STAFF REPORT September 26, 2005 To: Toronto City Council From: Jeffrey D. Steiner, President and CEO, TEDCO Subject: Port Lands Film/Media Complex – Public Presentation All wards Purpose: To respond to a request from the September 20, 2005 joint meeting of Policy and Finance Committee and Economic Development and Parks Committee to make public as much of the in-camera presentation as possible. Financial Implications and Impact Statement: There are no financial implications arising from adoption of this report. Recommendations: It is recommended that this report be received for information. Background: At its September 20, 2005 joint meeting, Policy and Finance Committee and Economic Development and Parks Committee received an in-camera presentation from the President and CEO of TEDCO regarding the Port Lands Film Industry/Media Complex and recommended that City Council adopt the recommendations contained in the corresponding confidential report. In addition, the joint committee requested that staff of TEDCO meet with the proponent to determine what elements of the presentation could be made public, and that such information be made available for public distribution and submission to the September 28, 2005 meeting of Council.

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Comments: As requested, staff from TEDCO met with the proponent and have reached agreement on those elements of the presentation which do not need to be maintained confidential. This presentation is attached as Appendix A. Conclusions: In order to protect the interests of both TEDCO and the proponent, specific details of the ground lease for the Port Lands Film/Media Complex are outlined in a confidential report. Those elements which are not confidential have been summarized in the appended presentation for public consideration. Contact: Jeffrey D. Steiner President & DEO, TEDCO Tel: (416) 214-4641 Fax: (416) 214-4660 jsteiner@tedco.ca Jeff Steiner, President & CEO, TEDCO List of Attachments:

Attachment 1: Port Lands Film/Media Complex – Public Presentation

PORT LANDS FILM / MEDIA COMPLEX

PUBLIC PRESENTATIONSeptember 28, 2005

THE COMPETITIVE SITUATIONMotion picture

production is highly mobile and looks for

comparative advantage with every production

• Producers are seeking lower cost production environments around the globe• Tax Credits, specialized suppliers and trained workforce, as well as quality studio space are essential ingredients to anchor the industry and ensure its sustainability

Workforce & suppliers

Infrastructure & accommodating

shooting environment

Factor costs (labour & materials)

What location scouts look forWhat location scouts look for

THE STAGE DEFICITTORONTO CAN BE COMPETITIVE…TORONTO CAN BE COMPETITIVE… BUT NEEDS LARGE, HIGH QUALITY

SOUND STAGESBUT NEEDS LARGE, HIGH QUALITY

SOUND STAGES

Labour costs for skilled workers –favourable exchange rate

Costs for inputs and rents—favourableexchange rate

Ontario Tax Credits—competitive Pool of skilled labour—excellent

training programs and availability of experienced workers

Favorable production environment—renewed commitment by the City of Toronto to ease permits, security provisions etc. × Quality studio space—other than stage “deficit”, Ontario can be globally competitive

Growth of the film industry in this Province has been limited by the lack of adequate soundstages (i.e. large, purpose-built) and we are missing out.

The average budget of a feature shot in Toronto was under C$20 million compared with Hollywood studios was US$63 million

A purpose built, high quality studio will attract larger productions and close the gap

CHALLENGES AND OPPORTUNITIESChallenge: film studios do not have tenants

Nature of revenue stream is episodic and foreign to lendersThey are like convention centers (no tenants, only short term renters)Large, purpose-built, high-quality stages are initially expensive to build but are a unique source of competitive advantage

Existing operators have been unable to supply the type of new production space proposed in the Portland’s Film/Media Complex

Opportunity: a Port Land studio would be “a market maker” not “a market taker”

New studio complex would provide facilities not available elsewhere in the market Lynchpin of the development is the 45,000 sq. ft. stage (“Mega Stage”)New Facilities would create new capacity which could compete for business that is currently unavailable in OntarioThe “rising tide” of larger film productions resulting from the new studio would “lift all boats” in the industry

PROCESS FOR PROPONENT SELECTION

Stage (1) Open Request for Expressions of Interest

– Open, world wide request for Expressions of Interest in 2003– Information packages sent to over 100 industry and

development firms– 6 Expressions of Interest received– Evaluated as to capability and invited to respond to more

detailed RFP stage

Stage (2) Request for Proposals

– Detailed RFP submission requirements including:• Mandatory studio complex requirement• Mega-stage with minimum 44,000 SF• High urban design requirement • Conform to objectives for District for Innovation and Creativity• Competitive Financial Offer

PROCESS FOR PROPONENTS ELECTION

Stage (2) Request for Proposals (continued)

