0 IHINJIIYE FEST BRIEFING NOTE FOR DECISION September' 25th, 2009 Speciailgoard Meeting Due for Commonwealth Campus Corporation 'Wood innovation and Design Centre' Land Assembly Sac round' 9 on September 16, 2009, the Board of Northern Development initiative Trust directed that due diligence be completed on a potential loan to Commonwealth Campus Corporation (0861221 BC Ltdthe transfer value of the 500 block of George Street in downtown Prince George. The proposed structure of the loan would he as follows: Borrowerr 0861221 BC Ltd. also legally known as Commonwealth Ca mpus Corporation Lender: Northern Development initiative Trust Development) Proje ct name: Wood innovation and Design Centre {also referred to as the Downtown Campus Proiect) Program: Fund purchase, denloiition and environmental remediation of 500 Block George Street, Prince George, BC. This land assembly for Ui~iEiC is for the express purpose of constructing the 'Wood innovation and Design Centre Loan amount: A maximum of $8,887,500 of proposed maximum costs of the block assembly and remediation costs, less $400,000 for the Northern Development acquisition of City of Prince George lots or City donation of properties) Rate: simple annual interest paid fixed, 3 year term Repayment: Approximately 543,140 interest oniy, with an agreement for sale of the assembled and remerllated biockto Northern Development fora maximum within two yearswith an option for a year extension - After the acquisition of the entire block from Commonweaith Campus Corporation ($11,850,000) and the City of Prince George Northern Development would propote to transfer the remediated and level block to UNBC for $12,495,000 {less any cost recovery described in conditions precedent]. This loan and purchase/sale transaction is subiect to approval from Treasury Board for the capital investment in the Wood innovation and Design Centre and inclusion in the 2010f11_or 2011! 12 Provincial Budget. The preference would be for the transfer to occur in the 201Df11 fiscaiyear. - Property Acquisition Strategy The foiiowing'detaiis_all of the properties within the 500 biock of George Street as illustrated on the attached 500 Biock George Street Site Plan. in addition, the chart below outlines the assessment purchase Price and closing dates of the properties to he acquired by Commonwealth Realty Corporation. The exception}: the City of Prince George 4 Avenue Parking that will be acquired by Northern Development initiative Trust ti1rough'either market value sale or donation by the City. Further, the chart outlines the estimated hard and soft costs associated with the demolition and remediation of the subject properties. Application and Correspondence Purchase: Hard Costs Please see Appendix A: Demolition 8: Environmental Cost Estimates for Demolition Envlronntentalclean-u Subtotal: 25% Con 1113 ement Fees 8: filosfng Address ,fie_a_ Owner Current Use assessment Purchase Price rca3t_e:, Greek - 1) 1139-401 Ave. 2-lots The Ernrl Group Restaurant $935,000 $650,000 31-Dec-09 From $1 up to $400,000sub3ect Pu rcbaseoy to agreement NDET prlor 4th Ave. with UN BC and to March 2) 11393-4th Ave. 44015 City of PG Pa $298,900 . BC 2011 3) 409 George St, 1-lots Babine Inv. Vacant store $105,000 $275,000 30-Nov-09 Sassafras' - 4) 421 George St., 1-lots A. Bortolon Tr. Catering $179,200 $273,000 30-Jan-10 5) 427 George St., 1-lots D. Carmichael Book store $133,700 $275,000 30-Jan-10 6) 445 George St., 1-lot? R. Jones Mall Box Etc. $150,800 $150,000 30-Sep-09 7) 43? George =1-lots Coole Hotel Ltd. PG Hotel $1,101,000 $2,000,000 01-Dec-09 - PG Hotel -- 8) 1142~5th Ave, 4-lots Coole Hotel Ltd. Parking $297,000 above 01-Dec-09 9) 1192-5th Ave, _2_-_igt_s Sterlane Enter. The Rum Jungle $526,000 $1,900,000 T30 28-lots $3,155,600 $5,925,000 Plus other: 6 Total $12,?so,mo] details. ID Task Ra-me sort 55*" 'Am 55 tree nee 2315Deposit PG Hole! Wed 0:30:00 Wed 0.00109 2 3 dro?? 'B'a6in'e luv." . t?16fi'1'1i3'o?tTe gt "we era;-e at 5" clss? "M'ofi??r2tT?e A 2 A 6 - clasga 9 1' 'r =C!oseCityLo?s 3 3el1I30!10? Set1!30l*l0 15' Application and Correspondence I1 5; 7. I have reviewed the letter of intent from Dr., iwama, President of UN BC which confirms the intent of the University to acquire the S00 Blocls of George Street for thefwood innovation and Design Centre' that will he the location for a partnership of UNBC, ENC, UBC, and the Emily Carr College of Art and Design to provide a campus for research and academic instruction in a wide range of disciplines focusing-on wodd, such as engineering, technology development, policy and fine arts. The campus would also potentially serve as_ the location of Crown and industry agencies including Forest innovation investmeht and Wood works. We University commits to preparing a submission to the Ministry of Advanced Education and Labour Market Development by early December 2009 with a request that the Province will accelerate funding for this project to start capital expenditures in fiscal yea 201[}}11. have had discussions during September of 2009, with the Honourable Pat Bell, ivlinister of Forests and Range, the Honourable-Shirley Bond, Minister of Transportation and Infrastructure and -Vice Chair of Treasury Board, Deputy Minister of Forests Dana Hayden, and Peter Fuglem, Executive Dlrectorwood First, who have all clearly articulated the strong interest of having UNBC's Wood innovation and Design Centre