Letter from Bayshore Planning Services Inc. (Attachment 1)
Formal letter on behalf of owners Kevin and Amy Senn regarding the private moorage proposal and environmental mitigation measures.
Market Timing. Demand for new apartment units and commercial space in Victoria is currently soft. The introduction of any new CAC policies should be timed to coincide with improved market conditions to minimize any impact on new projects. However, it should be noted that the City already negotiates CACs from rezonings.
Impact of other City Fees and Levies. The City charges a variety of fees and levies on new development, such as application fees and DCCs. Any increase in City fees and levies will reduce the ability of rezonings to make an amenity contribution. Therefore, if the City increases fees and levies, it should consider the impact on CACs.
City Gains from Property Tax Increase. The City gains from increased property tax revenue as a result of rezoning and redevelopment, which should help support community amenity costs. If the cost of density bonus policy acts as a disincentive to pursuing the additional density, then the City loses both the one-time density bonus contribution, and the long-term property tax increase of the unrealized density.
However, it should be noted that any increased property tax revenue from new residential development is often required to fund the additional municipal operating costs associated with the increased population so there may not be net additional revenue to help fund amenities. Commercial development has greater potential to generate net additional property tax revenue as commercial tax rates are higher than residential rates and commercial development typically has less financial impact on municipal operating costs.
Land Acquisition Costs. Most sites have existing improvements that make a significant contribution to existing property value. Rezoning is often required to make redevelopment of these properties financially viable, creating little or no financial room for an amenity contributions. In addition, for vacant or under-utilized sites, property owners are currently seeking full rezoned site values, not base density values. Until market forces drive values down to more realistic levels, some sites will remain undeveloped/underutilized.
Form of Development. Cost to provide underground parking often makes projects non-viable. In some cases, development under existing zoning, 3-stories with surface parking, is the preferred model. In addition, concrete construction is very costly so most of the sites outside of the Downtown Core Area will be wood-frame, low to mid-rise development.
Office development. The financial viability of office development is more challenging than residential development. CAC policy should take into account the impact of office space on the financial viability of a new project.
Amenities. The developers and the community need clarity as to where CAC funds are being spent. There needs to be a clear link between the contribution and the amenity realized in the community, particularly where funds are being received by the City rather than on-site, tangible amenities.
Rental Apartment Units. The City requires that any rental units be replaced when an older rental building is redeveloped. This policy often makes redevelopment of these sites not viable.
In summary, the developers that we contacted are not in favour of CACs in Victoria, but acknowledged that it is part of the approval process. If the City is going to implement a new policy outside of the Downtown Core Area, the preferred approach is a fixed rate target CAC rather than site-by-site negotiations.
In general, the developers expressed support for a fixed rate approach over a negotiated approach because a fixed rate approach will provide greater clarity and help streamline the approvals process. This was perceived to be particularly important for the smaller-scale rezonings that are likely to occur outside the Downtown Core Area.
It was recognized that establishing a fixed rate will not work for all development sites, but that on average, there will be a net positive result provided the rate is set low enough to not act as a deterrent to development. It was emphasized that some types of rezonings, such as rezonings involving the creation of new rental apartment units or office projects typically cannot afford to make amenity contributions.
5.0 Case Study Financial Analysis
To estimate the CAC that is likely supportable for rezonings outside the Downtown Core Area, we analyzed the financial viability of rezoning and redevelopment of a variety of different case study sites in the four different land use designations that are the focus of this study.
We used the financial analysis to model the likely performance of rezoning and redeveloping each site under the maximum density identified in the OCP on the assumption that the developer purchases the site at its current market value under existing use and zoning (i.e., the developer does not pay the rezoned value of the site).
The analysis allows us to determine whether rezoning and redevelopment of each case study is financially viable and, if so, whether the rezoning supports a CAC.
Based on the analysis, sites can be divided into two categories:
- Sites that are not financially viable for rezoning (at the OCP maximum density) and redevelopment. These sites cannot provide a CAC. However, they would not be viable development candidates even if the CAC was zero.
- Sites that are financially viable for rezoning and redevelopment. For each of these sites we calculated the supportable CAC per square foot⁹ of additional floorspace beyond the achievable floorspace under the base density in the OCP. For these sites, the ability to sustain a CAC varies widely, depending on the existing use, existing built density, quality of existing improvements, location, and OCP designation.
Our analysis was completed in four main steps:
- We identified case study sites for the financial analysis. Sites were either vacant or improved with older, low quality improvements, similar to the types of properties that have been the focus of development outside of Downtown Victoria. We analyzed 26 different case study sites (or assemblies of sites). The sites were selected to represent a cross-section of the different locations, zoning districts and existing uses outside of the Downtown Core Area. Sites were selected from each of the four different OCP land use designations that are the focus of this study.
- We estimated the existing value of each case study in the absence of any bonus density. For this estimate, we considered three different values:
- Value supported by existing use (income stream or house value). This included and assembly cost allowance for case study sites that were improved with existing houses.
