Item - 2009.EX36.3

The Executive Committee recommends that:

1.         City Council approve of the Board of Governors entering into a 49-year lease agreement with HKH substantially on the terms and conditions contained in Appendix “A” in the report (October 14, 2009) from the Chief Executive Officer, Exhibition Place, and in the Confidential Attachment 1 to the aforementioned report, and such other terms and conditions satisfactory to the Board’s Chief Executive Officer and the City Solicitor.

2.         City Council direct that the confidential information contained in Attachment 1 to the report (October 14, 2009) from the Chief Executive Officer, Exhibition Place, not be released publicly in order to protect the competitive position and future economic interests of Exhibition Place and the City of Toronto.

3.         City Council approve the HKH Design Proposal for the first phase of a hotel development consisting generally of a podium and tower (approximately 26 floors for the tower) as set out in the proposed design plan and situated on the Phase I lands all as provided in Appendices “A”, “B” and “C” attached to the report (October 14, 2009) from the Chief Executive Officer, Exhibition Place, subject to the alternative site plan review process developed for Exhibition Place by City Planning.

4.         City Council request the City of Toronto to complete all necessary steps to declare the hotel lands surplus.

5.         City Council direct that the Hotel make provisions for a taxi stand on site, large enough to accommodate the needs of hotel patrons and related venues.

In November 2006, a Request for Expressions of Interest for a Hotel Development at Exhibition Place (REOI) was released publicly through City of Toronto Purchasing Department.  Three proposals were received.  One term of the REOI stated that only proponents responding to the REOI would be considered qualified to respond to the subsequent Request for Proposal (RFP).  

A RFP was released through the City of Toronto Purchasing on April 17, 2007.  Both of the two hotel developers short-listed through the previous REOI process submitted a proposal and the Board approved HK Hotels LLC (“HKH”) as the successful proponent.  In March 2008, the Board approved a Letter of Intent (LOI) between the Board and HKH which set out general terms along with an exclusivity to negotiate.

In the summer of 2008, a Stage 2 Archeological Investigation was conducted on the proposed hotel site by Archeological Services Inc. engaged jointly by Exhibition Place and HKH.  The full archeological report was received from the consultant in March 2009.

Subsequent to receipt of the full Stage 2 Archeological Study, HKH engaged an architect, Maragna Architects Inc., to do a preliminary hotel design for the first phase of the proposed hotel.  A summary of the proposed design plan is attached as Appendix “B” to this report along with a full set of drawings as Appendix “C”. HKH has also engaged Archeological Services Inc. to provide input to the design of the heritage elements and how the project relates to these elements and has engaged Urban Strategies to address planning issues.

Also attached to this report is:

1.         Appendix “D” is an opinion by the Board’s consultant, Cameron Hawkins & Associates Inc., on the economics of constructing a hotel in Toronto and at Exhibition Place in 2009.

2.         Appendix “E” from the Board’s hospitality industry consultant, Horwath HTL, outlines the potential uplift to business opportunities at Direct Energy Centre and Allstream Centre from an on-site hotel.

3.         Appendix “F” is a letter of support from Mr. David Whittaker, Tourism Toronto.

4.         Appendix “G” is a letter from Mr. Williams, General Manager, Economic Development, Culture & Tourism.

5.         Appendix “H” is a letter from Mr. Wright, Chief Planner & Executive Director, City Planning.

6.         Appendix “I” is an assessment by Cameron Hawkins & Associates Inc., on the direct and indirect economic impact of the hotel construction and operations.

Finally, Appendix “J” is a confidential report from the Board’s consultant on the rental structure proposed in the LOI.

Since the meeting of the Exhibition Place Business Development Committee on September 3, 2009, meetings have been held to present the proposal and receive input - with the community on September 14, 2009, the archeological community on September 10, 2009 and City Planning staff on September 25 and 28, 2009.

The Confidential Attachment I details the financial terms of the proposed lease with a report from the Board’s consultant reviewing these terms.

The financial terms of the LOI as set out in the Confidential Attachment provide both a fixed minimum rent and additional percentage rent to the Board increasing over the initial 49-year term.  In addition, it is estimated that the Hotel will pay approximately $700,000 annually in property taxes (municipal share is 50%).

The positive economic impact from this project is as follows:

1. During the construction period the hotel will create the equivalent of 628 full-time jobs and generate almost $27.0M in total tax revenues.

1. On an ongoing basis and based on Year 2 operations of the hotel with 65% occupancy, the hotel operations will create 186 full-time jobs and $7.9M in total tax revenues.

As important as the positive financial return to the Board in the form of rent and percentage rent and the economic impact for the City of Toronto, as detailed below, the hotel will be a huge marketing benefit for Direct Energy Centre and Allstream Centre.

Finally, with respect to parking inventory which will be displaced because of the hotel construction and operations, the Phase I hotel footprint represents a temporary loss of 700 parking spaces in Lot 1 during construction.  However, it is likely that these vehicles will be relocated to other parking lots and thus no lost income will result to Exhibition Place.