located in downtown Prince George. The Province is aware of the land assembly opportunity underway on the 500 Biotlt of George Street and that it is a preferred location for both UNBC and the City of Prince Ger'Jr'ge. I have reviewed the references to the Wood innovation and Design Centre in the 2003 and 20-09 Throne Speeches which sets direction on government priorities. I have reviewed the BC Liberal Platform document Strong', where_the Wood innovation and Design Centre at UNBC is mentioned several times including within the section on 'investing in I nnovatlon, Research and Technology, which states that "The nevi Wood innovation and Design Centre at Uili BC and the new Pacific Centre for Climate Solutions will also help shape the future." This shows political intent oomplernentarytothe Throne Speech. I have reviewed the incorporation and shareholder documentation for 0861221 BC Ltd. commonly referred to as Commonwealth Ca mpus Corporation (name reserved with BC Registrar of Cornpa nles} and I find it to be in order, There are no apparent potential 'conflict of lntenest' situations that I anticipate will arise from any provincial, municipal, University, College, Northern Development staff or decision makers participating in any manner thatwouicl personally benefit from these transactions. have reviewed a copy of all accepted ofiers for each property on the 500 Block George Street and' find them generally consistent with the summary information put forward by the development corporation. The exception is an oiferto Starlane Entertainment has notyet been made. i have reviewed all accepted offers to ensure that they allow for an orderly closure and removal of any assets, residents, and effects by actions of the owner, and that the closing dates are for vacant properties. None of the facilitating or purchasing parties including Northern Development, City of Prince George, QNBC, or the Province will be directly associated with any evictions of tenants or closures of establishments or premises. - have reviewed all 2009 assessments, as well as reports on the condition of compiled by Town and Country Inspection Services Ltd. I have reviewed the Phase 1 Environmental Site Assessment of the Prince George Hotel prepared by AMEC Earth and Environmental, dated August 21, 2009*. I have conversed with the consulting engineer and find that the budgeted remediation costs are reasonable. Application and Correspondence 10. i have reviewed the demoiitlonand environmental remediation Ciass assessment from lDl. t'rojects inclwell as their credentials on completing projects of a similar scope: They are an approved contractor bvfihe City of Prince George and they recently completed the demolition and remediation of the fire damaged Columbus Hotel in Prince George. i have reviewed the project tlmeiine and find it to be reasonable. Demolition and environniebtal remediation is proposed to commence on January 1" 2010. It would be very appropriate for UNBC, the' Provincial Government, the City of Prince George and Northern Development to make an announcement about the' 'Wood innovation and Design Centre' location at-terTreasury Board has approved a capital submission by UNBC and an MUU has been established with which enables the acquisition and transfer. . - . 1 Ti'-Viewed the cash flow for this project and find it to be reasonable and consistent with good project management and all documentation on the property acquisition. 3 have made an offer for Northern Development to acquire the City of Prince George Parking Lot thatwas accepted by City Council on September 21, 2009. One dollar financial consideration is proposed to be pgovid?d to the City until the point in time that the University of Northern BC closes the transaction. At f'r'1E'Ci'rF,r desires $400,000 which city staff consider to be market value for the property. i have reviewed the pertinentportions of the Community Charter and find this transaction to be consistent with the City's powers under the Charter.. I do however have advice from Larry Blain, CEO of Partnerships BC and Dana Hayden, Deputy Minister of Forests, who advise that the normal practice is for a City to provide municipal lands into this sort of capital project as a contributionldonation. My preference is that the Cifi) df Prince George, the University. and the Province mutually determine a transfer cost prior to Northern Development entering into an agreement for sale. have reviewed the 'offer from the developer group to provide the first 25% of property acquisition, demolition and remediation costs and their financial resources to do so. i have also reviewed the offer to provide the following: General Security Agreement covering all assets of the borrower. First Collateral Mortgage coverage for all properties. Assignments of . . iiersonal Guarantee from President, DJR. Mctaren in the amount of $1 million. Life insurance coverage over key personnel of 0861221 BC Ltd.(Commonweaith Campus Corp.) - $12 million in total . 