by cal kirkpatrick | president | colonnade development

The Economics of Developmentby the Alliance for Building a Better Ottawa

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ByCal Kirkpatrick | President | Colonnade DevelopmentJack Stirling | Vice President, Land Development | Minto Communities Inc.Stephen Martin | Vice President, Development | Minto Commercial Properties Inc.

Presentation to Planning 101 by the

Alliance for Building a Better Ottawa1:30 – 2:30 pm Monday, February 14, 2011


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Who is the “Alliance”?Greater Ottawa Home Builders Association (GOHBA)

Building Owners & Managers Association (BOMA)General Contractor’s Association (GCA)Ottawa Construction Association (OCA)

Professional Engineers of Ontario – Ottawa Chapter


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Guiding Principles of the “Alliance” The purpose of the Alliance for Building a Better Ottawa is to represent the commercial development, construction and home building industry in communication with decision makers at all levels of government and both the residents and business community of Ottawa.

The Alliance will continue to work in partnership with Council and City staff to build a vibrant and dynamic city.

The Alliance for Building a Better Ottawa will continue to work towards building sustainable residential and employment communities that meet public demand and expectations.

The Alliance as part of its objective to building a better Ottawa will be sharing its varied expertise with City staff and Council/Committee.


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Case Studies

10 storey 200,000 sq. ft office tower location: downtown

+ 150 stacked townhomes location: suburbssize: 10 acre site

development cost: $28 million

size: 0.75 acre sitedevelopment cost: $60 million


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Zoning Amendment (9 months)

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Site Plan (6 months)

Development Timeline & Expenses


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Jun. 1, 2011 Jun. 1, 2013Day 240 Day 970

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- Official Plan Amendment - Subdivision- Draft Plan of Subdivision - Site Plan- Zoning Amendment - Servicing Agr.- Site Plan- Condominium

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Approval Required for the following Reports/Studies - Planning Rationale - Engineering Plans - Landscape Plans - Composite Utility Plan - Architectual Drawings - Light & Shadow Study - Stormwater Management Plan - Watermain Report - Geotechnical Report - Tree Conservation Report - Hydro One Agreement - Noise Study - Traffic Study - Archeological Report - Cultural Heritage Study - Environmental Study

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Jul. 7, 2013 Aug. 7, 2013 Aug. 21, 2013 Jul. 1, 2014 Jul. 15, 2014Day 1005 Day 1035 Day 1050 Day 1350 Day 1365

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- File Legal Docs. - Building construction - Reimbursement of any frontend infrastructure - RoW - Release of letters of credit - maintenance - Discharge of agreement obligations - survey plans - etc.


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Draft Plan (12 months)Zoning Amendment (9 months)


First home closing / Lease commencement

Residential model shown.

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Developers start to break even only when:

- Leases commence (end of construction)- Home sales are finalized & closed (end of construction)- Developments are completed

The Cost of Development over Time

$ 28,000,000 TOTAL

$ 3,500,000 Profit (15%)

$ 15,000,000 House Construction

$ 2,100,000 Development Charges

$ 3,750,000 Servicing

$ 400,000 Municipal Fees

$ 3,250,000 Land

$ 28,000,000 TOTAL

$ 3,500,000 Profit (15%)

$ 15,000,000 House Construction

$ 2,100,000 Development Charges

$ 3,750,000 Servicing

$ 400,000 Municipal Fees

$ 3,250,000 Land


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Risks & Delays

material or labour shortagesweather

market changesstaff shortage

interest rate changesprocess delays

referral to the OMBowner/tenant makes changes

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Changes assumptionsChanges assumptions – and financing is dependant on those assumptions

Added costsAdded costs – financing costs, increased labour costs to meet deadlines

End users are notified & affected End users are notified & affected - tenants may back out, homeowners may have sold previous house

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Sample Impact of Delays

Project is scheduled to begin infrastructure servicing in the summer and asphalt paving in October Delays of 2-3 weeks are encountered twice annually during the two to three year duration of the development process As a result, the asphalt paving is pushed 3 months into January

Asphalt plants only open May to December = delay escalates Schedule revised from October paving to May = 8 months

Other impacts include: Contractors scheduled to start work in October cannot start until June – temporary lay-offs may occur Building permits fees, DCs, and revenue opportunities lost for 8 months Homeowners are notified and affected by the delay

Residential


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Sample Impact of Delays

Lead tenant for a new development has a fixed occupancy date which forms part of the binding agreement with performance milestones Delays in the front end of the development process extend the project schedule As a result of the delays, the developer cannot meet the tenants’ milestones or occupancy date Developers choice:

Option 1 - pay additional costs to attempt to expedite project Option 2 - terminate the project

Option 1 may result in a non- competitive development Option 2 is a lost opportunity for the development industry and City’s economic development and revenue

Commercial


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Risk MitigationWhy don’t developers just wait until they’re completely approved to go on sale?

Establish market position and capitalize on opportunities

Commit to buyers or tenants occupancy requirements

Receive input on design from the market and tenants

Shorten the development timeline i.e. reduce interest on construction loan

Be positioned for financing i.e. meet pre- leasing or pre-sales requirements

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Developers need to assume risk in initiating developments

Development process & spending need to start prior to full approvals in order to:

At Marketing Release: $5M spent

Residential model shown.


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The Financial Impact of Delays

Money that could be better spent on innovation, sustainability, land mark sites for Ottawa


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Development must be ahead of the market since the process takes years Specific commitments are needed for development financing Development time line must be maintained to align with market demand Together, we need to keep Ottawa competitive and affordable We need to provide an environment that encourages economic development and growth (Greater Ottawa, 2010: 16 400 jobs on site; 13 700 indirect jobs, 30 100 total)

Cost efficiency leads to innovation, land mark development and a vibrant City

Summary

by cal kirkpatrick | president | colonnade development

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