HomeMy WebLinkAboutFIN 16-17 e4 ° Report to
PICKERING Council
Report Number: FIN 16-17
Date: June 12, 2017
From: Stan Karwowski
Director, Finance & Treasurer
Subject: Consulting and Professional Services for the Engagement of a Market Sounding
Consultant for the Grande Esplanade Project
Recommendation:
1. That Report FIN 16-17 of the Director, Finance & Treasurer regarding Consulting and
Professional Services for the Engagement of a Market Sounding Consultant for the Grande
Esplanade Project be received;
2. That Council approve the hiring of Ernst & Young Orenda for consulting and professional
services in accordance with Purchasing Policy 10.03(c), as the assignment is more than
$50,000.00;
3. That the fee proposal submitted by Ernst & Young Orenda for Consulting and Professional
Services for the Engagement of a Market Sounding Consultant for the Grande Esplanade
Project in the amount of$50,880.00 (HST included) be accepted;
4. That the total gross project cost of$56,500.00 (HST included), including the amount of the
proposal and provision for contingency, and the total net project cost of$50,880.00 (net of
HST rebate) for the Engagement of a Market Sounding Consultant for the Grande Esplanade
Project accepted;
5. That Council authorize the Director, Finance & Treasurer to fund the total net project cost of
$50,880.00 through the Contingency account (2900.0000.0000); and
6. That the appropriate officials of the City of Pickering be authorized to take the necessary
actions as indicated in this report.
Executive Summary: The Grande Esplanade project will be marked as the largest
construction project the City will undertake. The City capital project "asks" consists of the
following components: an Arts Centre, Senior Centre, Youth Gym, City Hall and Library
expansion. A preliminary dollar estimate for the City's share of the capital project is approximately
$100 million. As stated during the 2017 budget process, the City will be leveraging the value of
the land adjacent to the Central Library as part of its financial contribution to the project's capital
cost ($100 million) and would permit the developer to construct various buildings such as:
condominium towers, office buildings and/or commercial/retail space. The private sector's capital
FIN 16-17 June 12, 2017
Subject:
� Consultingand Professional Services for the Engagementf
o
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a Market Sounding Consultant for the Grande Esplanade Project
construction cost on this site could reach up to $200 million in addition to the City's $100 million
capital project cost.
The market sounding process consists of the consultant meeting in private with industry leaders
who have the financial capacity and/or ability to obtain financing to undertake such a large capital
project. The purpose of the market sounding is to ascertain the suitability and financial
attractiveness of the City's project and to generate inputs and requirements from potential
developers. The market sounding process will gather information that will be critical towards the
procurement process. In this process, the market sounding consultant is promoting the City's
opportunity to the private sector. An effective market sounding exercise will improve the
marketability of the City's opportunity and may significantly reduce procurement time by bringing
the private sector perspective to the design of the City's project at an early stage. Market
sounding offers an opportunity to define the partnership structure and planning and procurement
requirements at a very early stage when this is relatively easy to do.
Financial Implications:
1. Project Costing Summary
Fee Proposal:
Phase 1 $27,500.00
Phase 2 20,000.00
Contingency 2,500.00
Total Cost $50,000.00
HST (13%) 6,500.00
Total Gross Project Cost $56,500.00
HST Rebate (11.24%) (5,620.00)
Total Net Project Cost $50,880.00
2. Approved Source of Funds
2017 Current Budget—Finance
Account Code Source of Funds Budget Required
2900.0000.0000 Contingency Funds 0.00 $50.880.00
Project Cost under (over) approved funds by ($50,880.00)
FIN 16-17 June 12, 2017
Subject: Consulting and Professional Services for the Engagement of Page 3
a Market Sounding Consultant for the Grande Esplanade Project
The Consulting and Professional Services for the engagement of a Market Sounding Consultant
for the Grande Esplanade Project was not included in the 2017 Budget, however, staff
recommend that we proceed with this engagement in 2017 in order to provide sufficient time for
the development of the procurement document. The City's Contingency account provides funds to
meet unbudgeted, and unexpected events that are required during the year. There are sufficient
funds in the Contingency account to meet this requirement.