15. i have reviewed the 'Smart Growth on the Ground in Downtown Prince George' report that was endorsed 16. by the City of iirince George Council on September 2009 and find this project to be consistent with the -principles and vision of that concept planning 'exercise. I have reviewed a letter from Adele Yakemchuic, Senior' Business Officer with Business Development Bank or Canada in Prince George, who advises that this is a "bankabie deal", once a phase 2 environmental assessment has been done. From the letter it appears that once clean up is underway and the Province is on~slcle, there is every reasonable likelihood that take-out financing could be obtained by Commonwealth Campus Corporation. I have provided the due diligence briefing note to Larry Biaipe, CEO of Partnerships BC who leads the organization with the mandate for assessing, reviewing; facilitating and managing public private partnerships. A meeting resulted in Larry Blaine offering staff resources to assist UNBC in the immediate development of the concept presentation and l:u'osiness'case for Treasury Board. He advised that he believes thisto be a very comprehensive due diligence review and suggests no additional due diligence is Application and Correspondence 18; i have arranged to attend weekiy project managernent meetings of the development group to provide . required other than a commitment by Treasury Board to proceed with the land acquisition and an MGU with the University, prior to Northernitieveloprnent conveying funds via a loan. oversight and safeguard the interests of the Northerri Development Initiative Trust and UNBC, and ensure that any public interests that are not anticipated at this time are communicated first handrif the board chooses to enter into a letter of intent with conditions. Vnirre Assessment 1. have reviewed a letter by Howie Charter, Vice President and Managing Director, Colliers iniernationaiwho has experience assessing several land assembly proiects noted below, and find the implementation and financial information for the 'Wood innovation and Design Centre' to be reasonable and viable. City of Calgary (East Village Urban Renewal) - As part' of the City's urban renewal initiative. in Caigary's_dowritown east side, Howie Charters leci thecoiliers team in developing their real estate strategy. The strategy involved the exchangefsale of -city and privately owned land to create consolidated large scale sites. One of the sites would accommodate a new University of Calgary: downtown campus and the other fora private sector signature mixed use development. I). City of Surrey iwhaiiey} -Working for a provincial crown corporation, developed the land assembly strategy to create the new "Sn rrey City Centre" development in Whalley. He led the Colliers team in the preparation of the business case for the donation of city land and zoning entitlements to enable the construction of the new home for Tech BC, which later evolved into an SFU campus. He continues to consult to SFU on the campus expansion and acquisition strategy for the Surrey Campus. c. Govt. of Canada -Advised the on the real estate alternatives for the development of the new $500 million Division Headquarters in Surrey 8 C. The assignment involved the identification and analysis for site acquisition, and alternative facility delivery methodologies. Z. I have received a review letter from ivanlorgensen, MCI, P. App ofiorgensen Appraisals which finds the prices paid or offered to be within a reasonable range of sales of other properties in the general neighbourhood. The exceptions are the twopropertles having a ilquorllcense which have a unique value for the licence. Therefore, i have negotiated an agreement with the development group to lower the cost of the transaction with the University by 5035 of the revenue recehrecl upon the sale of liquor licences or a caharet licence to other parties. (see note in value assessment] I have requested a letter from ian Wells, AACI, City of Prince George, who has verbally advised me that the accepted offer on the Prince George Hotel Is $2 million lower than a previous offer thatthe City of Prince George was able to negotiate in 2008. Ian attests that there is strong value in the package being put forward. Prince George City Manager Derek Bates; and Mayor Dan Rogers have both verbally advised me that Council is very supportive of the acquisition of the 500 Block of George Street for the wood Innovation and Design Centre, that this is consistent with zoning and the Mayor's task force report on Downtown Revitalization that will be presented to City Council on October 2009 for endorsement. - i have reviewed the developer fees of $375,000 which are approximately 6.35% of the land acquisition costs or 11.5% including $300,000 for taxes, legal fees and closing. This is substantially less than the normal development fee cost charge which can range up to 30% in similar land assembly transactions. Application and Correspondence I have reviewed the Class estimate by Projects and have advised the developer that require a minimum of two competitive Class 0 'all inclusive' estimates at this time to satisfy me that? the demolition and environmental remediation ls competitively quoted. . Condirr'onsPreceaient 1. A Memorandum of Understanding between Northern Development initiative Trust and UNBC, stating that UNBC will commit to submitting a complete proposal to_the Ministry of Advanced Education and Labour Market Development for capital required to acquire land and construct the Wood innovation and Design C8flffe- The intent of the MOU is that subject to Treasury Board approval, the assembled and environmentally remedlated land on the 500 Block of George Street would be acquired from the Northern Development initiative Trust within fiscal 1010/11 (preferred) for a maximum price