Market and Feasibility Study

Waterfront Planning

TERMS OF REFERENCE

PHASE TWO & THREE

Financial Analysis & Defragmentation Strategy

NOVEMBER 1, 2010

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Market and Feasibility Study (Waterfront Planning)

TERMS OF REFERENCE

INTRODUCTION

The District of Mission is located along the Fraser River – a water resource that has been central to the development of the community given its industrial legacy. The river continues to have an industrial function, but increasingly, it is being viewed in terms of the opportunities it presents for mixed-use residential and commercial waterfront development. The waterfront represents a significant opportunity for Mission to achieve urban land intensification for over 60 hectares (150 acres) of land designated for high-density residential and mixed commercial/residential uses and industrial uses.

As part of the vision to redevelop the waterfront, the District seeks a development services consultant to complete an independent market and development feasibility analysis of Mission’s waterfront. The key purpose of the market and financial development analysis is to determine the overall market and financial viability to planning and redeveloping the waterfront lands.

The market analysis, which has since been completed, identified the market opportunities and constraints for developing Mission’s waterfront in terms of appropriate types, density thresholds, supply considerations, demand factors, price potential and effective combinations of land uses and identified the factors that present the highest and best use of land for the waterfront area. The remainder of the analysis to be completed relates to the financial viability of redeveloping the waterfront.

OBJECTIVES

The study’s findings and recommendations will be used in the policy-making and planning of future land use, zoning, capital improvements, and economic incentives. Based on the findings of Phase 1 – Market Analysis, the previous Lead Consultant, Ground Control Enterprises Ltd, has recommended that there is merit to proceed with Phase 2 and 3 of the Study. Phase 2 and 3 of the Study will determine the financial viability of developing the Waterfront Area and provide a strategy for assisting third-party developer(s) with Land Defragmentation.

The engagement is divided into four discrete components:

1) Market Analysis - Completed 2) Financial Analysis 3) Land Defragmentation Strategy 4) Implementation Strategy

The goal of the study is to provide the District with clear decision-making direction with respect to the future commitment to, and investment in, the waterfront redevelopment initiative.

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To achieve this objective, relevant existing background reports and other studies should be utilized as appropriate to minimize costs and maximize the quality of the final product. The District will provide existing documents as needed.

SCOPE OF WORK

The following outlines the necessary Scope of Work based on the remaining three Study components. This is also summarized and cross-referenced in the appended flow chart for the engagement (Schedule A).

1) Market Analysis – Completed

2) Financial Analysis

Undertaking a Financial Analysis for the development of the Waterfront Area will require the consideration of numerous variables. Additionally, there are a number of development scenarios that can be examined. Consequently, the Consultant is tasked with producing one conceptual plan (herein after the “Baseline Conceptual Plan”) for the Waterfront Area on which to base a Financial Analysis. The Baseline Conceptual Plan will be used as a financial benchmark for analyzing further development scenarios so as to provide the District with a consistent point of comparison. a) Produce Baseline Conceptual Plan

Considering the findings of Phase 1 of the Study, previous studies undertaken by the District and in consultation with District Staff, the Consultant will produce the Baseline Conceptual Plan. The Baseline Conceptual Plan will use the Development Plan created in Phase 1 of the Study as its starting point, but will be modified and enhanced with greater detail based on information provided by the District and Sub-Consultants.

There will be two components to Baseline Conceptual Plan: Stage 1 of the Development and Stage 2 Build-out of the Development. While Build-out will include the fully-developed Waterfront Area including the downtown core and portions of the Core, North and East precincts, Stage 1 of the Development as illustrated in Schedule B is anticipated to include the following components:

1. Horne Street Connection—Residential, & Commercial Village 2. West Precinct – Auto-centric businesses 3. West Central Precinct –large-scale commercial

It should be clearly noted that the Baseline Conceptual Plan will not be considered a Land-Use Plan for the Waterfront Area, but simply a starting point that will allow the Consultant to provide more accurate costing estimates through financial modeling. The final waterfront land use plan may or may not consider or incorporate the various elements of the Baseline Conceptual Plan.

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If the Financial Analysis is determined to be feasible and the District elects to proceed to Phase 4 – Implementation of the study, the Financial Analysis can serve as a baseline financial model for the District when determining the appropriate Land-Use Plan for the Waterfront Area.

In order to develop the Baseline Conceptual Plan the Consultant will undertake the following:

i. Understand Existing Opportunities and Constraints of Development Lands

The Consultant will meet District Planning & Engineering Staff and/or other agencies or stakeholders as required to further understand opportunities and constraints of the Development Lands, including existing land uses, ownership and both private and public improvements.

ii. Produce Baseline Conceptual Plan

Based on information derived from 2(a)(i) above, the Consultant will produce the Baseline Conceptual Plan that will form the basis for the Financial Analysis. The Baseline Conceptual Plan and associated Financial Analysis will be produced under the assumption that the Waterfront Area is being developed in its entirety by one-master developer. As outlined above, the Baseline Conceptual Plan will have two components: Stage 1 and Build-Out and the Financial Analysis will mirror this.

