Item - 2017.EX23.7

The Executive Commitee recommends that:

1.  City Council authorize the City as Landlord to enter into a long term lease agreement ("Ground Lease") with Menkes Waterfront Holdings Inc. for and on behalf of WIC Limited Partnership as Tenant ("Menkes"), for the City-owned lands being "Dockside" Blocks 1 and 2, Plan 66M- 2476, shown as Blocks 1 and 2 on Map 1 (the "Property"), substantially on the terms and conditions set out in Attachment 1 to the report (February 21, 2017) from the Deputy City Manager, Cluster B, together with such other terms and conditions as may be deemed appropriate by the Deputy City Manager, Cluster B in consultation with the Chief Corporate Officer, and in a form satisfactory to the City Solicitor, subject to Recommendation 3 of this Report.

2.  City Council authorize the City to enter into an agreement with Toronto Waterfront Revitalization Corporation (Waterfront Toronto) substantially on the terms and conditions set out in Attachment 2 (the "Undertaking Agreement") to the report (February 21, 2017) from the Deputy City Manager, Cluster B, together with such other terms and conditions as may be deemed appropriate by the Deputy City Manager, Cluster B in consultation with the Chief Corporate Officer, and in a form satisfactory to the City Solicitor.

3.  City Council direct that prior to the City entering into the Ground Lease, the following matters be completed or provided for to the satisfaction of the Deputy City Manager, Cluster B in consultation with the City Solicitor and other City officials as appropriate:

a.  waterfront Toronto and Menkes shall have entered into the Development Agreement in respect of the Property;

b.  waterfront Toronto shall have entered into the Undertaking Agreement with the City; and

c.  receipt by the City of a legal opinion in respect of corporate status, powers and authority of Menkes to enter into and perform the obligations under the Ground Lease and the Development Agreement, in form and content satisfactory to the City Solicitor.

4.  City Council authorize the City to direct Menkes to pay to Waterfront Toronto all base rents attributable to the 3 year construction period and the 99 year lease term.

5.  City Council authorize the City to enter into a nominal sum Licence Agreement with Waterfront Toronto to permit temporary marketing of the site by Menkes, geotechnical tests and surveys, and to allow Waterfront Toronto (or Menkes provided Waterfront Toronto remains directly responsible to the City) to carry out, at its sole cost and expense, site preparation activities, including the construction of new dockwall stabilizing infrastructure to replace the infrastructure under Block 1, and the restoration of all surrounding City lands affected by such activities, on terms and conditions deemed appropriate by the Chief Corporate Officer and General Manager, Parks, Forestry and Recreation, and in form satisfactory to the City Solicitor.

6.  City Council authorize the City to enter into a nominal sum Licence Agreement with Waterfront Toronto in respect of the road widening lands on Queens Quay East, being Blocks 10 and 11 on Plan 66M-2476, to carry out environmental and road widening work on the lands and to grant a sub-licence to Menkes for the purposes of access over the road widening lands, on terms and conditions deemed appropriate by the Chief Corporate Officer, in consultation with the General Manager, Transportation Services and in form satisfactory to the City Solicitor. 

7.  City Council authorize the City to enter into a Licence Amending Agreement ("Amending Agreement") with Waterfront Toronto to extend the term of the Licence Agreement dated March 4, 2013 between the City and Waterfront Toronto for Block 2, to end on the Commencement Date of the Ground Lease, together with such other terms and conditions deemed appropriate by the Chief Corporate Officer and in form satisfactory to the City Solicitor. 

8.  City Council deem the parkland dedication substantially as shown on Map 1 to the report (February 21, 2017) from the Deputy City Manager, Cluster B, which is consistent with the East Bayfront Precinct Plan and Zoning By-law, satisfies all parkland dedication requirements for this development.

9.  City Council waive applicable City leasing policies in respect of the Ground Lease and acknowledge the inclusion of terms and conditions that would typically not be provided in a City ground lease, including provisions dealing with non-disturbance agreements, rights of first refusal, demolition clauses, and assignment and subletting, in recognition of Waterfront Toronto's mandate to deliver a market development.

10.  City Council authorize the Deputy City Manager, Cluster B in consultation with the Chief Corporate Officer, to negotiate the Ground Lease, Undertaking Agreement, the License Agreements and the Amending Agreement, including any amendments in relation to such agreements not materially inconsistent with the major terms and conditions described in Attachments 1 and 2 to the report (February 21, 2017) from the Deputy City Manager, Cluster B, as approved by Council, and in a form satisfactory to the City Solicitor. 

11.  City Council authorize the Chief Corporate Officer (CCO), her successor/designate, in consultation with the Director, Waterfront Secretariat, to provide any consents, approvals, extensions, waivers, and notices under the Ground Lease, Undertaking Agreement, the License Agreements and the Amending Agreement, including any amendments in relation to such agreements, in a form acceptable to the City Solicitor, provided that the Chief Corporate Officer may, at any time, refer consideration of such matters (including their content) to City Council for its determination and direction.

12.  City Council direct that all actions set out in Recommendations 1 to 11 above from the Deputy City Manager, Cluster B shall be taken by or on behalf of the City in its capacity as land owner and not in its capacity as a planning authority under the Planning Act, the City of Toronto Act, 2006, or otherwise and such actions are not intended to and do not fetter the City's planning and municipal rights and responsibilities.

