Important Membership Information for P & D Financing Plan Options

Submitted by Eric Moschopedis and Bob Bott on behalf of Planning & Development

Planning and Development had an important meeting July 15 with our lead consultant, Lee Prevost of Boundary Design. The result is a plan that could allow us to submit funding applications for redevelopment by August 31 even though we may not have a lease extension proposal from the City by then. The plan would require membership approval before submission.

In early July, the Sunnyhill Board submitted a letter to the City requesting action on our request for a lease extension. Specifically, we need details on a lease rate for an extension of at least 20 years beyond 2039. We asked for a response within two weeks. At the time of writing (July 26) there is still no response from the City.

To avoid continued delays, Lee has prepared two different spreadsheets, known as pro formas, for our project’s possible future financing. One shows a “worst-case” scenario that identifies the maximum amount Sunnyhill could pay annually for a lease and still do the project. This lease figure is based on 10% of appraised land value. Within this scenario, Sunnyhill would pay approximately $250,000 per year. Although this would be far more than our current lease payment, the analysis is extremely important because it tells us that even at this lease rate Sunnyhill could still maintain a 1.10 debt coverage ratio. In other words, we would still be able to undertake the rehabilitation of our existing buildings and develop the new units while remaining affordable.

The second pro forma that Lee developed is based on what expert consultants at Altus believe would be a fairer market rate for a lease. This scenario would be based on 5.5% of appraised land value. It would translate into a lease rate of approximately $115,000 a year and allow us to have a debt coverage ratio of 1.12. The additional .02 percent would enable us to respond to feedback from the funders (for example, if they were to require additional sustainability measures).

In the July 15 meeting, we also discussed the continued lack of a lease proposal from the City. If that continues into August, Lee recommended that Sunnyhill use the worst-case scenario to present to the membership for approval. In that case, we would be voting on the full project with the understanding that there is a maximum lease rate amount we can afford while undertaking the work and remaining affordable. We would then submit our funding applications to CMHC and FCM using the second pro forma as described above, using the annual lease rate of approximately $115,000.

In our funding applications, we would provide logic for the proposed lease rate and affirm that the City would be a partner in the project, as they have told us they would be. After submitting our applications, we would then share them with the City and thus force them to respond. The City might respond favourably and finally provide us with a reasonable lease rate. This strategy is not our preferred approach, but it is an elegant way to sidestep the months-long silence from the City. It allows us to submit our funding applications and at the same time pressure the City to respond.

Our Mortgage with First Calgary...

Submitted by Eric and Phil on behalf of Planning and Development Committee

Planning and Development would like to revits our mortgage now that we are nearly two years into a five year term. Here is a quick recap: 

Exit our original “high interest” mortgage with CMHC – enter a more favourable arrangement with First Calgary Financial

With support of CMHC’s refinancing program, Sunnyhill was able to exit its 10% CMHC mortgage in June of 2018 without a pre-payment penalty. As such we moved the remainder of our original mortgage over to First Calgary who SACHA had worked with to secure preferred financing for housing co-operatives.

The terms of our mortgage are as follows: $1,802,000.00 at 4.15% for a five-year term, amortized over 20 years. The mortgage we have with First Calgary was approved by membership, vetted by our lawyer, and is saving us $65,000 every year in interest payments compared to the previous CMHC mortgage. Under normal circumstances Sunnyhill would renegotiate a new interest rate at the end of the five year term.

Three conditions to keep in mind

At the time of negotiating the mortgage Mark Terrell was unofficially told by First Calgary that for Sunnyhill to receive a better interest rate in the future, Sunnyhill would need to make improvements to our infrastructure. The other options are to supply the necessary documentation indicating that we have a financial plan AND/OR are in the process of hiring contractors to do this work.

