Downtown Financial Incentive Review City of Kitchener

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Jacob Marsh
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1 Downtown Financial Incentive Review City of Kitchener

2 Incentive Review Process Phase 1 Review/Discussion Paper/ Public Input Recommendations on Direction Summer 2013 Phase 2 Implementation Changes to Programs Fall

3 Why Now? Programs were established in 1995 Greater expectations for quality (ex: HQ design) Current Development Charge Bylaw Ends in 2014 Facade Grant Program fund exhausted Increasing pressure on Victoria Park

4 Downtown Financial Incentive Review Major Redevelopments Development Charge Waiver Parkland Dedication Fee Exemption Building Permit Rebates 3-Year Tax Increase Exemption Targeted Incentives Facade Loan Program ( ) Facade Grant Program ( ) Building Permit Rebates Upper-Storey Grant & Loan Program ( ) City-Wide Incentives Brownfield Remediation Program Adaptive Reuse Program Heritage Tax Rebates

Program (1997-2009) Facade Grant Program (2009-2013) Building Permit Rebates Upper-Storey Grant & Loan

5 Discussion Paper Downtown s Current Economic Context Evaluation of Existing Programs City s Funding Capacity Options/Recommendations

6 Today s Economic Context

7 Projected Revenues - Development Costs = 15% ROI Land Costs Construction Costs Legal Fees Design Fees Marketing Fees Contingency Development Fees

8 Residential Condo Residential Apartment Residential Loft Conv. Condo 3-Year Tax Exemption $1,229/unit $1,000/unit $1,000-1,229/ unit* Planning & Building Permit Fee Rebate Parkland Dedication Fee Waiver Office $275/1,000 sq.ft $844/unit $844/unit $278/unit $2,134/ 1,000 sq.ft $1,850/unit $1,850/unit $1,850/unit $172/1,000 sq.ft Development Charge Waiver t $12,177/unit $12,177/unit $12,177/unit** $1,670/1,000 sq.ft TOTAL $16,100/unit $15,871/unit $3,128- $4,251/1,000 $15,534/ sq.ft unit*** Office Loft Conversion $1,050/1,000 sq.ft $427/1,000 sq.ft $172/1,000 sq.ft $1,670/1,000 sq.ft** $3,319/1,000 sq.ft

$275/1,000 sq.ft $844/unit $844/unit $278/unit $2,134/ 1,000 sq.ft $1,850/unit $1,850/unit $1,850/unit $172/1,000 sq.

9 200 Unit Residential Condo $375 $365 $362 Sale Price (per square foot) $350 $325 $300 $276 $275 $304 $331 $316 $250 $ $ $ $ Cost of Construction (per square foot)* Average Downtown Sale Price (per square foot) Highest Downtown Sale Price (per square foot) Sale Price (per square foot) Required to Achieve a 15% Profit Margin

00 Cost of Construction (per square foot)* Average Downtown Sale Price (per square

10 200 Unit Residential Rental $2.50 $2.29 Monthly Lease Rate (per square foot)* $2.00 $1.41 $1.50 $1.00 $0.50 $1.54 $1.68 $1.86 $1.77 $1.25 $0 $146.6 $ $ $200 Cost of Construction (per square foot)** Lowest Asking Lease Rate (per square foot) Average Asking Lease Rate (per square foot) in Downtown Kitchener Highest Asking Lease Rage (per square foot) in Downtown Kitchener Lease Rate (per square foot) Required to Achieve a 15% Profit Margin

18 $200 Cost of Construction (per square foot)** Lowest Asking Lease Rate (per square foot) Average Asking Lease

11 200,000 sq.ft Office - Long-term Ownership $35.00 $30.93 Monthly Lease Rate (per square foot)* $30.00 $26.68 $25.00 $20.00 $15.00 $28.77 $21.95 $11.67 $10.00 $ $ $ Cost of Construction (per square foot)** Lease Rate (per sq.ft.) Required to Achieve 15% Profit Margin Average Asking Lease Rate (per square foot) in Downtown Kitchener Highest Asking Lease Rage (per square foot) in Downtown Kitchener

20 Cost of Construction (per square foot)** Lease Rate (per sq.ft.

12 200,000 sq.ft Office - Short-term Redevelopment $35.00 Monthly Lease Rate (per square foot)* $30.00 $25.00 $21.13 $20.00 $15.00 $22.80 $24.50 $21.95 $11.67 $10.00 $ $ $ Cost of Construction (per square foot)** Lease Rate (per sq.ft.) Required to Achieve a 5% CAP Rate Average Asking Lease Rate (per square foot) in Downtown Kitchener Highest Asking Lease Rage (per square foot) in Downtown Kitchener