13.  City Council authorize the City to consent to Waterfront Toronto acting as the City's agent as owner of the Property to sign any planning and development, infrastructure, servicing or any other applications and agreements, including agreements with Toronto Hydro, Enbridge Gas or any third-party utility provider, required for the development of the Property, except for any environmental applications or agreements, or alternatively that the City itself execute such documentation solely in its capacity as land owner, provided Waterfront Toronto agrees to assume all obligations including costs and liabilities under such documentation and subject to such other terms satisfactory to the Deputy City Manager, Cluster B, and in a form satisfactory to the City Solicitor.

14.  City Council direct the Director, Waterfront Secretariat that all amounts directed by the City to be paid to Waterfront Toronto under the transaction be tracked by the City and Waterfront Toronto as part of the Waterfront Renewal Accounting Protocol.

15.  City Council authorize the public release of the confidential information in Confidential Attachment 4 to the report (February 21, 2017) from the Deputy City Manager, Cluster B, upon the completion of the development of the publicly owned lands in East Bayfront as determined by the Deputy City Manager, Cluster B.

16.  City Council authorize the City Solicitor to complete any of the transactions contemplated under the Ground Lease on behalf of the City, except to the extent such obligations have been directed by the Chief Corporate Officer to Waterfront Toronto to undertake in accordance with the Undertaking Agreement, including amending closing dates and other dates, and amending and waiving terms and conditions, on such terms that the City Solicitor deems advisable.

This report concerns the approval of a long-term ground lease for City-owned land in the East Bayfront (EBF) to Menkes Waterfront Holdings Inc., for and on behalf of WIC Limited Partnership ("Menkes").  The subject site, identified as Blocks 1 and 2 on Map 1, is located on either side of Dockside Drive, south of Queens Quay, adjacent to Sugar Beach. The ground lease provides for a 3 year construction period followed by a 99 year term and will allow Menkes to develop the 0.46 ha (1.14 acre) site for a 32,516 square metre (350,000 square foot) Waterfront Innovation Centre. 

The Waterfront Innovation Centre is a market development representing an investment by Menkes of approximately $150 Million.  The purpose-built workspace will be dedicated to fostering innovation and collaboration amongst the tenant mix, and with the broader technology community, particularly in the areas of digital media, advanced visualization, healthcare and clean technology.  Menkes is currently in final negotiations with lead tenants, and is working towards entering into the ground lease shortly after Council's decision.  As per the terms of the proposed ground lease, the project is targeted to be under construction by December 31, 2018.

Staff previously reported to Economic Development Committee on this project in 2015.  At that time, Menkes had been selected by Waterfront Toronto (WT), through an request for proposal (RFP) process, as Waterfront Toronto's pre-development partner.  Subsequently, Menkes has put together a leasing plan and provided a financial bid to Waterfront Toronto.  In its capacity as revitalization lead in the East Bayfront, Waterfront Toronto has completed a comprehensive evaluation of Menkes' bid and is now recommending City approval, subject to terms which have been vetted by City staff, Waterfront Toronto and Menkes. 

In this report, staff provide the results of their review of Waterfront Toronto's recommendation, and seek authorization to enter into a Ground Lease (GL) with the City as Landlord and Menkes as Tenant, subject to the major terms summarized in Attachment 1. 

Staff also seek authority to enter into a companion agreement, an Undertaking Agreement (UA) between Waterfront Toronto and the City.  The Undertaking Agreement addresses Waterfront Toronto's direct obligations to the City, including oversight of the Menkes development and obligations relating to environmental management among other matters.  The proposed major terms of the Uundertaking Agreement are summarized in Attachment 2.

In addition to the Ground Lease and Undertaking Agreement, the transaction includes a Development Agreement (DA) between Waterfront Toronto and Menkes.  The major terms of the Development Agreement are summarized in Attachment 3.  Although the City will not be a party to this agreement, many of Waterfront Toronto and the City's waterfront revitalization objectives (LEED Gold, design excellence etc.) will be secured through this agreement as well as project deadlines and milestones.  As part of the Ground Lease and Development Agreement, various controls are proposed to require the use of the property for technology and innovation purposes for the first 15 year period, with the intention that such uses will become firmly established in the development. 

Waterfront Toronto was created to effectively compete in the marketplace in a similar fashion to other arm's length corporations with a similar mandate relating to commercial development.  In order to secure high value market development such as the innovation centre project, staff are recommending certain exemptions from City real estate policies and practices, more in line with market practice, as provided for in Recommendation 9 below. 

In accordance with the governance structure for Waterfront Toronto, first approved by Council in 2004, the proceeds of the ground lease will flow to Waterfront Toronto for reinvestment in waterfront revitalization.  This is explained in greater detail in the last section of the report, and is consistent with previous Council decisions on land transactions in the East Bayfront, including the existing George Brown College site (Blocks 4 and 5, Dockside - 2009), the Parkside/Great Gulf site (2009), the Bayside/Hines site (2010) and, most recently, the expansion of George Brown College (Block 3, Dockside - 2016).  The reinvested funds will allow Waterfront Toronto and the City to meet its respective contractual obligations to East Bayfront developers on public lands for the delivery of infrastructure, parkland/public realm and servicing.

In summary, staff are supporting Waterfront Toronto's recommendation that the City grant Menkes a 102 year ground lease (initial three year construction period plus 99 years) subject to the major terms outlined in Attachment 1.  Bringing high-value employment to Toronto's waterfront has been a key component of the East Bayfront vision and aligns very well with efforts to create an innovation corridor in the eastern waterfront.  Together with Corus Entertainment, George Brown College, and Daniels City of the Arts, the Waterfront Innovation Centre will add to the critical mass of related uses to anchor East Bayfront in the waterfront innovation corridor.  It will also serve as a positive demonstration of how the private and public sector can collaborate to encourage business innovation and growth.