of $12,495,000, which includes a 2% administration fee to Northern Development initiative Trust. This price will be lowered by any donation of land by the City and any cost recoveries from the transfer of liquor licenses. Nfifihein Development Initiative Trust will enter into a terms sheet for a loan agreement with 0861221 BC Ltd. for up to $8,887,501} with the fully demolished and environmentally remediated vacant block to 'commercial lending standards'. one clause will he first option to purchase the land subiect to a Treasury Board capital protect approval for the WIDC. The option would occur at the amount of the loan plus the agreed upon developer equity with no additional fees. Northern Development will facilitate any potential lowering of its' 75% loan amount and any transfer cost by the following negotiated terms with 0861221 BC Ltd. . - a. The developer agrees to remove from the transaction cost 50?/5 of anyrevenues reallged from the sale of liquor or cabaret licenses from the acquired properties. This will amount to $125,000 from the $250,000 transfer from the liquor licenses from the Prince George Hotel to the Ramada Hotel, and a currently unknown transaction price for the eventual transfer of the cabaret license for the 'Bum Jungle' if a buyer can be found. b. The developer agrees to lower the costto Northern Development by 50% of any savings realized below $1.9 million budgeted for the acquisition of the 'Bum Jungle' from Starlane Entertainment. The lower of at least two competitively sourced Class estimates for 'all inclusive' demolition and environmental remedlatiorfto commercial lending standards. - The 'Clty of Prince George will transfer title to four lots located at 1173 Avenue, Prince George and related alleyways {parking lot) to Northern Development for a value to be determined by discussions between the City, Province and UNBC. Northern Deveiopmenfwlil correspondingly transmit the lands as instructed in approvals sought under the proposed MDU with UNBC. The City will certify that the lands are environmentally clean to commercial lending standards by December 31, 2009. The City will provide a License of Occupation to allow demolition and construction activities prior to closing. Should construction not be commenced on the WIDE by October 31, 2012, the City would have the right to buy;bacl< the parcel forthe transfer amount with each party to cover their own transaction costs. the Provincial Government, the City of Prince George and Northern Development to jointly malre an announcement about the 'Wood innovation and Design Centre' location after Treasury Board"have approved the capital submission by UNBC. The organization of this event_woulcl be taken on by the Provincial Government Public Affairs Bureau. Application and Correspondence I conclude that this initiative represents a good opporttmitv for Northern Deveiopment. to show a direct iinifage between the fund and local economic improvements ofe major and enduring nature. There is a level of risk around the approval of the Treasury Board submission for capital funding for UNBC, but parties are showing goodfiaith and extraordinary effort in working together and political motivation is strong to see the UNHC Wood innovation and Design Centre constructed as a cornerstone of downtown revitaiizatlon in Prince George. The development of a - terms sheet as recommended below has lower risk to Northern Development, but will facilitate-confidence! and compei the due diligence process forward. $0 RECOMMENDATIONS 1. Ti-iATa terms sheet be deveiopeci to enabie Northern Deveiopmentinitiative Trustro provide a secured ioan to the Commonwealth Campus Corporation (0861221 BC Ltd.) for a maximum the iand assernbiy and environmental remediation of the 500 Block George Street in downtown Prince George. The terms sheet vrouid be subject to a Treasury Board decision which approves sufficient capitai budget for the construction of the 'Wood innovation and Design Centre. The understanding is that the capiia! wouid be flowed to UNBC via the Ministry Educotions' capitai budget. THAT in association with a Treasury Board submission, Northern Deveiopment initiative Trust enter into a Memorandum of Understanding with UNBC that articuiores that tire assembied and environmenraiiy reniediaied iand on the 509 Biock ofcieorge Street, Prince George wouid be conveyed with ciear titie to UNBC a two year period for $12,495,000 in consideration, iess any savings accrued by the conditions precedent, subject to UNBCreceiving Treasury Board approve! to proceed. I THA'i'Northern Devaiopmenf initiative Trust enter into options to purchase with the parties subject to a Treasury Board decision rvirich approves sufficient capitoi to construct and operate the Wood innovation and Design Centre'. The properties wouid than be conveyed to UNBC: tit;/of Prince George: An option to purchase clear titiefor environmentaiiy reniedidtedproperties at 11 73 4" Avenue. The amount be determined through discussions between tire Province, UNBC and the City 9 of Prince George. . 086122! Bcitd Acquisition of cieor tide of environmentaiiy remediated properties comprising the remainder of the 500 Biocir George Sireetfor $11,850,000, iess any recovered costs on the soie of iiquor licences, and a {cover competitiveiy obtained demoiition and remediation quote. la nine North Chief Executive officer a Application and Correspondence