These improvements are items that were identified in the Building Condition Assessment that Planning and Development commissioned in 2018. The improvements include:

• Balconies - inspected and proven to be safe or replaced according to new codes

• Windows - replaced as the windows we have are now considered unsafe

• Roof - that means plans to replace the roof as per a maintenance schedule as indicated in BCA or asset management plan

What to make of these conditions

These items were mentioned by the bank anecdotally, because they are a liability. If these items were to fail, Sunnyhill could potentially be sued, the co-op could go bankrupt, and the bank would therefore not receive a return on their investment. That is why our current interest rate might seem slightly higher than other five-year mortgages. We are being penalized because of the condition of our buildings.

Correcting a misunderstanding

Sunnyhill will qualify for a future mortgage with First Calgary regardless of whether or not it meets the conditions related to the balconies, windows and roof. That is to say, if the above-mentioned work is not considered or completed then we may still obtain financing but it will be at a higher interest rate. This corrects a  misunderstanding in play that Sunnyhill would not qualify for a subsequent mortgage and that, worse, we would be on the hook to repay the remaining balance in 2023.

What the financing pathway looks like from this point forward

Planning and Development undertook a conservative 60-year analysis with Communitas on a rehabilitation-only scenario.

In the analysis we looked at two different lending scenarios (meaning no grants). In both scenarios the rehabilitation of our buildings cost approximately $8,200,000- $10,000,000. In the analysis, the cost of rehabilitation was within range of what we can afford as a membership with no other external support.

Now, compare this to the recent studies that Urban Matters has completed and you will note that their rehabilitation scenario has planned for approximately $100,000 per unit. Putting the early estimate for rehabilitation at $6,600,000. (Bear in mind, this estimate does not factor the cost of a new low rise).

What this tells us is that, with a mortgage-only scenario Sunnyhill should be in a position to rehabilitate our buildings either through a straight-ahead bank mortgage (say with First Calgary) or through one of CHMC’s different financing programs.

Factors to consider at this point at this point

It is critical that we take First Calgary’s liability assessment of Sunnyhill’s infrastructure seriously. We must be in a position come 2023 where Sunnyhill has completed the rehabilitation of our buildings, or at the very least, has a documented plan.

As it happens, the work that Planning and Development is doing with Urban Matter’s effectively addresses the matters of concern.  We are currently working on Phase 2 of a planning process with Urban Matters that will see us develop a fully costed plan.

There is every indication that this costed plan would satisfy First Calgary should we choose to work with them in the future. Our expectation is that with this plan along with the extended lease or land purchase that we anticipate from the City, we will be in position to “shop” around for the best financing options. And from our current vantage point it seems there will be options that range from (best to worst): CMHC’s grant/lending programs under the National Housing Strategy, a third-party lender (New Market Funds or Housing Investment Corporation, for example), or a bank/credit union.

Questions? Concerns?

Please get in touch directly with us, pose a question/comment in the newsletter, or share your concern at the next membership meeting.  It is important that we continually scrutinize the steps we are taking on our financing to make sure we are being prudent and strategic.

Planning and Development Update - March 2020

Submitted by Eric Moschopedis on behalf of Planning and Development

It has been a couple of months since Planning and Development has written to the membership, but the membership has been very active in learning about our progress and has made some important decisions in this time.

On December 16th, Lee Provost from Urban Matters attended an open Planning and Development meeting where he presented to the membership a summery of the work completed and made recommendations (slideshow here) as to how Sunnyhill could acheive accessiblity (aging in place), negotiate with City of Calgary regarding our land lease, and rehabilitate our buildings. Urban Matters used five Guiding Principles to inform their recommendations:

• Strong membership support for aging-in-place opportunities,

• Strong commitment to energy efficiency/sustainability upgrades,

• Successful land lease/purchase from the City of Calgary,

• Ability to satisfy funding (CMHC) opportunities, and

• Impact to operating pro-forma, debt-servicing ability and rents.