The Baseline Conceptual Plan will include major assumptions for road and infrastructure networks, as well as, density and parking assumptions by neighbourhood.

iii. Feedback from District

While the Baseline Conceptual Plan will not be considered the basis for a Land-Use Plan, the Consultant will obtain feedback from District Planning and Engineering Staff prior to finalizing the Plan that will be the basis for the Financial Analysis.

b. Financial Analysis

The Financial Analysis will be based on the Baseline Conceptual Plan and will be split into two components: Stage 1 and Build-Out. The Financial Analysis will include the following:

i. Development Cost Assumptions

The Consultant will develop cost assumptions by developing preliminary development strategies and applying defensible unit, or other, cost estimates to quantified development programs allocated on an annual basis over the projected life of the project. Note: at this point in the Financial Analysis is it assumed that the Project Developer will be responsible for all costs, and the District is not responsible

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for any costs of Development. In “Phase 4 – Implementation” it may be determined that the District may choose to undertake some Development Costs to facilitate development of the Waterfront Area. However, that requirement cannot be determined until Phase 2 of the Study is complete. The cost assumptions shall include rough order of magnitude cost estimates for the following categories, at the minimum:

Pre-development Costs

o General and Administrative o Planning o Design o Approvals (e.g., zoning)

On-site Infrastructure Costs, phased

o Site preparation o Remediation o Flood protection o Road o Parks o Water o Sanitary sewer o Storm sewer o Other

Off-site Infrastructure Costs, phased

o Gas, hydro, telephone o Water system upgrades o Sewer system upgrades o Flood protection upgrades o Road/intersection upgrades o Other

Residential Development Costs, by building, neighbourhood or other reasonable unit of measure when considering scale of the development

o Land o Site preparation o Consultants o Hard construction o Parking o FF&E o DCC’s and other levies o General and Administrative o Marketing and Sales

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o Holding and operating

Commercial Development Costs, by building, neighbourhood or other reasonable unit of measure when considering scale of the development Land

o Site preparation o Consultants o Hard Construction o Parking o DCC’s and other levies o General and Administrative o Marketing and Sales o Tenant Inducements o Holding and Operating

Financing Costs

o Interest and fees

Recognizing that estimates are being made from conceptual, not actual construction plans, it is appropriate to carry reasonable contingencies. The consultant should identify and defend the contingency assumptions used.

In addition to the current estimate cost, in today’s dollars, the Consultant shall provide estimates of the timing of incurrence of expenses based on annual allocations of the development program with respect to residential absorption and commercial phasing.

It is anticipated that the Consultant will rely on suppliers for aspects of this work including, but not necessarily limited to:

Geotechnical engineering: seismic and groundwater; Civil engineering: roads, water, sewer, storm-water, street-lighting, power, gas,

communication, and flood management; Environmental engineering: contamination/remediation, water’s edge and habitat; Architectural: building programs; and Quantity Survey: market construction cost data.

All suppliers and sub-consultant’s background reports shall be made available to the District as an Appendix to the study and shall become the property of the District.

ii. Revenue Assumptions

The consultant will develop revenue and cost recovery assumptions for all aspects of the Project Development Plan.

Notwithstanding the current fragmentation of land ownership, it is important to understand the potential development revenues of the entire waterfront lands,

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individually and in aggregate, as though there were one master developer undertaking the entire project. In this regard it will be necessary to develop and document justifiable assumptions and project revenue and cost recovery estimates for the following:

o Sales revenue relating to the vertical development of all residential buildings. Such projections are to follow the market study conclusions and a phasing plan reflecting defensible absorption assumptions;

o Sales revenues relating to the vertical development of all commercial buildings assuming defined lease and cap rates. Such projections are to follow the market study conclusions and a phasing plan reflecting defensible absorption assumptions;

o DCC or other municipal contributions to site work, parks, utilities, roads, other infrastructure, etc;

o Potential grants or subsidies from senior levels of government or other sources; and

o Potential sale of unneeded development rights, easements or access to private parties.

c) Financial Modeling

The cost and revenue assumptions and projections developed according to the foregoing must be incorporated into financial models. Four models are required in total – two scenarios for each of two Stages (Stage 1 & Build-out). The first scenario is to consist of the Consultant’s best estimate of the true financial potential of the Project Development Plan. This is to be augmented by a pessimistic scenario that reflects a “slow start” compared to the plan. A “slow start” is defined as slower than anticipated absorption of residential and commercial units due to adverse market conditions.

