Download Market analysis (Waterfront Planning Process)

Market and Feasibility Study
Waterfront Planning
TERMS OF REFERENCE
PHASE TWO & THREE
Financial Analysis & Defragmentation Strategy
NOVEMBER 1, 2010
Terms of Reference Page 2
Market and Feasibility Study (Waterfront Planning)
TERMS OF REFERENCE
INTRODUCTION
The District of Mission is located along the Fraser River – a water resource that has been central
to the development of the community given its industrial legacy. The river continues to have an
industrial function, but increasingly, it is being viewed in terms of the opportunities it presents
for mixed-use residential and commercial waterfront development. The waterfront represents
a significant opportunity for Mission to achieve urban land intensification for over 60 hectares
(150 acres) of land designated for high-density residential and mixed commercial/residential
uses and industrial uses.
As part of the vision to redevelop the waterfront, the District seeks a development services
consultant to complete an independent market and development feasibility analysis of Mission’s
waterfront. The key purpose of the market and financial development analysis is to determine
the overall market and financial viability to planning and redeveloping the waterfront lands.
The market analysis, which has since been completed, identified the market opportunities and
constraints for developing Mission’s waterfront in terms of appropriate types, density
thresholds, supply considerations, demand factors, price potential and effective combinations of
land uses and identified the factors that present the highest and best use of land for the
waterfront area. The remainder of the analysis to be completed relates to the financial viability
of redeveloping the waterfront.
OBJECTIVES
The study’s findings and recommendations will be used in the policy-making and planning of
future land use, zoning, capital improvements, and economic incentives. Based on the findings
of Phase 1 – Market Analysis, the previous Lead Consultant, Ground Control Enterprises Ltd, has
recommended that there is merit to proceed with Phase 2 and 3 of the Study. Phase 2 and 3 of
the Study will determine the financial viability of developing the Waterfront Area and provide a
strategy for assisting third-party developer(s) with Land Defragmentation.
The engagement is divided into four discrete components:
1)
2)
3)
4)
Market Analysis - Completed
Financial Analysis
Land Defragmentation Strategy
Implementation Strategy
The goal of the study is to provide the District with clear decision-making direction with
respect to the future commitment to, and investment in, the waterfront redevelopment
initiative.
Terms of Reference Page 3
To achieve this objective, relevant existing background reports and other studies should be
utilized as appropriate to minimize costs and maximize the quality of the final product. The
District will provide existing documents as needed.
SCOPE OF WORK
The following outlines the necessary Scope of Work based on the remaining three Study
components. This is also summarized and cross-referenced in the appended flow chart for the
engagement (Schedule A).
1)
Market Analysis – Completed
2)
Financial Analysis
Undertaking a Financial Analysis for the development of the Waterfront Area will require
the consideration of numerous variables. Additionally, there are a number of development
scenarios that can be examined. Consequently, the Consultant is tasked with producing
one conceptual plan (herein after the “Baseline Conceptual Plan”) for the Waterfront Area
on which to base a Financial Analysis. The Baseline Conceptual Plan will be used as a
financial benchmark for analyzing further development scenarios so as to provide the
District with a consistent point of comparison.
a) Produce Baseline Conceptual Plan
Considering the findings of Phase 1 of the Study, previous studies undertaken by the
District and in consultation with District Staff, the Consultant will produce the Baseline
Conceptual Plan. The Baseline Conceptual Plan will use the Development Plan created in
Phase 1 of the Study as its starting point, but will be modified and enhanced with greater
detail based on information provided by the District and Sub-Consultants.
There will be two components to Baseline Conceptual Plan: Stage 1 of the Development
and Stage 2 Build-out of the Development. While Build-out will include the fullydeveloped Waterfront Area including the downtown core and portions of the Core, North
and East precincts, Stage 1 of the Development as illustrated in Schedule B is anticipated
to include the following components:
1. Horne Street Connection—Residential, & Commercial Village
2. West Precinct – Auto-centric businesses
3. West Central Precinct –large-scale commercial
It should be clearly noted that the Baseline Conceptual Plan will not be considered a LandUse Plan for the Waterfront Area, but simply a starting point that will allow the Consultant
to provide more accurate costing estimates through financial modeling. The final
waterfront land use plan may or may not consider or incorporate the various elements of
the Baseline Conceptual Plan.