13 Conclusion = Incentives are still necessary

14 Targeted Incentives Facade Loan Program: 6 projects from Facade Grant Program: 45 projects from Building Permit Rebates: 21 projects since 2006 Upper-Storey Loan Program: 6 projects from

2009-2013 Building Permit Rebates: 21 projects since

15 Evaluation of Current Incentives

16 Financially Relevant User Friendly Allows Discretion Impose Objectives Financially Predictable Easy to Administer 3-Year Tax Exemption Planning & Building Permit Fee Rebate Parkland Dedication Fee Exemption Development Charge Exemption Facade Grant Program Upper-Storey Renovation Program page 15

& Building Permit Fee Rebate Parkland Dedication Fee Exemption

17 Financially Relevant User Friendly Allows Discretion Impose Objectives Financially Predictable Easy to Administer 3-Year Tax Exemption Planning & Building Permit Fee Rebate Parkland Dedication Fee Exemption Development Charge Exemption Facade Grant Program Upper-Storey Renovation Program No No No* No* No No Partially** Yes No* No* Yes/No*** Yes Partially** Yes No No No Yes Yes Yes No Yes Yes/No**** Yes Yes Yes Yes Yes Yes Yes Yes No Yes Yes Yes No page 15

Exemption Facade Grant Program Upper-Storey Renovation Program No No No* No* No No Partially** Yes No* No*

18 City s Ability to Fund Incentives for Major Redevelopments $2.5 million left Every additional $1 million in incentives requires a 1% tax increase *Need for new urban parkland *Need for a new incentive program - Landing Pad Program

19 City s Capacity to Fund

20 City s Ability to Fund Incentives for Major Redevelopments $2.5 million left Every additional $1 million in incentives requires a 1% tax increase *Need for new urban parkland *Need for a new incentive program - Landing Pad Program

21 Options for Moving Forward

22 5 Options 1. Status Quo 2. Modify DC Exemption & Realign Funding to Key Programs (preferred) 3. One Consolidated Grant 4. Replace Incentives with Strategic Investments 5. Discontinue All Programs

23 Downtown Financial Incentive Review Major Redevelopments Development Charge Waiver Exemption Parkland Dedication Fee Exemption Reduction Building Permit Rebates 3-Year Tax Increase Exemption For a Res Condo: $16,100/unit to $13,749/unit * Official Plan Policies to require HQ urban design

24 Downtown Financial Incentive Review Targeted Incentives Building Permit Rebates Reduce Scope & Shift Funding Facade Grant Program ( ) Ongoing Upper-Storey Grant & Loan Program ( ) Shift Funding Landing Pad Grant Program ( ) Text

25 Landing Pad Grant Program

26 Landing Pad Grant Program The Risk: Companies emerging from the Communitech HUB leave Waterloo Region because they can t find the type and price of space they need The Challenge: Facilitate the creation of space that embeds startup companies Downtown. The Opportunity: Downtown Kitchener as a hotbed of startups Start-up City

27 Landing Pad Grant Program The Framework: Target 2nd & 3rd Floor Space Matching grant program (ex: $40,000 grant per floor) City pays no more than 50% of the cost Building owner agrees to reserve space for startups for set period of time City works with Communitech and WRSBC to facilitate transition of companies Funding: $600,000 from Upper-Storey Program Other Options: Leasing arrangements for City buildings to create Landing Pad Space (ex: 44 Gaukel, 79 Joseph*, etc.) *Note - 79 Joseph St would require minor expansion of CIP Boundary

28 Stakeholder/Community Input Reasonable Sunset Dates Changes to Parkland Dedication be done in concert with City-wide review Expand the boundary east to Betzner Street Text Request to determine Assessment Gain vs Incentive Value: City Region $200,000 unit 5.37 yrs 6.75 yrs $250,000 unit 4.30 yrs 5.40 yrs

29 Downtown Financial Incentive Review City of Kitchener

Development Charge incentives. Yes in town centres. Other exemptions for affordable housing. See Affordable Housing Incentives column

Development Charge incentives. Yes in town centres. Other exemptions for affordable housing. See Affordable Housing Incentives column Municipality Central Business District Community Improvement Plan Façade Improvement Tax Increment Financing Planning Fee Rebate Development Charge Exemption Residential Incentives Brownfield Incentives