Onni: Waste of taxpayer money on reports and hearings due to City Council indecision

City Council meeting

When councillors don’t know what to do about major problems, they ask city staff to prepare report after report and have a half dozen highly paid senior staff attend endless meetings. It’s a huge waste of taxpayers’ money because Councillors then do too little or nothing and the problems get worse.

One example is Onni, the developer that spent 11 years getting commercial rezoning for their 6 buildings along the waterfront of their Imperial Landing development in Steveston at the mouth of the Fraser River. Councillors couldn't decide what uses should be permitted and how much of an amenity contribution Onni should pay.

History of Onni Rezoning Applications (Detailed History here.)

Onni began trying in 2007, before the buildings were built in 2011, to get the property rezoned. Unfortunately, an atmosphere of mistrust toward Onni arose over the years. The history of the many rezoning applications, changes in requested uses, attempts to use local residents to influence City Council, and sequence of amenity contribution increases is documented here.

Rezoning to Add New Permitted Uses

Four of the buildings have rental apartments on the top two floors and the issue has been permitted commercial uses on the main floor of all six buildings. Building 2, the largest building, is one of the buildings without rental apartments. Its second floor was rezoned on an emergency basis to permit a childcare facility when a Steveston childcare operation lost its lease elsewhere. Until the rezoning in May 2018, only maritime industry uses were permitted on the main floor of all six buildings.

The rezoning allowed these additional uses:

  • Grocery Store in Building 2.
  • Office, Restaurant and General Retail uses in Buildings 1 through 4.
  • Minor Health Services in Buildings 1, 2 & 4.
  • Financial Services in Buildings 1 & 4.
  • Indoor Recreation in Buildings 2 & 4.
  • 32 hotel units, including cooking facilities, in Buildings 5 & 6.

The rezoning application would have allowed the hotel to operate without full time staffing. City Council finally specified that the hotel must have full time staff on site. However, Onni has no legal obligation to build the hotel.

Amenity Contribution Disagreement

Rezoning to add commercial uses increases the property value and requires the developer to pay an amenity contribution to the City for allocation at the discretion of City Council. Generally, the amenity contribution is in proportion to the increase in property value. The amount of that increase was the crux of the disagreement between Onni and the City.

Onni's consultant calculated the net increase in property value after deducting expenses to be $4 million. The City's consultant calculated the net increase to be $5.5 million. A few citizens, including myself, calculated it to be probably closer to $12 million. Onni made a "final" offer of $4.75 million. The majority of city councillors indicated they would accept $5.5 million. Onni finally agreed to the $5.5 million.

Suggestion for Solving the Amenity Contribution Disagreement

City Council considered and rejected my suggestion for solving the amenity disagreement after city staff said that while it might work, they didn't know of a similar solution being implemented elsewhere.

A comparison of the different detailed amenity contribution calculations is here. The two important factors are the cap rate and the lease rates. The cap rate is a function of the likely selling price of the property which is in dispute. Therefore, the easiest way to agree on a cap rate is to accept the 5.25% rate submitted by Onni’s consultant.

The lease rates and the costs involved in leasing are unknown until the buildings are actually leased. Both consultants have made educated guesses, but they are still guesses. It may take a couple of years to fit out and lease all the space. Some of the space may be initially leased at artificially low rates for a brief period until longer term tenants can be found.

The easiest way of being sure that accurate lease rates and leasing costs are being used is to agree on an amenity contribution that is split into two installments:

  • The immediate payment of Onni’s original offer of $4.75 million.
  • The calculation 3 years from now of the total uplift using the actual lease rates and leasing costs at that time for all 6 buildings. Agree now that the total amenity contribution will be the greater of 75% of that calculation of actual uplift or the $4.75 million already paid. If that total amenity contribution is greater than $4.75 million then the difference will be paid at that time.

If the Onni position is correct, then at the end of 3 years, they will owe nothing. If it turns out that lease rates are much higher than those used by both consultants, then the City will receive millions more as an amenity contribution. If Onni is reluctant to accept this arrangement, it arouses suspicion that they expect the lease rates to be much higher.

The advantage of this arrangement is that the amenity calculation is based on fact, not guesses. It does not rely on consultants. It does not rely on trust and goodwill.

Lessons Learned

Don't depend on rezoning.
City Council relies on the rezoning process to control how land is developed. However, there is ample opportunity for undesirable development to take place if rezoning isn't required. In that case, the proposal is evaluated by city staff on the Development Permit Panel where the question is whether the proposal conforms with existing zoning, not whether the development is a good idea.

Agree on a vision for the property.
When City Council is unable to agree on a vision for the property, the owner will proceed with whatever vision is the most lucrative to the owner.

Tell the developer what you want.
City Council usually lets the developer make a proposal to which it can say yes or no. When it says no, it often doesn't tell the developer what would make it say yes. This can lead to repeated failed proposals that go on for years.

Buy the waterfront.
The City should buy waterfront property and not allow the development rights to be sold to a developer. It can choose to have a developer build its vision for the property with the right to lease it out for a period of time, but ultimately the City should own the development.

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