Terms of Reference Page 4
If the Financial Analysis is determined to be feasible and the District elects to proceed to
Phase 4 – Implementation of the study, the Financial Analysis can serve as a baseline
financial model for the District when determining the appropriate Land-Use Plan for the
Waterfront Area.
In order to develop the Baseline Conceptual Plan the Consultant will undertake the
following:
i.
Understand Existing Opportunities and Constraints of Development Lands
The Consultant will meet District Planning & Engineering Staff and/or other agencies
or stakeholders as required to further understand opportunities and constraints of
the Development Lands, including existing land uses, ownership and both private
and public improvements.
ii.
Produce Baseline Conceptual Plan
Based on information derived from 2(a)(i) above, the Consultant will produce the
Baseline Conceptual Plan that will form the basis for the Financial Analysis. The
Baseline Conceptual Plan and associated Financial Analysis will be produced under
the assumption that the Waterfront Area is being developed in its entirety by onemaster developer. As outlined above, the Baseline Conceptual Plan will have two
components: Stage 1 and Build-Out and the Financial Analysis will mirror this.
The Baseline Conceptual Plan will include major assumptions for road and
infrastructure networks, as well as, density and parking assumptions by
neighbourhood.
iii.
Feedback from District
While the Baseline Conceptual Plan will not be considered the basis for a Land-Use
Plan, the Consultant will obtain feedback from District Planning and Engineering
Staff prior to finalizing the Plan that will be the basis for the Financial Analysis.
b. Financial Analysis
The Financial Analysis will be based on the Baseline Conceptual Plan and will be split into
two components: Stage 1 and Build-Out. The Financial Analysis will include the
following:
i.
Development Cost Assumptions
The Consultant will develop cost assumptions by developing preliminary
development strategies and applying defensible unit, or other, cost estimates to
quantified development programs allocated on an annual basis over the projected
life of the project. Note: at this point in the Financial Analysis is it assumed that the
Project Developer will be responsible for all costs, and the District is not responsible
Terms of Reference Page 5
for any costs of Development. In “Phase 4 – Implementation” it may be determined
that the District may choose to undertake some Development Costs to facilitate
development of the Waterfront Area. However, that requirement cannot be
determined until Phase 2 of the Study is complete.
The cost assumptions shall include rough order of magnitude cost estimates for the
following categories, at the minimum:
Pre-development Costs
o
o
o
o
General and Administrative
Planning
Design
Approvals (e.g., zoning)
On-site Infrastructure Costs, phased
o
o
o
o
o
o
o
o
o
Site preparation
Remediation
Flood protection
Road
Parks
Water
Sanitary sewer
Storm sewer
Other
Off-site Infrastructure Costs, phased
o
o
o
o
o
o
Gas, hydro, telephone
Water system upgrades
Sewer system upgrades
Flood protection upgrades
Road/intersection upgrades
Other
Residential Development Costs, by building, neighbourhood or other reasonable
unit of measure when considering scale of the development
o
o
o
o
o
o
o
o
o
Land
Site preparation
Consultants
Hard construction
Parking
FF&E
DCC’s and other levies
General and Administrative
Marketing and Sales
Terms of Reference Page 6
o
Holding and operating
Commercial Development Costs, by building, neighbourhood or other
reasonable unit of measure when considering scale of the development Land
o
o
o
o
o
o
o
o
o
Site preparation
Consultants
Hard Construction
Parking
DCC’s and other levies
General and Administrative
Marketing and Sales
Tenant Inducements
Holding and Operating
Financing Costs
o
Interest and fees
Recognizing that estimates are being made from conceptual, not actual construction
plans, it is appropriate to carry reasonable contingencies. The consultant should identify
and defend the contingency assumptions used.
