City Planning City Hall 100 Queen Street West 21 st Floor, East Tower Toronto, Ontario M5H 2N2

James Perttula Director Transit and Transportation Planning MEMORANDUM City Planning City Hall 100 Queen Street West 21 st Floor, East Tower Toronto, Ontario M5H 2N2 Tel: 416-392-4744 Fax: 416-392-1591 james.perttula@toronto.ca toronto.ca/planning Market Data and Financial Assumptions Peer Review Scarborough Centre Transit Terminal March 7, 2017 To: Jennifer Keesmaat From: James Perttula I am pleased to provide you with the Market Data and Financial Assumptions Peer Review - Scarborough Centre Transit Terminal, recently completed by N. Barry Lyons Limited (NBLC), in collaboration with Cicada Design Inc (Cicada). Cicada was commissioned to illustrate the potential long-term build out, associated with both the recommended Triton bus terminal concept and a typical at-grade bus terminal concept, for the recommended Scarborough Centre Station. These illustrations are consistent with approved planning policy, and represent the built form and local street network encouraged by Toronto s Official Plan. Cicada hired NBLC to review internal City staff calculations related to the level of development illustrated in these images. Overall, NBLC confirmed that more development blocks can be accommodated with the Triton bus terminal concept scenario than with the typical at-grade bus terminal concept. The Triton bus terminal concept scenario was found to be able to accommodate 1007 additional residential units and 91,756m 2 more non-residential gross floor area compared to the typical atgrade bus terminal concept scenario. While NBLC went on to confirm that the Triton bus terminal concept scenario would yield a total increase in development charges and property taxes, this should not be construed to mean that these would be net gains for the City of Toronto. Rather, increased development in Scarborough Centre would draw development from elsewhere in the city, possibly resulting in the alleviation of development pressures in existing high-growth areas; and improved usage of the recommended Scarborough Centre Station, given that increased development would be oriented to this station. NBLC draws significant conclusions about the impact of the bus terminal options on the real estate market in the surrounding area, namely that the Triton option would result in a measurably better market environment. Specifically, they conclude that the [Triton concept] allows for the creation of a better public realm that includes a grid street network and better accessibility for both vehicles and pedestrians while the [typical at-grade concept] is likely to produce a range of negative market impacts, some of which are real whereas others are perceived. Page 1 of 2

MEMORANDUM This analysis confirms that the Triton bus terminal concept represents the best investment in Scarborough Centre and that a typical at-grade bus terminal would not be in the best interests of Scarborough Centre or the project. James Perttula Director, Transit and Transportation Planning Page 2 of 2

Memorandum To: Company: From: Mr. Phillip Meadows N. Barry Lyon Consultants Limited Phone: (416) 364-4414 Date: February 2017 RE: Market Data and Financial Assumptions Peer Review Scarborough Centre Transit Terminal 1.0 Introduction N. Barry Lyon Consultants Limited ( NBLC ) has been retained by to undertake a peer review of the City of Toronto s market and financial assumptions regarding potential development adjacent the Scarborough Town Centre. This analysis has been completed to compare the development yield and resulting municipal revenues associated with two design options for a bus terminal as illustrated by Figure 1 on the following page. Figure 1 generally shows the location and design of the proposed bus terminal along with a number of conceptual buildings that illustrate how the area could build-out over time. The main difference between the two concepts is the location and design of the proposed bus terminal. Option 1 contains a stacked station that occupies a small footprint adjacent the Scarborough Town Centre, whereas Option 2 contains a large sunken bus terminal along McCowan Road. Given the design, more development blocks can be accommodated with Option 1 relative to Option 2. We note that the density shown by Figure 1, for both options, is significant for the Scarborough Centre market area. Notwithstanding this, we understand from City Staff that these options are considered long-term visions and are therefore expected to be developed over time. While it is likely that the residential and non-residential floor area illustrated by Figure 1 would take many years to absorb in the current market, Option 1 yields a greater level of development. High-order transit proposed at this site will also improve the marketability of the lands over time. Market Data and Financial Assumptions Peer Review P a g e 1

