The current state of the Manitou/Mulligan project.

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1 hscorp.ca

2 Abstract/Overview After 40 years, the Manitou/Mulligan project in North Bay was just settling in literally. Differential soils settlement had created diminished living conditions in 18 of the 72 townhouse units. Faced with excessive repair costs versus redevelopment, there was sufficient evidence to justify rebuilding these units. Apart from this immediate need, there was also a recognized opportunity to revitalize the entire project though site plan adjustments and the repair or replacement of other units. After developing a phased redevelopment plan and taking a hard second look at the project financials, one phase has been completed and another is going forward for preliminary approval. While significant financial hurdles still need to be resolved, plans are moving forward to redevelop and ultimately expand the project unit count. 1

3 The Project The Manitou/Mulligan project is situated in an established residential neighborhood in the City of North Bay with schools, amenities and transit nearby. The 72 brick row house units that make up the project are situated in 8 blocks across 1.97 hectares of property. The project has a strong family orientation with a mix of two-three-and four-bedroom units. Built in 1972 under the public housing program, the project is laid out in a garden design similar to the former Regent Park complex in Toronto. This design has row house blocks arranged around open internal green spaces with interconnected pedestrian pathways linking units. Parking is situated in common lots at either end of the property. Given the age of the project (40 years), units are well along in their designed life both internally and externally. In addition, debentures for this project are expected to be paid down by January of 2020, in less than eight years. The project is one of 19 owned by Nipissing District Housing Corporation (NDHC), accounting for over 12% of NDHC s portfolio of 575 units. As the designated local housing corporation, NDHC accounts for roughly one quarter of all social housing units in the broad geographic service area. The service manager for the area is the Nipissing District Social Services Administration Board (DSSAB). The DSSAB is also the sole shareholder of the housing corporation and as such, has an arm s length interest in the operations of the organization and its long-term plans. The DSSAB structure is common in northern Ontario and has a different accountability structure than most typical service managers. The DSSAB serves a broad representation of municipal entities across a large geographic area, which presents unique challenges for both program administration and formal decision-making. Although the DSSAB has the legislated authority to fund and administer housing programs, it does not have the same powers as typical municipalities. 2

4 The current state of the Manitou/Mulligan project. 3

5 The proposed regeneration plan for the Manitou/Mulligan project. 4

6 The Problem Soon after its construction by the Ontario Housing Corporation in the early 1970s, problems with differential soil settlement became evident at the project. Because of the interspersed bedrock in that area of the municipality this soil condition is not uncommon. Over time, the soil settlement issue has become more apparent and remedial measures have been taken to shore up the foundation of some units using helical pier anchors and underpinning. With the legislative transfer of public housing units in 2001, NDHC became the project owner and so responsible for its upkeep and maintenance. While some funding from the Ministry of Municipal Affairs and Housing (MMAH) was provided to NDHC to address historical settlement issues, remedial measures proved insufficient to fully address the problem. The issue came to a head in February 2009 when City building officials issued a notice of non-compliance to NDHC for a unit in Block B. The notice cited compromised structural integrity for the unit, necessitating prompt action. NDHC commissioned an engineering assessment on the affected unit and determined that differential settlement was the prime cause. The assessment also flagged the need to address the structural concerns in case additional settlement occurred. At that point, NDHC approached the DSSAB, seeking assistance to resolve the issue. The DSSAB subsequently funded a detailed engineering assessment of all units in the project, completed in May of The assessment confirmed differential settlement as the cause and generated cost estimates for repair versus replacement of all units. The assessment found Blocks B and E to be in the worst condition - settlement was as much as 12 inches from one end of the block floor plate to the other. NDHC immediately began to work with tenants in the two blocks to relocate them elsewhere in the project or to other parts of the NDHC portfolio. NDHC relocated tenants over a ten-month period. By July 2010, all units were vacated. 5

