. * Market and Commercial units component Sale / Lease-up timelines: As the project is contemplating a put option agreement with the Developer for the Market and ‘Commercial units component, the timing of such put option or the put option purchase price has not yet been determined. In the event that the Developer requests in the put option agreement a sale of Market rental units or Commercial units as an already occupied or “used” property to potentially save on GST charges on new product transfer, the various lease up timelines could pose a delay in the timing of when interim construction financing is retired after the put option sale. The projected lease up period for the market rentals post construction could take up to 6 months or more. Especially, if the Market units are delayed the timing of put option purchase and any 3rd party take- out financing for such purchase will also be delayed by this same up to 6 month or more period. The intent for the Commercial unit component is for the Commercial units to be transferred to the Developer upon occupancy permit delivery or shortly thereafter, that would transfer the responsibility and risk of the rent up and GST to the Developer for the ‘Commercial component. In the event of Developer default on the put option purchase, PRHC may also not have sufficient Net Operating Income from the Market and ‘Commercial units to operate and debt service the amount required to retire the outstanding interim construction mortgage.37 ‘© Development and Construction Schedule. The development and construction schedule as submitted by Developer is considered aggressive. While Developer has the ability and track record to deliver an aggressive schedule, the City approvals processes and sensitivities to the site development may impose delays on the Developer to work through those municipal approvals or requirements. The development schedule could be severely impacted. Further analysis of the schedule will be required as the municipal approval processes are undertaken. ‘+ PDF Demand Loan Request. There is no current demand loan request however a tentative outline Interim Development Budget has been outlined in the Financials section. In Fall 2014 the Developer approached BCH about the project but has only recently approached BC Housing for PRHC to purchase the land and pay out the existing mortgage that was registered in Winter 2014/15 by HSBC on title. Since that time, this financing was renewed on a short term basis, and the request stands for BCH to take over the financing, for which the loan balance of $5.83M including closing costs for the land purchase is now requested. Architecture fees and other soft costs continue to be borne by the Developer. Development and Asset Strategies estimates the demand loan at a maximum upset price at $6,087,000 plus GST of $304,350 for a total of $6,391,350 including GST for a land loan for PRHC to purchase the lands and property from Wall Financial Corp. for the proposed 172-unit project at 292 East Hastings Street, Vancouver. Risks associated with the Land Loan are discussed in the Risk Register. ‘The PDF demand Land Loan will not be secured against title to the four (4) parcels as a result of PRHC ownership, ‘+ Operational Viability. BC Regional Operations suggests operational and financial concems with the contemplated NP operator. Financial Review risk rating is currently believed to be high; a full scale operational review is pending Fall 2015. Further, critical to operational success will be a thorough process of assessment (VAT) for applicants to match operational capacity of the completed units. See Direct Aware Risks. © Direct Award Risks. BCH Orange Hall Regional Operations recommends that the NP Operator be selected through an RFP process. COMMUNICATION STRATEGY Despite ample provisions being met in compliance with the official DTES LAP area requirements, there may be concems from groups including Carnegie Community Action Project and other advocacy groups. ‘A communication plan pointing out the new built capacity in the City since the opening of the site will be needed to address these concerns. Local homeowners who have concems about the activities of the site should be able to support the redevelopment. The project should receive support for its innovative approach to redeveloping and reinvigorating the lackluster property, especially the reclamation of public space in 292 East Hastings "Four corners" intersection, which is currently run down in many regards. Increasing pedestrian safety, boosting community uses of landscaped sidewalks and setbacks for public space, and38 inoreasing community safety through environmental design (CEPTED) from the pedestrians viewpoint should complement amenity features planned for the 292 East Hastings clients, as per new LAP guidelines. Given the new development is targeting to include 60% social housing, significant community opposition is not expected. Development and Asset Strategies has consulted with Corporate Communications and will continue to work closely with the Developer and the Society that would be awarded as an operator to support the project's communications needs, maintain consistent messaging, and to ensure that all communications materials are appropriately vetted by stakeholders Provided the project receives Provisional and Final Project Approval, the next opportunity for an announcement will be an official groundbreaking event, held in Spring 2016 to coincide with the commencement of construction. SCHEDULE While the Developer has yet to provide a detailed construction schedule for