GENERAL COMMITTEE - FINANCE & ADMINISTRATIVE COMMITTEE
	TO:	Mayor and Members of Council
	FROM:	Catherine M. Conrad, Town Solicitor
	PREPARED BY:	Brian G. Varner, Manager of Real Property
	DATE OF MEETING:	2005-Feb-14
	SUBJECT:	Property Management And Leasing Services Agreement Amendment, Helter Investments Ltd. 60 Esna Park Drive, Markham

RECOMMENDATION:

That Council approve an amendment to Section 6.1 (Term) and Section 7.1(e) (Bonus Management Fee) of the existing Property Management And Leasing Services Agreement dated April 30, 2002 for 60 Esna Park Drive, Markham, between the Town of Markham and Helter Investments Limited, extending the Term for a period of two (2) years commencing January 1, 2006 and to expire on December 31, 2007 and revising the Bonus Management Fee from 50 percent to 33 percent of the annual net operating income;

And that the Mayor and Town Clerk be authorized to execute the amendment in a form satisfactory to the Town Solicitor.

PURPOSE:

The purpose of this report is to request Council’s approval to amend the existing Property Management And Leasing Services Agreement dated April 30, 2002 for 60 Esna Park Drive, Markham, between the Town of Markham and Helter Investments Limited, extending the Term for a period of two (2) years and reducing the Bonus Management Fee from 50 percent to 33 percent of the annual net operating income.

EXECUTIVE SUMMARY:

The Town of Markham acquired 60 Esna Park Drive on March 27, 2002 for the purpose of extending Rodick Road. The Town then entered into a Property Management And Services Agreement with the former owner of the property which expires December 31, 2005. At the time of acquisition the Town intended to demolish the structure in early 2006 but the scheduled date for demolition has since been revised to early 2008.

BACKGROUND:

The extension of Rodick Road from Riviera Drive southerly to Esna Park Drive was identified in a study as a key component of the long-range plan to improve Markham’s transportation network. The study recommended an alignment that would cross the Helter Investment property, situated at 60 Esna Park Drive.

In February 2001 Council deferred a site plan application submitted by Helter Investments Limited for a large addition to the rear of the existing structure pending completion of a Class Environmental Assessment. In June 2001 Council authorized staff to enter into negotiations with Helter Investments Limited for the acquisition of the property. Through the negotiation process and to avoid costs associated with expropriation, mutually acceptable terms of an agreement were reached for the acquisition of the property. The transaction was completed on March 27, 2002. Early acquisition of the property provided the opportunity to reduce or eliminate the potential for tenant claims for their leasehold interests, disturbance and business losses.

The acquisition consisted of two components 1) the cash purchase price and 2) a Property Management and Leasing Services Agreement between Helter Investments Limited (“the Manager”) and the Town for the period April 30, 2002 to December 31, 2005. The agreement provides for profit sharing of the annual net operating income, after Helter Investments Limited satisfied the Town that any or all Tenant Claims had been resolved. It was the Town's original intention to have vacant possession of the building at the end of 2005 to allow for demolition in the early part of 2006.

Subsequent to the property acquisition and resolution of all Tenant claims by the Manager, the construction project schedule was amended by the Engineering Department and vacant possession of the building is not required until early 2008. Therefore, the building can continue to be Tenant occupied for an additional two-year period, to the end of 2007.

Helter Investments Limited acts as the exclusive property manager of the property at 60 Esna Park Drive. The Powers and Duties of the Manager under Article II of the existing Property Management and Leasing Services Agreement include performance of all things necessary for the proper and efficient management of the property including negotiation and preparation of all leases, agreements to lease and lease renewals and authority to execute leases on behalf of the Town, in accordance with an approved leasing plan. Helter Investments Limited maintains rental and revenue records and submits to the Town monthly financial reports. All monies collected by the Manager are deposited in a trust account in the name of the Town. In essence, Helter Investments Limited represents the Town in the day-to-day operation of the property and is the liaison with all Tenants.

The Manager of Real Property and Helter Investments Limited have forged a good working relationship during the past three years. The management efforts of Helter Investments Limited and its relationship with existing tenants has been instrumental in the financial success of the property. The annual net income received by the Town during this period of time is summarized as follows:

April 2002 – December 2002 $47,000

January 2003 – December 2003 $126,000

January 2004 – December 2004 $155,000

Total $328,000

Proposed Property Management and Leasing Services Agreement Amendment

With the exception of the Town of Markham Fire Services Administrative Offices, all existing leases are due to expire on December 31, 2005. Tenants do not have any rights to renew their existing leases.

To facilitate early negotiations with existing tenants for the possible extension of their leases or to begin searching for new tenants in the event existing tenants do not extend their leases, it is recommended the existing Property Management and Leasing Services Agreement between the Town and Helter Investments Limited be extended to December 31, 2007. However, it is recommended the Bonus Management Fee be revised. The existing agreement provides for a 50/50 split of annual net operating income. Staff has proposed a 67/33 split in favour of the Town for the period January 1, 2006 to the end of December 31, 2007.

For the 2004 fiscal year, Helter Investments Limited received a base management fee of $59,000, before the Bonus Management Fee. The base fee resulted from a fully occupied building. This was an all-inclusive rate with no additional charges. The entire compensation (base fee and bonus) received by Helter Investments is based on financial performance of the property. If the building experiences vacancy, the compensation payable to the manager reduces proportionately.

OPTIONS/DISCUSSION:

There are two options if the existing Property Management and Leasing Services Agreement between the Town and Helter Investments Limited is not extended.

The Town’s Manager of Real Property and the facilities staff would be directly responsible for the management of the property for the period January 1, 2006 to December 31, 2007. This option is not recommended as day-to-day management of a facility of this size and complexity would require a considerable amount of staff time from the real property, facilities and finance departments, possibly requiring hiring of additional staff.

The second option is to obtain services from another fee-for-service property management company. Preliminary research to determine market rates for obtaining comprehensive management services for 60 Esna Park Drive indicates a base fee representing 5 percent of gross income plus additional charges for such things as office administration and fees on tenant lease renewals and new leases on space roll over. Based on the current financial performance and potential for tenant rollover, the base fee calculation appears to be comparable.

In addition, it is proposed that Helter Investments Limited receive a Bonus Management Fee, calculated as 33 percent of the annual net income. A Bonus Management Fee provides an incentive for the Manager to keep the building fully rented during the last two years of the building's useful life, resulting in positive cash flow to the Town. Should significant vacancy be experienced in the last two years, the Manager also receives proportionately less compensation.

There are other less quantifiable benefits associated with the existing management services provided by Helter Investments Limited:

- the Manager formerly owned the property and has established strong tenant relationships;

- the Manager is most familiar with the physical aspects of the property;

- the Manager has established strong relationships with service providers and is able to secure cost effective contracts;

- the Manager is on site daily, collects rent payments and personally deals with Tenant

issues as they arise.

FINANCIAL CONSIDERATIONS:

The Town has current joint trust accounts with Helter Investments Limited. The on-site Manager is responsible for rent collections, securing all services, payment of all invoices and engages auditors to prepare annual financial statements. At the end of each year the Town receives its share of the net operating income.

ENVIRONMENTAL CONSIDERATIONS:

None.

ACCESSIBILITY CONSIDERATIONS:

None.

ENGAGE 21ST CONSIDERATIONS:

None.

BUSINESS UNITS CONSULTED AND AFFECTED:

None.

ATTACHMENTS:

None.

Brian G. Varner, Manager of Real Property

Catherine M. Conrad, Town Solicitor

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