7 Building a case for regeneration With units now out of circulation, the immediate priority for NDHC was to reinstate units, but it was clear from the engineering assessment that issues beyond the affected blocks would also need attention. Based on the project assessment and the general costing provided, NDHC and the DSSAB were faced with a range of possible options for moving forward, each with different price and time parameters: 1. Repair and restore all 72 units estimated cost of $3.85M; 2. Demolish & reconstruct all 72 units estimated cost of $17.3M; 3. Demolish worst blocks & repair others, increasing green space estimated cost of between $6.6M and $13.3M, depending on repair vs. rebuild for certain blocks; or 4. Do nothing and face lost units, continued repair costs, a depleted asset and continued liability; NDHC also sought out possible alternate sites for re-construction of the affected blocks elsewhere in the City but none were found to be workable. As a result, NDHC determined that using the existing owned site would maximize the use of available resources. Given the ineffective nature of the repairs in the past and the relative age of the project, simply repairing all units was not deemed prudent. NDHC recognized that the cost to demolish and re-build the entire project was also cost-prohibitive. Instead, they concluded that a blended approach of repair and replacement was the most practical and financially realistic. 6

8 To translate this general approach into a formal development concept, NDHC, with DSSAB s agreement, retained an architectural firm. Using the engineering assessment and costing parameters as a guide, the architect developed a regeneration concept and phasing approach for the entire project in February of The regeneration plan envisioned: Phase Description Unit Impact Phase 1 Demolish & rebuild blocks B & E to address imminent issues Demo of 18 units and rebuild of 14 units (net loss of 4 units) Phase 2 Renovate blocks D, F & G Repair of 21 units Phase 3 Demolish & rebuild blocks A, C & H Demo and rebuild of 33 units Phase 4 Build new units in two new blocks Build 12 new units Overall concept: Net addition of 8 units to project, increasing from 72 to 80 units 7

9 In working through the concept development process, both NDHC and the DSSAB supported the opportunities that the regeneration plan could offer but also were cognizant that implementation would pose significant challenges. To help guide decision-making, the agencies developed working project objectives: Revitalize the project and address key building safety issues while maintaining RGI units Create a more contemporary row house layout with internal vehicle circulation and parking adjacent to each unit Reduce long-term operating and maintenance costs to the maximum extent possible Address priority issues first and stage work to meet economic realities Add new units where possible With these objectives in mind, NDHC began to pull together components to help advance the regeneration concept. Staff knew that some form of financing would be required for unit redevelopment so honed in on defining the scale and approach. At about this same time, the SHRRP program was gearing up across the province, offering an opportunity for service managers to access repair and regeneration funding but within a tight window of availability. Ultimately, the project secured approval of $1.29M in SHRRP funding for required technical and design background work for demolition of units in Phase 1 and for Phase 2 repairs. These funds were instrumental in providing up-front resources. Under the provisions of the Social Housing Reform Act, major structural modifications or changes in financing of social housing projects require Ministerial consent a process which can take some time to complete. Based on technical and design work completed to that date, the DSSAB approached MMAH to secure the necessary consent to move forward with regeneration planning. MMAH conditionally approved a revised consent for the project in the summer of 2011, obliging completion of Phase 1 work within 4 years. MMAH also acknowledged that a formal financial plan for regeneration would be required by NDHC. With some working capital in hand and a conditional consent, NDHC and the DSSAB turned their mind back to the financial parameters of the project. While Phase 2 repair work could be funded through SHRRP, only a modest portion of Phase 1 would be covered from this source, leaving a significant financial gap for redevelopment. NDHC also recognized that costing to date had been generated largely on initial engineering estimates and that a more formal costing exercise was needed to get to hard numbers. While repair work on Phase 2 could proceed, a new approach would be required to move Phase 1 forward. 8