Urban Matters considered two different approaches for Sunnyhill. One: building envelope upgrades with some visitablity updates for accessibility, and two: building envelope upgrades with new age-in-place units. In their report, Urban Matters says:

Weighing the benefits and challenges of both options, and recognizing the significant risks of proceeding with any development undertaking, our recommendation is that Option 2 presents as most able to satisfy the membership’s desire for age-in-place options while meeting the same energy efficiency/sustainability options as would be achieved with Option 1. It would also better support a lease extension or purchase from the City of Calgary, the latter of which could help secure a permanent future for Sunnyhill in its established, supported location. Option 2 also has the much better chance of meeting the CMHC’s accessibility requirements and thereby contributing to a competitive funding application because it addresses the accessibility requirement. And lastly, Option 2 provides more options to find partnership capital contributions and operating proforma supports.

At the January 27, 2020 General Meeting, Planning and Development asked the membership to:

approve Urban Matters recommendations and that Planning and Development continue working towards an “environmentally and economically sustainable” “deep green retrofit” as the standard for rehabilitation of our housing stock and the development of evidence-based scenarios for “aging in place” at SHC with an eye towards accessibility as defined by CHMC’s Co-investment Fund until proven unviable or until October 2021.

The motion passed.

At the same meeting we brought forward four other motions. The first was to agree to “a set of principles to guide Sunnyhill’s decision-making related to those members presently living in units that would mostly likely be affected by any decision to redevelop.” The motion passed.

We also asked the membership to approve an “evidence-based succession planning process that may include, but is not limited to, a robust membership engagement process, collecting statistical information, membership surveys, proposed changes, updates or additions to policy, and recommendations for the role, quantification, and definition of participation at SHC.” This motion was prompted by the Asset Management Plan that was created by Urban Matters and Planning and Development. The plan identified succession planning as a medium strategic risk to the services SHC provides and how we provide them. We will be bringing a plan forward to the membership in the next while. Stay tuned.

The last two motions were for small expenditures to study the pilings our buildings are standing on and to do an energy audit. These motions also passed.

Lastly, we want to report that we have been busy and in conversation with Urban Matters and CMHC about next steps. Urban Matters is currently working on a Phase 2 proposal and will be presenting it to the committee in the coming weeks. CMHC has had a turn over in staff, but we moved quickly to establish a new relationship with the new regional program officer. We will report back on all of this as soon as there is information.

Thanks for reading all of this!

September 2019 - Planning and Development Update

Submitted by Herta and Eric

Onward and Upward

The Planning and Development Committee has had a month of meetings which have resulted in making strides toward the rehabilitation of our buildings and addressing aging in place.

On Sept 16 the Co-op was provided with CMHC’s approval letter for the Preservation Funding program. Funding is for a maximum amount of $25,000.00. The Board signed the agreement and it was submitted October 1st, 2019.

The Planning and Development Committee met with Jeff Ku and Christina Hopkins from Urban Systems on Sept 23 (see minutes here). Asset Management is an important application to plan for the future of our co-op needs. Urban Systems will be teaching our co-op how to plan for future decision making concerning what gets repaired / replaced, and when and long term financial planning to accommodate our future needs. Up to this time there has no clear directive or culture of long term planning at SHC. For the most part Buildings and Grounds Committees have done the bulk of this work. Planning and Development has provided Urban Systems with a number of important documents (annual budget, current financial statements, 60 year analysis, 2018 Building Condition Assessment, etc.). Urban System’s will spend the next few weeks building out a strong working draft of an Asset Management Program and will present it to the Planning and Development Committee on October 25th.

Urban Systems has also provided us with some important information that we encourage each member to read through. Although “Building Community Resilience Through Asset Management: A HANDBOOK & TOOLKIT FOR ALBERTA MUNICIPALITIES” is designed for cities, the principals will apply to SHC’s future planning.

A meeting with Urban Matters, CMHC and Planning and Development Committee members was held to discuss the issue of accessibility in our units. While no clear decision was made Bob Bott reported that there seem to be some interest in CHMC being flexible about the 20% accessibility rule for funding.

A meeting was also held on Sept 26 with MODA to discuss the first draft of the schematic design. The result of the Accessibility study and a draft of the design for our units was presented at the General Meeting on Sept 27 (see presentation here).