the redevelopment project, an outline development schedule is included below. In the interim, Wall has expressed its intention to break ground for construction as early as March 2016. A course of construction duration of approximately 16 months is currently indicated in the outline schedule. Tentative Preliminary Outline Schedule showing Key Dates: Design Panel Approval 31 August 2015 Development Permit 31 October 2015) ‘Sign off Outline /1D Specifications | 15 November 2015 Working Drawings, BP Submission | 15 December 2015 Building Permit (05 February 2076 Final Project Approval 05 February 2016 Construction Start Date 01 March 2016 ‘Ocoupane; Tentatively May 2017 PROPOSED PROJECT APPROVAL TERMS AND CONDITIONS While it has not yet been determined whether the project will required PDF funding monies totalling up to $5,865,000 plus GST, the following Terms and Conditions will be required for the project and, if approved, the proposed PDF interim financing required to meet further requirements to receive provisional and final project approvals from BC Housing, 1, The funds advanced will form part of any approved funding or financing that may be provided to PRHC; 2. Request for a payout statement from MORTGAGE HOLDER (eg: HSBC) on the existing mortgage; 3. The financial assistance is available exclusively for PRHC to develop the proposed construction project on the Site as described in this Executive Committee submission located at 292 East Hastings Street, Vancouver, British Columbia; 4, The Society ultimately selected agrees to make the necessary changes requested by BC Housing to their bylaws and constitution to comply with BC Housing's requirements including passing resolutions with Society members to accomplish this condition;39 5. The funds will be paid to as required to facilitate payment of costs to complete the purchase and sale of the lands and property by PRHC from the Developer plus holding costs and associated costs to be determined through a Purchase and Sale Agreement. 6. THE DEVELOPER is to submit to BC Housing copies of all reports, permits, plans, surveys and studies or other information from the developer or other party which are directly related to the proposed project and requested by BC Housing. All information requested shall be to the satisfaction of BC Housing; 7. THE DEVELOPER shall update BC Housing on the progress of all municipal approvals, construction schedules, changes to the design and/or construction on a monthly basis; 8. Compliance with all zoning, development permit and building permit requirements; 9. BC Housing requires a property appraisal subject to BC Housing's satisfactory review; 10. BC Housing's approval of any documents that are proposed to be or are registered on title and granting of any priority agreements required by BC Housing; 11. Confirmation of BC Housing's satisfactory title review and approval of all charges to be placed on title for mortgage purposes; 12. The Developer will provide revised capital and operating budgets to BC Housing at predetermined milestones to be reviewed and approved to the satisfaction of BC Housing meeting the CPI and/or other lending criteria and project feasibility requirements; 13, Provide all legal agreements in draft form prior to execution by THE DEVELOPER to PRHC and BC Housing for its satisfactory review including but not limited to Purchase and Sale Agreement, Letter of Intent, Development Agreement, Housing Agreements, Operating Agreements and other legal documents; 14, Provide all documentation and confirmation of equity contributions, debt financing arrangements and/or lines of credit or other documentation as required by BC Housing as it relates to the financial Pro forma for the Sites; 15. All consultant reports including Hazardous Materials, Geotechnical, Environmental Reports et cetera for the Site to be provided to BC Housing; additionally, reliance letters will be provided as requested by BC Housing; 16. Any consultant or contractor agreements shall be provided to BC Housing at predetermined milestones to be reviewed and approved to the satisfaction of BC Housing meeting CPI and/or other lending criteria and project feasibility requirements. Specifically all CCDC contracts shall use BC Housing's Supplementary General Conditions (SGCs) or those SGCs approved by BC Housing; 17. THE DEVELOPER will provide a development cash flow noting the projected timing of capital project costs; 18, THE DEVELOPER agrees to make reasonable changes to the project design plans and specifications based on BC Housing's staff recommendations at predetermined milestone dates based on BC Housing plan review guidelines; 19, The approved funding does not constitute a commitment by BC Housing for any additional capital, operating or support funding, The Terms and Conditions will be met by PRHC and/or DEVELOPER as outlined above, as part of the conditions and/or demand loan conditions for transfer of title of the Site to PRHC.40 Prepared by: Matthew Brodie, Senior Project Officer nature (signed by originator, iniialled by Responsible Director submitting, if not the author) ‘Signature, Vice President REVIEW & SIGN-OFF \ have reviewed the project and confirm this project meets BC Housing requirements in the following areas: Regional Director (initial) Risk Management Procurement Budget and Cost Management Reporting and Monitoring Operating Agreement Approved Operating Budget Approved Finance Review Date Submitted: August 19, 2015 Attachments: Need and Demand Study Capital Budget Summary Building Description ~ 27Apr2015 Progress Plans Risk Reaistry