10 Stepping Back to Move Forward: Re-considering the Phase 1 Approach In the fall of 2011, NDHC retained an external consultant to develop a formal business plan for Phase 1 of the regeneration project. Working with a team of staff from NDHC, the DSSAB and the architect, a review of approaches to Phase 1 was undertaken including preliminary engineering work to quantify the remedial measures necessary for resolving the differential settlement issue. The review determined the use of piling to be the most reliable approach to resolve this issue. In addition, the engineering analysis included in-unit testing for designated substances, boundary and topographic surveys, and an environmental site assessment. Given test results, minor asbestos abatement was also completed for the units in Phase 1. NDHC also held initial discussions with City planning officials regarding the site plan and project configuration. Unit size Existing Project Initial Concept Revised Concept One bedroom units Two bedroom units Three bedroom units Four bedroom units Total units At the same time, a business case consultant refined the detailed cost estimates for Phase 1. Given the relatively small unit count of the existing blocks and the need for piling, construction costs per unit were considerable in relation to static rental revenues. And, as an ongoing challenge, Nippising District faced longer than average wait times for smaller households on the social housing wait list. The Manitou/Mulligan project offered a lack of smaller housing options on-site at the project. To address changing household needs and improve the per-unit financial picture, NDHC and the DSSAB elected to modify the original Phase 1 concept. This resulted in a revised concept to increase the unit count increase, primarily through the introduction of one-bedroom units. The revised concept proposed the addition of 10 units to the total number in the existing blocks this approach would reduce the overall redevelopment cost per unit while increasing rent potential. Design-wise, blocks would maintain a similar footprint but would increase in height to a 2 ½ storey profile. Apart from increasing unit yield through density, this efficient use of site space would preserve the opportunity to add new units in Phase 4 as originally planned. Redevelopment of the units would also provide the opportunity to dramatically improve the energy efficiency of units and improve accessibility for residents. 9

11 The SHRRP funding was helpful in supporting initial aspects of the redevelopment work; however, a large gap still existed to cover reconstruction costs. In the fall of 2011, MMAH announced the Investment in Affordable Housing program (IAH) providing funding for a variety of housing initiatives over a four-year period. The IAH funding, while limited in amount, opened up a unique opportunity for NDHC to address the Phase 1 funding gap. Although MMAH determined that IAH funding could not be applied to redevelopment of the existing 18 units, it agreed that NDHC could pursue IAH funding to support development of the 10 new units proposed under the revised concept. Based on analysis completed by the business case consultant, the updated all-in cost for completing the revised Phase 1 concept came in at just over $6.4M. SHRRP funding, HST rebates and DSSAB funding for certain project expenses to date would help offset these costs by almost $1M. Based on conventional CMHC lending practices, the maximum loan for the project based on the current debt coverage ratio was estimated at just over $1.1M. This resulted in a projected equity gap of $4.4M in order to make Phase 1 work. According to the business plan, options for addressing this equity gap include IAH or DSSAB funding, Northern Ontario funding programs and development fee relief. Operationally, projections showed that a modest operating surplus could be generated if the DSSAB provided rent supplement funding. Given the redevelopment of existing units that were still in-program, the net impact to the DSSAB here was assumed to be the addition of rent supplement funding for 10 new units. Operationally, projections showed that a modest operating surplus could be generated if the DSSAB provided rent supplement funding. 10

12 The business case was tabled by the consultant for NDHC consideration in March of NDHC is considering recommendations from the business case including: Securing formal direction to move forward Seeking DSSAB capital funding Pursuing other funding (i.e.nohf, FedNor) Requesting fee relief/waivers from the municipality Setting up a project team to move forward with the revised plan for Phase 1 The Board of Directors for NDHC is considering these recommendations and will likely approach the DSSAB for assistance thereafter. In the case of project timelines, the business case also set out proposed project timelines for the completion of Phase 1. Assuming that NDHC and the DSSAB agree to move forward this spring, pre-development work could happen through 2012, and provided financial resources can be secured, construction could commence as early as the summer of 2013 with move-ins the following year. While the overall regeneration plan sets out a direction for the Manitou/Mulligan project, implementing the plan will be no small feat. Phase 2 work has largely been completed using SHRRP resources to repair existing units and has been the most straight forward part of the plan. The financial hurdles associated with Phase 1 are not insignificant and present clear challenges today in moving forward. In the case of Phase 3, difficult decisions lie ahead in terms of repair or redevelopment, especially in light of the financial costs to address these existing 33 units. Likewise, the addition of 12 new units in Phase 4 will be equally challenging, given the capital funding requirements these units would command. 11