In addition to the current estimate cost, in today’s dollars, the Consultant shall provide
estimates of the timing of incurrence of expenses based on annual allocations of the
development program with respect to residential absorption and commercial phasing.
It is anticipated that the Consultant will rely on suppliers for aspects of this work
including, but not necessarily limited to:
Geotechnical engineering: seismic and groundwater;
Civil engineering: roads, water, sewer, storm-water, street-lighting, power, gas,
communication, and flood management;
Environmental engineering: contamination/remediation, water’s edge and habitat;
Architectural: building programs; and
Quantity Survey: market construction cost data.
All suppliers and sub-consultant’s background reports shall be made available to the
District as an Appendix to the study and shall become the property of the District.
ii. Revenue Assumptions
The consultant will develop revenue and cost recovery assumptions for all aspects of the
Project Development Plan.
Notwithstanding the current fragmentation of land ownership, it is important to
understand the potential development revenues of the entire waterfront lands,
Terms of Reference Page 7
individually and in aggregate, as though there were one master developer undertaking
the entire project. In this regard it will be necessary to develop and document justifiable
assumptions and project revenue and cost recovery estimates for the following:
o
o
o
o
o
Sales revenue relating to the vertical development of all residential buildings.
Such projections are to follow the market study conclusions and a phasing plan
reflecting defensible absorption assumptions;
Sales revenues relating to the vertical development of all commercial buildings
assuming defined lease and cap rates. Such projections are to follow the market
study conclusions and a phasing plan reflecting defensible absorption
assumptions;
DCC or other municipal contributions to site work, parks, utilities, roads, other
infrastructure, etc;
Potential grants or subsidies from senior levels of government or other sources;
and
Potential sale of unneeded development rights, easements or access to private
parties.
c) Financial Modeling
The cost and revenue assumptions and projections developed according to the
foregoing must be incorporated into financial models. Four models are required in total
– two scenarios for each of two Stages (Stage 1 & Build-out). The first scenario is to
consist of the Consultant’s best estimate of the true financial potential of the Project
Development Plan. This is to be augmented by a pessimistic scenario that reflects a
“slow start” compared to the plan. A “slow start” is defined as slower than anticipated
absorption of residential and commercial units due to adverse market conditions.
Each Model will, at a minimum;
be created with Microsoft Excel. Concise notes to explain variables, inputs and
results will be provided ;
reflect the entire projected life of the project with revenues and costs allocated
in annual increments;
be sufficiently detailed so as to independently portray a reasonable
understanding of the Project Development Plan, timing of individual elements
and key assumptions used;
be internally consistent with respect to key assumptions used within the same
scenarios;
be robustly dynamic whereby numerous key assumptions can be changed with
immediate effect on results. Examples of such required flexibility would include,
but not be limited to:
o
o
o
o
o
Revenues and costs per square foot;
Adding, amending or deleting items in Infrastructure cost summaries;
Costs estimated as a percentage of revenues (e.g. sales commissions);
Timing of specific buildings, infrastructure or other plan elements;
Project and structured financing terms;
Terms of Reference Page 8
o
o
Cap rates; and
Etc.
provide annual and cumulative cash flows that summarize inflows, outflows and
net cash flow;
provide the application of potentially complex financing assumptions at the
vertical and horizontal project levels;
provide a meaningful integration of development statistics (acres, BSF, etc.)
with financial projections;
provide residual land values associated with all residential and commercial
vertical projects – and compare such values to current market comparables; and
provide report and a meaningful one-page summary of findings and results.
d) Financial Viability Assessment
Based on the Financial Models, the Consultant shall summarize and discuss the financial
viability and risks associated with the Baseline Conceptual Plan. This opinion shall form
the basis of the consultant’s recommendation to the District whether to undertake
further work on the broader waterfront planning initiative, or not.