Discussion: The Grande Esplanade's capital project cost (including the City's capital project
"asks") could range up to $300 million. A capital project of this scope and complexity, requires
professional expertise to ensure that the City's objectives and or interests are met and protected.
City staff met with the Ontario Infrastructure and Land.Corporation (O.I.L.C.), who are well versed
and experienced with similar projects as it relates to the proposed project dollar value and
business relationship model (private/public partnership). Based on O.I.L.C.'s experience, working
on similar type projects, they recommended that the City hire a market sounding consultant.
It is anticipated that the market sounding consultant will meet with 15 to 20 industry leaders (see
Attachment) to discuss the City's proposed project. During these meetings, the participants will
provide their opinions and industry expertise while identifying issues regarding their concerns to
the economic feasibility of the Grande Esplanade Project. The market sounding process will save
the City time in the Bid process by ensuring that the results of this process are reflected in the
procurement document.
The benefits of this process are:
• Confirming, through market reaction that the project's scope and financial objectives are sound
and achievable.
• Identifying potential issues or problems with the project.
• Gaining first hand knowledge of what the private sector can and cannot do.
• Establishing that the economic opportunity is packaged in such a way that the market is
encouraged to respond and stimulate competition.
Next Step
After the process is completed, staff will provide Council with a report and options for Council for
their consideration and discussion. Council's decisions will then be used to help develop the
procurement document.
FIN 16-17 June 12, 2017
Subject: Consulting and Professional Services for the Engagement of Page 4
a Market Sounding Consultant for the Grande Esplanade Project
Attachments:
1. Ernst &.Young Orenda Grande Esplanade Project Market Sounding Proposal, June 1, 2017
Prepared By: Approved/Endorsed By:
Ai ''.-7- 1c4,00-- -<-,-4---- ----- ..........-
Mark Guinto Stan Karwowski, MBA, CPA, CMA
Manager, Business Development Director, Finance & Treasurer
& Public Affairs
,
6,--
Fia ,Jadoon, Ec.D., CEcD, MPM
Senior Advisor, Investment Attraction
9 ,
R. "o•ngues
S .- isor, Supply & Services
(11
Paul B.o.';- '
Director, \.rp•rate Services & City Solicitor
Recommended for the consideration
of Pickering City .uncil
� /// d ' 2, 20<7
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Tony Prevedel, P.Eng.
Chief Administrative Officer
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ATTACHMENT#_.__,TOREPORT#6i1uIto �I1
E Ernst&Young Orenda Tel:+1 416 854 1234
Corporate Finance Inc.
Fax:+1 416 943 3365
Ernst&Young Towerey.com
Building a better 222 Bay Street,PO Box 251
working world Toronto,ON M5K 1J7
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Fiaz Jadoon 01 June 2017 •
Senior Advisor, Investment Attraction •
The Corporation of the City of Pickering
Pickering Civic Complex
One The Esplanade
Pickering, ON L1V 6K7 •
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Grande Esplanade Project Market Sounding
Dear Fiaz:
It was a pleasure to meet you, Stan and Mark last week. Ernst &Young Orenda Corporate Finance Inc.
("EY")is pleased to present this proposal letter to act as advisor to The Corporation of the City of Pickering
("Pickering"or the "City"), to conduct a market sounding for the Grande Esplanade Project ("Grande
Esplanade"or the "Project"). We appreciate the opportunity to assist you and look forward to working with
you.
As requested,the attached Statement of Work describes our proposed scope of services(the "Services")
and fees for the Services.
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Please do not hesitate to let me know if you have any questions or comments regarding the attached. I
would be pleased to discuss further.