13 Some of the Challenges Encountered Structural failure in specific units at the Manitou/Mulligan project triggered the need to take remedial action. However, this also created the opportunity for NDHC and the DSSAB to think more broadly at the project level and consider regeneration options for the entire site going forward. Together, they supported the development of a phased concept plan. Phase 2 repairs have been essentially completed and a business case for Phase 1 has been tabled. While work certainly lies ahead in advancing remaining phases, it s helpful to reflect on key challenges so far. Phase 1 units remain unusable until replaced While the accommodation of tenants from the units to other parts of the portfolio went fairly smoothly, the clock is ticking on getting the units back into circulation. Unfortunately redevelopment takes time so a continued urgency exists to find and implement a solution as soon as possible. Up front technical testing and engineering has been significant Given the technical nature of the unit failure and the underlying geotechnical issues, additional time and effort was needed to identify and formulate options for permanent remediation. Activities like these are necessary to establish a proof of concept and are needed early in the process. Consequently, costs for this work are borne on the front end before it s clear that a financially viable solution can be pursued funding for this work is not always readily available. Lack of experience/capacity On a day-to-day basis, balancing service level requirements, ensuring affordability and maintaining depleted assets is a tall order. Redevelopment of this scale and nature is not part of the regular business operations for either NDHC or the DSSAB, especially when it comes to the financial aspects of regeneration. They have had to seek out expertise - which has cost implications. DSSAB structure is not a municipal structure Because the DSSAB structure requires shared cost/risk management in a non-municipal environment, it requires collective buy-in and risk tolerance from its constituent municipalities. This approvals process can be particularly difficult to navigate when considering more complex projects. There are also legislative limitations related to financing and borrowing as compared to regular municipal structures. Cross-over in membership of NDHC Board and DSSAB Board NDHC is subject to a Shareholder Declaration that limits their authority to encumber, divest or mortgage projects without explicit DSSAB approval. Given the cross-over in membership between the two Boards and the decision-making structure of the DSSAB, the possibility exists for issues to become politicized in the decision-making process at NDHC. 12

14 Lessons for Regeneration While much work lies ahead for the Manitou/Mulligan project, the process to date is illustrative of some important considerations: Financial Financial realities will weigh heavily in all regeneration options it s critical to have a clear financial picture and business case to support decision-making before proceeding Using blended funding sources requires balancing the obligations of each funder be strategic in sourcing funds and managing obligations Oversight Bringing decision-makers along in the process at a pace they can manage is prudent, too quick and you can jeopardize their buy-in/support Managing and re-evaluating risk has a critical role throughout the process it s especially important on the front end but must be reconsidered on an on-going basis When responding to specific building issues, opportunities can emerge to help address broader project issues, especially quality of life issues for residents in this case, addressing technical issues and enhancing resident access were achieved through site re-design Technical Staging of technical design work is important to ensure level of effort invested is appropriate to where you are in the process commissioning work in sync with approvals processes will help ensure that expenses are only incurred as needed In the case of remediation issues, permanently addressing the root cause is critical, especially given the cumulative costs of undertaking multiple interim solutions Where there is a demonstrable payback, take the opportunity to do upgrades that maximize asset performance when they are presented (especially energy efficiency) 13

15 Primary contacts: Carol Conrad, CEO Nipissing District Housing Corporation Phone: (705) ext Tom Belanger, Manager Community Housing Services District of Nipissing Social Services Administration Board Phone: (705) Ext For additional Information: Nipissing District Housing Corporation 133 Main Street West, Suite 200 P.O. Box 480 North Bay, ON P1B 2T6 District of Nipissing Social Services Administration Board 200 McIntyre Street East, P.O. Box 750 North Bay, ON P1B 8J8 Web Page: 14