- The land value under existing zoning.
- The land value under base OCP density. The highest of these three indicators used for analysis
- We estimated the land value supported if the site was rezoned to the maximum identified in the OCP, with the bonus density but without any amenity contribution. If the estimated supportable land value with the bonus density is higher than site’s existing value, then site is viable for redevelopment. Otherwise, it is not yet financially viable for rezoning and redevelopment.
- For the financially viable case study sites, we estimated:
- The increase in property value due to the bonus density (estimated value in step 3 less estimated value in step 2.
- The potential CAC amount at 75% of the increased value (the current City practice).
- The equivalent fixed rate CAC in terms of dollars per square foot of floorspace over the base OCP density
This section identifies the key findings from our analysis.
The detailed financial analysis for each site is contained in the Attachments.
⁹ For each site, the CAC was calculated assuming that 75% of any increased property value (beyond the value supported by the higher of the base OCP density, existing use or existing zoning) was allocated to an amenity contribution.
5.1 Urban Residential
The Urban Residential designation has a base density 1.2 FSR with the opportunity for increased density up to a maximum of approximately 2.0 FSR. About 76% of the properties in the four designations that are the focus of this study¹⁰ are in the Urban Residential designation.
We analyzed sixteen different case study sites (or assemblies) that are designated Urban Residential. Our findings can be summarized as follows:
- Six of the sixteen sites we analyzed are currently financially attractive for rezoning and redevelopment at the maximum permitted density of 2.0 FSR. The remainder are more valuable under existing use and zoning than as redevelopment properties.
- There is no CAC opportunity at sites that are not yet financially attractive for rezoning and redevelopment.
- The sites that are financially viable for rezoning and redevelopment tend to be larger lots, vacant, or improved with lower density, older buildings.
- The sites that are financially viable for rezoning and redevelopment are geographically dispersed.
- The estimated maximum supportable CAC at most of the sites that are financially viable for redevelopment ranges from $3 to $14 psf of additional floorspace over the base 1.2 FSR permitted in the OCP sites.
- For some unique sites (vacant or industrial) the estimated potential CAC is up to $36 psf over the base 1.2 FSR permitted in the OCP.
5.2 Small Urban Village
The Small Urban Village designation has a base density 1.5 FSR with the opportunity for increased density up to a maximum of approximately 2.0 FSR. About 5% of the properties in the four designations that are the focus of this study are in the Small Urban Village designation.
We analyzed one property that is designated Small Urban Village. However, we also supplemented this with our analysis of the Large Urban Village sites (assuming these sites were rezoned to 2.0 FSR as permitted in the Small Urban Village designation. Our findings can be summarized as follows:
- There is no opportunity for the rezoning and redevelopment of sites designated Small Urban Village at the maximum permitted density of 2.0 FSR.
- A higher permitted density is required in order to make sites in this designation attractive for rezoning and redevelopment.
- There is no opportunity for a CAC at these sites under current market conditions and the current maximum permitted density.
¹⁰ This excludes sites that are already improved with strata residential projects as these properties are not likely to be redevelopment candidates for the foreseeable future.
5.3 Large Urban Village
The Large Urban Village designation has a base density 1.5 FSR with the opportunity for increased density up to a maximum of approximately 2.5 FSR. About 17% of the properties in the four designations that are the focus of this study are in the Large Urban Village designation.
We analyzed six different case study sites (or assemblies) that are designated Large Urban Village. Our findings can be summarized as follows:
- Three of the six Large Urban Village properties that we analyzed are viable for rezoning and redevelopment at the maximum permitted density of 2.5 FSR.
- There is no CAC opportunity at the sites that are not yet financially viable for rezoning and redevelopment.
- The financially viable sites that we analyzed are concentrated in higher value southern portions of the City (such as Fairfield, James Bay, and the Pandora corridor).
- The estimated supportable CAC at two of the three sites that are financially viable for redevelopment, is $5 psf of additional floorspace over the base 1.5 FSR.
- The third site supports a much higher CAC of $49 psf of additional floorspace over the base 1.5 FSR. However, this site represents a unique situation (an older low density commercial building in the high value Cook Street Village area).
5.4 Town Centre
The Town Centre designation has a base density 2.0 FSR with the opportunity for increased density up to a maximum of approximately 3.0 FSR. About 2% of the properties in the four designations that are the focus of this study are in the Town Centre designation. Most of the land in this designation consists of the property at the two major shopping centres outside of the Downtown Core Area, the Hillside Centre and Mayfair Shopping Centre.
We analyzed three different case study sites (or assemblies) that are designated Town Centre. Our findings can be summarized as follows:
- The Town Centre properties that we analyzed are not currently viable for rezoning and redevelopment at the maximum permitted density of 3.0 FSR in concrete (or at the likely maximum achievable woodframe density of about 2.5 FSR).