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The Economics of Development by the Alliance for Building a Better Ottawa 1 By Cal Kirkpatrick | President | Colonnade Development Jack Stirling | Vice.

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Presentation on theme: "The Economics of Development by the Alliance for Building a Better Ottawa 1 By Cal Kirkpatrick | President | Colonnade Development Jack Stirling | Vice."— Presentation transcript:

1 The Economics of Development by the Alliance for Building a Better Ottawa 1 By Cal Kirkpatrick | President | Colonnade Development Jack Stirling | Vice President, Land Development | Minto Communities Inc. Stephen Martin | Vice President, Development | Minto Commercial Properties Inc. Presentation to Planning 101 by the Alliance for Building a Better Ottawa 1:30 – 2:30 pm Monday, February 14, 2011

2 The Economics of Development by the Alliance for Building a Better Ottawa 2 Who is the “Alliance”? Greater Ottawa Home Builders Association (GOHBA) Building Owners & Managers Association (BOMA) General Contractor’s Association (GCA) Ottawa Construction Association (OCA) Professional Engineers of Ontario – Ottawa Chapter

3 The Economics of Development by the Alliance for Building a Better Ottawa 3 Guiding Principles of the “Alliance”  The purpose of the Alliance for Building a Better Ottawa is to represent the commercial development, construction and home building industry in communication with decision makers at all levels of government and both the residents and business community of Ottawa.  The Alliance will continue to work in partnership with Council and City staff to build a vibrant and dynamic city.  The Alliance for Building a Better Ottawa will continue to work towards building sustainable residential and employment communities that meet public demand and expectations.  The Alliance as part of its objective to building a better Ottawa will be sharing its varied expertise with City staff and Council/Committee.

4 The Economics of Development by the Alliance for Building a Better Ottawa 4 Case Studies 10 storey 200,000 sq. ft office tower location: downtown stacked townhomes location: suburbs size: 10 acre site development cost: $28 million size: 0.75 acre site development cost: $60 million

5 The Economics of Development by the Alliance for Building a Better Ottawa 5 Development Timeline & Expenses

6 The Economics of Development by the Alliance for Building a Better Ottawa 6 Development Timeline & Expenses

7 The Economics of Development by the Alliance for Building a Better Ottawa 7 Development Timeline & Expenses

8 The Economics of Development by the Alliance for Building a Better Ottawa 8 First home closing / Lease commencement Residential model shown. Break Even COST TIME Developers start to break even only when: - Leases commence (end of construction) - Home sales are finalized & closed (end of construction) - Developments are completed The Cost of Development over Time

9 The Economics of Development by the Alliance for Building a Better Ottawa 9 Risks & Delays material or labour shortages weather market changes staff shortage interest rate changes process delays referral to the OMB owner/tenant makes changes TIME Changes assumptions Changes assumptions – and financing is dependant on those assumptions Added costs Added costs – financing costs, increased labour costs to meet deadlines End users are notified & affected End users are notified & affected - tenants may back out, homeowners may have sold previous house =

10 The Economics of Development by the Alliance for Building a Better Ottawa 10 Sample Impact of Delays  Project is scheduled to begin infrastructure servicing in the summer and asphalt paving in October  Delays of 2-3 weeks are encountered twice annually during the two to three year duration of the development process  As a result, the asphalt paving is pushed 3 months into January  Asphalt plants only open May to December = delay escalates  Schedule revised from October paving to May = 8 months  Other impacts include:  Contractors scheduled to start work in October cannot start until June – temporary lay-offs may occur  Building permits fees, DCs, and revenue opportunities lost for 8 months  Homeowners are notified and affected by the delay Residential

11 The Economics of Development by the Alliance for Building a Better Ottawa 11 Sample Impact of Delays  Lead tenant for a new development has a fixed occupancy date which forms part of the binding agreement with performance milestones  Delays in the front end of the development process extend the project schedule  As a result of the delays, the developer cannot meet the tenants’ milestones or occupancy date  Developers choice:  Option 1 - pay additional costs to attempt to expedite project  Option 2 - terminate the project  Option 1 may result in a non- competitive development  Option 2 is a lost opportunity for the development industry and City’s economic development and revenue Commercial

12 The Economics of Development by the Alliance for Building a Better Ottawa 12 Risk Mitigation Why don’t developers just wait until they’re completely approved to go on sale?  Establish market position and capitalize on opportunities  Commit to buyers or tenants occupancy requirements  Receive input on design from the market and tenants  Shorten the development timeline i.e. reduce interest on construction loan  Be positioned for financing i.e. meet pre- leasing or pre-sales requirements COST TIME  Developers need to assume risk in initiating developments  Development process & spending need to start prior to full approvals in order to: At Marketing Release: $5M spent Residential model shown.

13 The Economics of Development by the Alliance for Building a Better Ottawa 13 COST TIME The Financial Impact of Delays Money that could be better spent on innovation, sustainability, land mark sites for Ottawa

14 The Economics of Development by the Alliance for Building a Better Ottawa 14  Development must be ahead of the market since the process takes years  Specific commitments are needed for development financing  Development time line must be maintained to align with market demand  Together, we need to keep Ottawa competitive and affordable  We need to provide an environment that encourages economic development and growth (Greater Ottawa, 2010: jobs on site; indirect jobs, total)  Cost efficiency leads to innovation, land mark development and a vibrant City Summary

15 The Economics of Development by the Alliance for Building a Better Ottawa 15 Cal Kirkpatrick | President | Colonnade Development Jack Stirling | Vice President, Land Development | Minto Communities Inc. Stephen Martin | Vice President, Development | Minto Commercial Properties Inc. Thank you Questions & Answers


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