Geotechnical Review Report: 302 Bessborough Avenue (Attachment 4)

7.3 Implementation

If the City implements a fixed rate target CAC for sites outside the Downtown Core Area, we have the following suggestions to consider as part of the implementation:

1. The City should ensure that all stakeholders (community/neighbourhood associations, property owners, real estate industry professionals, developers, etc.) are aware of the CAC policy and how it relates to the OCP and planned amenities in the City.
2. The City should identify neighbourhood-specific amenities to fund with amenity contributions. CAC funds should be clearly earmarked to specific public amenities within the neighbourhood in which the development takes place. Pooling funds into a City-wide fund does not allow the neighbourhood receiving new development to gain from the amenity contribution. The Local Area Planning process should identify and the specific amenities needed within each neighbourhood.
3. In order to achieve the density identified in the OCP, some projects may need to include an additional level of underground parking. The cost of an additional level of underground parking can impact the financial viability of a rezoning. The City should examine the opportunity to reduce off-street parking requirements. If parking requirements can be reduced, it will improve the economics of rezoning and redevelopment for some projects.

7.4 Monitoring

The City should monitor the CAC program:

1. Target fixed rates should be adjusted annually based on a publicly available indicator of construction cost inflation in the Victoria market, such as the Statistics Canada non-residential construction cost index.
2. Periodically (say every three years), the fixed rates should be reviewed to account for changes in the market value of developments sites and the market value of bonus density.
3. Any increase in City fees and levies could affect the ability of rezonings to make an amenity contribution. Therefore, if the City increases fees and levies, it should consider the impact on CACs.
4. The costs of the administering the CAC program should be monitored and compared with the revenue generated from the program to ensure it is cost effective.

8.0 Other Issues

Our case study financial analysis illustrates that, outside the Downtown Core Area, few sites in Victoria are financially attractive for rezoning and redevelopment under the densities identified in the OCP. Our understanding is that the City is starting a process to complete more detailed local area plans for different neighbourhoods outside the Downtown Core Area.

As part of each local area planning process, we recommend that the City consider the financial viability of redevelopment and (if appropriate) revisit the OCP densities to help increase the number of sites that are financially viable for redevelopment. This could increase opportunities to obtain amenity contributions from rezonings that will help address the impacts of growth and provide benefits to the neighbourhoods that are absorbing the development.

9.0 Attachments - Financial Analysis

9.1 Approach

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:

1. 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.
2. Sites that are financially viable for rezoning and redevelopment. For each of these sites we calculated the supportable CAC per square foot¹⁴ 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:

1. 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.
2. 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

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¹⁴ 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.

3. 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.
4. 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.