3. Land Defragmentation Strategy
The Waterfront lands are not owned by the District. The Project Development Plan
references five precincts totaling approximately 160 acres. Approximately:
1)
2)
3)
4)
5)
East – 27 acres.
North – 38 acres
Core – 19 acres
West – 43 acres
West-Central – 33 acres
Almost half of the total Waterfront land is currently held by one, private owner (West and
West-Central precincts). The balance is widely held under a highly subdivided plat
providing relatively small lots.
It is not intended that the District will be responsible for undertaking the Land
Defragmentation. Rather, the Consultant will outline strategies where the District can
help facilitate development of the Waterfront Area through Land-Use Planning policies. If
the Financial Analysis determines the development of the Waterfront Area is viable, the
required relocation of some existing uses and consolidation of parcels will be left to the
private sector.
a) Land Defragmentation Strategy
By reference to municipal law, best practices and proprietary creativity, the Consultant is
challenged to develop various strategies that could achieve the goal of assisting the
private sector in defragmenting the land ownership for this purpose.
Terms of Reference Page 9
b) Land Defragmentation Assessment
Based on its work, the Consultant shall summarize and opine on the feasibility of the
defragmentation strategy. This opinion shall form the basis of a recommendation to the
District whether to undertake further work on the broader initiative, or not.
Based on the Financial Viability Assessment and the Land Defragmentation Assessment,
the District shall, at its own discretion, decide whether or not to proceed to the fourth
component of the engagement. The Consultant shall not be entitled to any revenue or
recoveries for work beyond Step Two & Three unless and until the District has authorized
continuance in writing.
4) Implementation Strategy
The District of Mission, at their discretion, may or may not retain the consultant for the
completion of Component 4 – Implementation Strategy. Based on positive assessments in
Phase 2 and 3 and a decision by the District to move forward, the Consultant will develop an
Implementation Strategy that will outline next steps for the District to facilitate
development of the Waterfront Area.
a) Alternative Scenarios
To get to this point, the study will have concluded that a market opportunity exists for the
Baseline Conceptual Plan, that it is possible to create a land defragmentation strategy and
that there is financial viability for a developer(s). To move the opportunity beyond theory,
the first step is for the Consultant to outline the full definition, and financial implications, of
the various roles that the District can assume in order to advance the initiative. These could
include, but not be limited to,
Acquisition of all or part of existing waterfront land, directly or with partner(s);
Joint venture with waterfront land owner(s);
Initiation of District planning, zoning and incentive programs to drive desired
development outcomes; and
Processing of applications to facilitate owner-initiated redevelopment.
b) Process
Regardless of whether or not the District becomes directly involved in the development of
the Waterfront lands, given the current ownership fragmentation it will be necessary to
take a leadership role in organizing the initial planning work associated with the
opportunity until such time as a capable ownership representative or group can come into
being. Of course this involvement is even more justifiable should the District opt into direct
participation. Furthermore, much of the work necessary to enhance and advance the
Project Development Plan will be of commensurate value to the District for the purpose of
developing planning principles, OCP amendments, zoning bylaws, development permits,
Terms of Reference Page 10
etc. Accordingly, the District has a vested interest in seeing planning continue. To facilitate
this, the Consultant shall develop a detailed critical path of the project planning efforts and
associated costs (and cost recoveries) that would advance the project through various key
milestones and processes such as:
Land defragmentation and/or acquisition plan;
(Re)envisioning conceptual plan;
Detailed site planning including landscape plan, circulation plan; infrastructure plan
and building footprints;
Commercial plan;
Marketing and Communication plan;
District Approvals;
Financing; and
Etc.
The foregoing shall be organized and presented in a budget format with separation
between District and developer cost responsibilities.
The Consultant shall provide guidance with respect to how District costs could be funded.
c) Determine Next Steps
The conclusion of the Market and Feasibility Study shall consist of a planning session with
District Staff and the Consultant wherein next steps are planned in the context of the entire
Study generally and the implementation alternatives and critical paths specifically.
Terms of Reference Page 11
Schedule A
Terms of Reference Page 12
Schedule B