Figure 1: Option 1 with Stacked Bus Terminal (top); Option 2 with Sunken Bus Terminal (bottom) Source: City of Toronto, Cicada Design Market Data and Financial Assumptions Peer Review P a g e 2

2.0 Development Yield Increment The City of Toronto has calculated the increase in development that could be possible from Option 1 as illustrated by Figure 2. The increase is due to the removal of the sunken bus terminal fronting McCowan Road, which frees up land for five potential buildings as noted in Figure 2. The result is an additional 181,793 m 2 (1,956,803 square feet) of gross developable space based on the rendering that was created. Of this total, the City has allocated 101,951 m 2 to non-residential (office, retail) and 79,842 m 2 to residential space. We note that the overall density that is eventually built could be lower or higher and also that the allocation of space between residential and nonresidential space could be different than what is shown by Figure 2. Given the current and expected market conditions in the City of Toronto, it is likely that the allocation would be more heavily weighted towards residential space, however this would be subject to absorption and market forces as the area continues to build-out. NBLC has peer reviewed these calculations by assessing the SketchUp model received from Cicada Design Inc. We note that the calculations appear to be correct, however we differ in our calculation for building 3 and 5 as shown below by approximately 16,000 m 2 and 14,000 m 2 respectively, or approximately 16% of the total development yield calculated. This appears to be due to differences in the SketchUp model received and the design shown by Figure 2, with Figure 2 containing more density/additional building footprint. Figure 2: Additional Development Potential of Option 1 4 5 3 2 1 Source: City of Toronto Given this apparent inconsistency, we have utilized the City s calculation for the analysis. Market Data and Financial Assumptions Peer Review P a g e 3

3.0 Municipal Finance / Opportunity Cost Implications The following detail our assumptions and outline how the City s original assumptions and calculations have been altered or if they were considered appropriate and carried forward: The total residential GFA of 79,842 m 2 is subject to a net-to-gross efficiency of 85%, which is an industry and market standard NBLC utilizes in the local market area. This ratio accounts for non-saleable space within a building including amenity areas, lobby, elevator space, hallways, stairwells, etc. The net yield from this measure results in 67,865 m 2 of saleable/leaseable residential space. o An average unit size of 67 m 2 (725 square feet) will be utilized, which is smaller than the assumption utilized by the City (88 m 2 ). This assumption was developed by assessing the average unit size of the newest condominium buildings in the immediate area and also our market knowledge of the area. o The above analysis results in approximately 1,007 additional apartment units being possible with Option 1. The total non-residential GFA of 101,951 will likely accommodate a net-to-gross efficiency of 90%, as office and retail structures are often more efficient than residential buildings. The net yield from this measure results in 91,756 m 2 of non-residential space. We understand MPAC uses similar efficiency assumptions when assessing properties. The development charge assumptions have been slightly changed from the City s original assumptions: o Where the City had taken the charge for one bedroom and bachelor apartments, NBLC has assumed the suite mix would be split equally between one bedroom/bachelor and two bedroom and larger units. We have therefore taken the average of the two charges for these units as noted in the assumptions of Table 1. o We have updated the DC revenues (residential and non-residential) to reflect the most recent development charge rates (effective February 1 st, 2017) whereas the rates previously used by the City were effective August 24 th, 2016. Property tax rates have remained the same since the City s original calculations and have therefore been kept constant at.508% for residential and 1.536% for non-residential. The following changes have been suggested for the assessed value assumption: Residential: We surveyed the four most recent condominium projects in the area (Encore at Equinox, Altitude, Centro North and South Tower) all of which completed construction Market Data and Financial Assumptions Peer Review P a g e 4

