The City of New Westminster is preparing to borrow $59 million so it can build an office tower above its future civic centre.
Convinced that the office tower is a critical component of the downtown revitalization and economic development efforts, city council has agreed to proceed with construction of the $33-million office tower. The Uptown Property Group had agreed to partner with the city and build the office tower but later withdrew from the project.
Mayor Wayne Wright said there is an overwhelming need for Class A office space in the downtown and it is a compatible use to the convention and cultural facilities in the civic centre. He said the office component would add much-needed revenue to the city, create 525 jobs, help to drive the economic development of the downtown, and contribute to the parking needs downtown.
"I think it's a very strong and good business decision," he said. "People will query that if they haven't been in business, people will query that if they don't have the faith, people will query that if they don't read the fine print."
A staff report states the total budget of the civic centre and the office development is $94 million, which includes $41.5 million for the multi-use civic centre, $12.5 million for the three-level underground parking structure (to be used by both buildings), and $40 million for the office tower ($33 million for the tower plus $7 million for tenant improvements to be considered at a later date).
As part of gaming expansion in the city, the City of New Westminster negotiated a "development assistance compensation" agreement that provided $35 million for a multi-use civic facilities.
City administrator Paul Daminato said the city has always seen the civic centre as an opportunity to leverage funding that would provide an opportunity to generate revenues in addition to what would come into a civic centre. With the loss of the Uptown Property Group as a partner, the city has decided to continue with construction of the civic centre and office tower, in order to keep the project moving forward in a timely fashion.
"It was kind of when we got towards the end of the design phase that UPG decided to withdraw for their own business reasons... That is when we started looking for other development partners. That process continues today," he said. "We have a number of parties who have expressed interest in the project. But it did get to the point where we had to make a decision from a timing perspective, and from potential lessees as to putting some certainty that the office tower was going to be built and when it was going to be built."
Under the original development assistance compensation agreement, the civic centre was due to be finished by Dec. 31, 2013. The province has indicated it would support the city's request to extend that timeline to Dec. 31, 2015, although the city is aiming to complete the project by February 2014.
"We are sticking with the original schedule," Daminato said. "We are off a couple of months mainly because some of the excavation that has taken some extra time."
On Monday, city council directed staff to move forward to a public process required to amend the city's financial plan and to secure the financing for the project as soon as possible. Council will consider amendments to the five-year financial plan at its May 14 meeting.
A staff report stated that the city needs to move forward with the public process needed to borrow $59 million as soon as possible. In addition to $43 million of casino revenues, the city's plan is to borrow up to $11 million for the city's costs related to the multi-use civic facility and parking structure, up to $33 million related to traditional capital programs, and up to $15 million to interim finance the costs related to development assistance compensation funding until the DAC funds are received.
Daminato said the city has allocated $43 million in DAC fund, which covers the entire cost of the civic centre, as well as part of the parking. The balance of $11 million, which will be borrowed from Municipal Financing Authority, will cover the full amount of the civic centre and the parking structure. Daminato said the cost of the office development (without $7 million in anticipated tenant improvements) is $33 million. The city intends to borrow that money from its reserves, which currently total $66 million.
"The plan is we will borrow from Municipal Finance Authority to backstop those reserves," he said. "The $33 million in reserves right now is there for conventional capital works - road improvements, facility improvements, those kinds of things - we are going to borrow the $33 million from MFA so the money is available for those projects. We will use the reserve money for the office tower."
Colleen Ponzini, acting director of finance and information technology, said the city has already planned to use reserve funds for those capital works. To take advantage of lower interest rates offered by the Municipal Finance Authority, she said the city will "switch them" and use reserves to fund the office tower and borrow funds from the MFA to do the capital works.
While the city is proceeding with construction of the civic centre and office building, it is also continuing to search for a partner or leasee for the office complex.
"We don't want a gun to our head," Wright said. "We want to be there to negotiate a sale that is financially good for the city as possible."
Wright said the bottom line is the office tower will help bring people to the city to invest and support the city.
"It's not going to affect their taxes," he said of potential residents' concerns. "What would affect their taxes in the future, if you just put in a civic centre there is no income stream that will take care of the operating costs of it."
Cote said the office complex is anticipated to generate $50 million in property taxes over the next 50 years. He said the biggest risk is that the office space won't be leased in the short-term, but council considered the long-term financial benefits of the facility.
"Certainly there are short-term risks with what the city is moving ahead with," he said, "but almost every scenario, even the most difficult scenarios, if you look at the long-term horizon, 10, 15, 20 years, it still worked out to be the better decision."
Coun. Chuck Puchmayr said he has "extreme confidence" in the multiuse civic facility, but couldn't support the city's decision to build the office tower.
"I hope that this project is extremely successful," he said. "It will be an icon in the changing New Westminster. The risk is something that I absolutely am not comfortable with."
Puchmayr said his preference was that the city build the civic centre and cap the building, enabling an office structure to be built at a later date.
"With respect to going forward and taking on the risk of building the office tower using city reserves and also using financing, it's a risk that I am not personally prepared to take as a member of council," he said.
Cote said council gave a lot of thought to the concept of capping the building so a tower could be built in the future. He said the challenge with that is that it creates significant costs and can be cost prohibitive.
"Although the infrastructure might have been in place to build the office tower, the likelihood of that office tower ever being built could probably be minimal," he said.
Building a standalone civic centre was another consideration, he said, but would have required the centre to be reduced in scope from what's now proposed and supported by community members. He said it likely would have had to be scaled back 25 to 30 per cent because the city would no longer be getting some of the efficiencies achieved by building the office tower, including shared parking and heating and ventilation systems.
The city's portion of the civic centre will include a 350-seat theatre with flexible seating to accommodate a variety of productions, conference and meeting space, art studios, an art gallery, tourist information centre and the city's museum and the Canadian Lacrosse Hall of Fame.
Coun. Bill Harper said the city will continue to search for a partner that brings benefits to the city and will be a real partner in the project.
"If not, we will build it ourselves, lease it up and sell it," he said. "That's where the risk is."
Harper believes that the benefits of the project outweigh any risks.
"In my view, this is a game changer for downtown. It's a game changer for the city and it's a game changer for the street in terms of having business," he said. "There are many other cities that have gone in a similar direction - Richmond, Burnaby, Surrey. A number of those cities have owned office towers, built office towers and done so quite successfully."
Wright said the city "could put a condominium in there tomorrow" but that wouldn't provide "the full meal deal" that the city needs to make a statement at the site and spur economic revitalization in the downtown.
"Risk is the ability to make good decisions that can move forward," Wright said. "Without risk, you go backwards."