– Submissions received from four proponents in January ‘04– Advisory Services provided by:

• CIBC/World Markets - Financial and Banking• JJ Barnicke – Real Estate• Economic Research Associates – Film Industry and

Market• WeirFoulds LLP – Legal• N. Barry Lyon Ltd. - Planning

PROCESS FOR PROPONENTS ELECTION

RFP Evaluation Process

– 8 member evaluation committee comprised of representatives from • TEDCO Board & Staff• City Planning• City Economic Development Division• City Waterfront Secretariat • TWRC

– Evaluation process monitored by Fairness Commissioner Honourable Coulter Osborne

– Confidentiality throughout the process was critical to allow opportunity to move to second proponent if negotiations failed

– Financial, Market, Legal opinions and analysis by Advisory Team– Committee selected Toronto Film Studios / Rose Corporation as

Preferred Proponent.– Confirmation by TEDCO Board in June ‘04

FILM / MEDIA COMPLEX SITE• Property is currently a vacant,

underutilized brownfield site on the waterfront

• TEDCO will assume responsibility for site remediation, foundation costs associated with fill conditions, and some municipal services

• Development will help kick-start Port Lands revitalization

• Land will be made available for the film and creative industries, instead of residential uses.

SCHEDULE A – SUBJECT LANDS

PHASE 1 MANDATORY REQUIREMENTS

Component Mandatory Requirements

6 Sound Stages Totaling Minimum: 123,000 sf(One of above to be Mega Stage of 45,000 sf )

Production Offices, Shops and Support: 109,500 sf

Total Minimum Phase 1 Requirement: 232,500 sf

PRIMARY AGREEMENT DOCUMENTS

1. Ground Lease• Primary Contractual Agreement• Governs all terms for Phase 1 lands• Negotiated through Spring/Summer 2005• Execution authorized by TEDCO Board on August

23, 20052. Equity/Indemnity Agreement

• Supplementary to Ground Lease• Governs specific commitment by Rose Corp. to

provide $16 million cash equity for Phase 1 development

PRIMARY AGREEMENT DOCUMENTS

3. Option Agreement• Governs terms for subsequent leasing in phases of

the balance of the Complex Connected and Surrounding Lands

• Maintains business and legal provisions from the Ground Lease

• Options expire within certain time periods if not exercised

• TFS land option rights limited and conditional on full build out of the Phase 1 complex

SUMMARY OF GROUND LEASE TERMS1. Term of Lease:

• 99 year lease• No sale of land; typical commercial transaction• Buildings and Improvements become property of TEDCO upon

expiry of lease

2. Key Financial Terms:• Basic Rent - based on market value of lands• Rent Adjustments - fixed rent re-sets based on change in fair

market value• Higher rents to TEDCO with Higher Density Development• Triple Net Lease, carefree to TEDCO• Commercially reasonable tenant inducements reflective of the size

and risk of the development• TFS responsible for all development risk and obligated to

commence construction by August 31, 2006, subject to penalties• Project not conditional on residential rezoning; Rose/TFS have no

residential rights

SUMMARY OF GROUND LEASE TERMS (cont’d)

3. TFS Financing Requirements:

• Total budget Phase 1 = $36,000,000;

• TFS / Rose to provide $16 million in cash equity

• TFS / Rose to secure $20 million in financing

4. TFS/Rose Restrictions:

• Required to develop minimum stage and production areas, 45,000 sf Mega Stage, and construct to state of the art specifications

• Required to operate Phase 1 for minimum 10 year period• TFS/Rose not permitted to build other facilities that would

compete with Port Lands Complex.

SUMMARY OF GROUND LEASE TERMS (cont’d)

5. TEDCO Restrictions:

• Apply to TEDCO owned lands only.

• Restricted from leasing land for feature film production in Port Lands and East Bayfront for 3 year period.

• Restricted from leasing land to film/media tenants on TEDCO owned lands within a varying range to a maximum of 500 meters from the Complex for a 4 year period following completion of Phase 1, ending no later than October 31, 2011.

SUMMARY OF GROUND LEASE TERMS (cont’d)

6. TEDCO/City/TWRC Obligations:

• Environmental remediation to permit industrial development on a risk assessment basis and in accordance with negotiated cost cap

• Extraordinary foundation costs associated with deep foundations required due to fill conditions and in accordance with negotiated cost cap

• Construction of the Don Roadway from Commissioners Street to the entrance gate of Phase 1 Complex, and to the Ship Channel at ultimate development of Connected Lands

• Construction of most off-site municipal services to the lot line