and occupied between 2011 and 2013. With over 450 sales through two years (January 2015 to January 2017) the average sale value was calculated to be $312,425. o The average unit size in these four buildings is approximately 725 square feet, which if applied to the sale values would yield a price per square foot of around $433. Given the market challenges in the Scarborough Centre and the lack of new development in recent years, this is a reasonable assumption for a new project, although could be low. The closest project to the subject site that is currently marketing (me 2-2 Meadowglen Place) is currently selling units at $490 PSF. o Notwithstanding the above and to remain conservative, we believe a sale value assumption of $312,425 and an average unit size of 725 square feet is reasonable. o In our experience, we note that assessment values are lower than market sale values. We therefore assume the assessed value of a condominium apartment to be 80% of the market sale value, or $249,940. o This compares to the City original assumption of $190,996 for an apartment unit. Non-Residential: There was a general lack of comparable land sales in the area for office and retail sales. We note one sale at 55 Town Centre Court (Figure 3) that sold for $34.0 million at a per square foot value of $151 PSF or $1,626 PSM. The building is noted to be Class A with many large tenants including key ministries of the Government of Canada. Net rents in the order of $12.50 PSF were being achieved as of the sale (July 2016). o This compares to the City s original assessed value assumption of $1,579 PSM. NBLC is of the opinion that the assessed value assumption should be at least as high as the value observed for 55 Town Centre Court and have utilized this as a conservative assumption. We also note that MPAC assessments for non-residential properties tend to be closer to market sale values, and therefore no ratio has been applied. The results of the analysis are presented in Table 1 on the following page. A total increase of development charges and property taxes in the order of $43.5 million could be expected with the full build-out of Option 1 relative to the full build-out of Option 2. The analysis utilized here compares with the City s original assumptions noted by Table 2, which yielded a total of $35.35 million. Market Data and Financial Assumptions Peer Review P a g e 5

Table 1 Development Uplift and Municipal Revenue Increment of Option 1 Additional Development Charges Property Taxes Use Development Residential Non-Residential Residential Non-Residential Potential (*) (**) (***) (+) (++) Residential Units^ 1,007 $21,024,527 $1,277,996 Non-Res GFA (m2)^^ 91,756 $19,041,184 $2,290,227 TOTAL $40,065,711 $3,568,223 GRAND TOTAL: $43,633,935 Notes: *Assumption Residential (67sm/unit); **Development Charges based on even split of Apartments 1 bedroom & Bach ($17,138) and Apartments 2 bedroom and larger ($24,638) cost per unit effective February 1, 2017; *** Development Charges based on Non-Residential $207.52 per sq metre effective February 1, 2017; + Assumes an assessed value of $249,940/res unit and City tax rate for new residential of 0.508%; ++ Assumes an assessed value of $1,625/sq. metre and City tax rate for Residual Commercial (Band 2) 1.536%; ^Net to Gross Ratio 85%; ^^Net to Gross Ratio 90% Table 2 Use Additional Development Potential (*) Development Charges Residential (**) Non-Residential (***) Residential (+) Property Taxes Non-Residential (++) Residential Units 672 $11,154,528 $652,015 Non-Res GFA (m2) 104,543 $21,012,098 $2,536,603 TOTAL $32,166,626 $3,188,618 GRAND TOTAL: $35,355,243 The NBLC calculations have resulted in a higher grand total due to the following: o A lower average unit size assumption results in more apartment units; o A higher residential and non-residential assessment value assumption results in higher property tax revenue; o Updated development charge rates resulted in higher development charge revenues; Market Data and Financial Assumptions Peer Review P a g e 6

Figure 3: 55 Town Centre Court Office Sale Source: MARSH Report (2017) 4.0 Market Impacts of Option 1 / 2 and the Impact of the Bus Terminal The large and open air bus terminal (Option 2) is likely to produce a range of negative market impacts, some of which are real whereas others are perceived. While some component of the market will see the amenity of easy access to this transit option, most in our experience will have concerns with the noise emissions, dust and large numbers of transient persons that are typically associated with these facilities. Therefore, from a market perspective, Option 1 as illustrated by Figure 1 is the preferred development concept. The smaller footprint and location of the bus station in Option 1 limits the negative impact of the use on the surrounding proposed residential and non-residential uses. Option 1 allows for the creation of a better public realm that includes a grid street network, more green space, better accessibility for both vehicles and pedestrians, and limits the visibility and physical interaction with the buses and the station itself. While more detailed analysis is required to assess the order of magnitude impact of Option 1 vs Option 2 on property values, it is our opinion that Option 1 would result in a measurably better market environment. Market Data and Financial Assumptions Peer Review P a g e 7