Each Model will, at a minimum;

be created with Microsoft Excel. Concise notes to explain variables, inputs and results will be provided ;

reflect the entire projected life of the project with revenues and costs allocated in annual increments;

be sufficiently detailed so as to independently portray a reasonable understanding of the Project Development Plan, timing of individual elements and key assumptions used;

be internally consistent with respect to key assumptions used within the same scenarios;

be robustly dynamic whereby numerous key assumptions can be changed with immediate effect on results. Examples of such required flexibility would include, but not be limited to:

o Revenues and costs per square foot; o Adding, amending or deleting items in Infrastructure cost summaries; o Costs estimated as a percentage of revenues (e.g. sales commissions); o Timing of specific buildings, infrastructure or other plan elements; o Project and structured financing terms;

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o Cap rates; and o Etc.

provide annual and cumulative cash flows that summarize inflows, outflows and net cash flow;

provide the application of potentially complex financing assumptions at the vertical and horizontal project levels;

provide a meaningful integration of development statistics (acres, BSF, etc.) with financial projections;

provide residual land values associated with all residential and commercial vertical projects – and compare such values to current market comparables; and

provide report and a meaningful one-page summary of findings and results.

d) Financial Viability Assessment

Based on the Financial Models, the Consultant shall summarize and discuss the financial viability and risks associated with the Baseline Conceptual Plan. This opinion shall form the basis of the consultant’s recommendation to the District whether to undertake further work on the broader waterfront planning initiative, or not.

3. Land Defragmentation Strategy

The Waterfront lands are not owned by the District. The Project Development Plan references five precincts totaling approximately 160 acres. Approximately:

1) East – 27 acres. 2) North – 38 acres 3) Core – 19 acres 4) West – 43 acres 5) West-Central – 33 acres

Almost half of the total Waterfront land is currently held by one, private owner (West and West-Central precincts). The balance is widely held under a highly subdivided plat providing relatively small lots.

It is not intended that the District will be responsible for undertaking the Land Defragmentation. Rather, the Consultant will outline strategies where the District can help facilitate development of the Waterfront Area through Land-Use Planning policies. If the Financial Analysis determines the development of the Waterfront Area is viable, the required relocation of some existing uses and consolidation of parcels will be left to the private sector.

a) Land Defragmentation Strategy

By reference to municipal law, best practices and proprietary creativity, the Consultant is challenged to develop various strategies that could achieve the goal of assisting the private sector in defragmenting the land ownership for this purpose.

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b) Land Defragmentation Assessment

Based on its work, the Consultant shall summarize and opine on the feasibility of the defragmentation strategy. This opinion shall form the basis of a recommendation to the District whether to undertake further work on the broader initiative, or not.

Based on the Financial Viability Assessment and the Land Defragmentation Assessment, the District shall, at its own discretion, decide whether or not to proceed to the fourth component of the engagement. The Consultant shall not be entitled to any revenue or recoveries for work beyond Step Two & Three unless and until the District has authorized continuance in writing.

4) Implementation Strategy The District of Mission, at their discretion, may or may not retain the consultant for the completion of Component 4 – Implementation Strategy. Based on positive assessments in Phase 2 and 3 and a decision by the District to move forward, the Consultant will develop an Implementation Strategy that will outline next steps for the District to facilitate development of the Waterfront Area.

a) Alternative Scenarios

To get to this point, the study will have concluded that a market opportunity exists for the Baseline Conceptual Plan, that it is possible to create a land defragmentation strategy and that there is financial viability for a developer(s). To move the opportunity beyond theory, the first step is for the Consultant to outline the full definition, and financial implications, of the various roles that the District can assume in order to advance the initiative. These could include, but not be limited to,

Acquisition of all or part of existing waterfront land, directly or with partner(s); Joint venture with waterfront land owner(s); Initiation of District planning, zoning and incentive programs to drive desired

development outcomes; and Processing of applications to facilitate owner-initiated redevelopment.

b) Process

Regardless of whether or not the District becomes directly involved in the development of the Waterfront lands, given the current ownership fragmentation it will be necessary to take a leadership role in organizing the initial planning work associated with the opportunity until such time as a capable ownership representative or group can come into being. Of course this involvement is even more justifiable should the District opt into direct participation. Furthermore, much of the work necessary to enhance and advance the Project Development Plan will be of commensurate value to the District for the purpose of developing planning principles, OCP amendments, zoning bylaws, development permits,

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etc. Accordingly, the District has a vested interest in seeing planning continue. To facilitate this, the Consultant shall develop a detailed critical path of the project planning efforts and associated costs (and cost recoveries) that would advance the project through various key milestones and processes such as:

Land defragmentation and/or acquisition plan; (Re)envisioning conceptual plan; Detailed site planning including landscape plan, circulation plan; infrastructure plan

and building footprints; Commercial plan; Marketing and Communication plan; District Approvals; Financing; and Etc.

The foregoing shall be organized and presented in a budget format with separation between District and developer cost responsibilities.

The Consultant shall provide guidance with respect to how District costs could be funded.

c) Determine Next Steps

The conclusion of the Market and Feasibility Study shall consist of a planning session with District Staff and the Consultant wherein next steps are planned in the context of the entire Study generally and the implementation alternatives and critical paths specifically.

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Schedule A

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Schedule B