Yours very truly,
titter d yotAm4, Attyx,oLct.,
60-i.p-o-tAo.„te, . n c0\.c
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per
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Edward Ng, Senior Vice-President
Encl:
Proposed Statement of Work •
A member firm of Emst&Young Global Limited '
Grande Esplanade Project Market Sounding
The Corporation of the City of Pickering
EY Page 2
Building a better
working world
Proposed Statement of Work
Our understanding of your needs
It is our understanding that City requires advisory services to conduct a market sounding on the Grande
Esplanade Project, as part of its due diligence in determining a palatable market structure that will be taken
to market for procurement of a developer in 2018, with construction starting in early 2019.
Pickering's City Centre will be transformed with a new arts centre, a senior/youths centre, an expansion to
City Hall and the Central Library, along with potential high-rise residential building(s). Anchoring these will
be the Grande Esplanade -a pedestrian and bike friendly thoroughfare for residents and visitors to gather.
The market sounding exercise can be invaluable in helping to shape a project which is not only tailored to the
City's requirements but also meets the requirements and expectations of the market. Conducting a market
sounding early in a project's planning stages has become a best practice across Canada for all large
infrastructure development, public-private partnership("PPP")and alternative financing and procurement
•("AFP") projects. Some of the benefits of a market sounding can include:
• Increasing appetite from potential partners- Market soundings provide an early signal to potential
bidders regarding projects that may be coming to market in the near future, helping to generate
interest and facilitate early teaming. Top tier infrastructure developers build their project pipeline
for priority projects early(12 to 24 months in advance), and it is important that awareness be
created early such that they are able to plan resources and corporate commitment to adequately
participate in a procurement process when the project does come to market. Projects such as the
Grande Esplanade Project require a number of partners(e.g. developer, constructor, facilities
maintenance provider, financier)to form a consortium for bidding purposes, and a market sounding
provides the right level of information that will allow bidders to begin teaming discussions
immediately.
• Structuring a market palatable project -One of the key objectives of a market sounding is to ask
detailed questions of the participants to test assumptions and assess level of interest in the Project
under various procurement delivery models. For a project such as the Grande Esplanade, this is
particularly important because of its multi-faceted(and potentially multi-phased)aspect -each
component of the Project could potentially be delivered under a different procurement delivery
model over one or more phases. It will be critical to gather bidders' feedback on acceptable
transaction structures in order to assure that a biddable and bankable project is brought to market.
• Driving best value for money- Much of the discussion during market soundings will focus on Project
risk and risk allocation -that is, key Project risks identified and the ability to transfer them to the
private sector. These could include construction risks, operational risks, cost risks, environmental
risks, commercial/retail tenancy risks, residential condo sales risks, etc. Generally, risks•should be
allocated to the party(City or private sector developer) best able to manage the risk. Doing so helps
to maximize competitive tension and drive best value for money.
Our approach
The market sounding process will evolve over time, with initial discussions serving as a basis for
understanding the market's assessment of potential options for development, and later discussions serving
as a basis for refinement of the initial options to address potential concerns or issues raised by the market.
A member firm of Ernst&Young Global Limited
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Grande Esplanade Project Market Sounding
The Corporation of the City of Pickering
Ey • Page 3
Building a better
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Our methodology for market soundings is to form a basis/agenda for discussions with prepared topics and
specific questions, but allow participants to focus on areas where they have the most expertise. We
facilitate this through engaged discussions where we take ample time to probe and gather quality feedback.
We do not expect each participant to have relevant feedback for every subject we wish to cover and
therefore suggest interviewing a cross-section of participants with expertise in a variety of roles in different
sectors, including sponsors, real estate developers, lenders, contractors, and operations and maintenance
providers.
Given the early planning stages of the Project, we propose that the market sounding be conducted in two
phases for maximum benefit to the City:
• Phase 1 - Market soundings with up to approximately 15 participants based on currently available
Project information and preliminary cost estimates to the extent available. The objective would be
to gather a broad set of feedback on the premises that the City is generally open to a broad universe
of project delivery options and transaction structures. This phase could commence immediately and
be completed in 4 to 8 weeks depending on the availability of participants.
• Phase 2- Market soundings with a smaller group of participants(up to approximately 10)to
commence as additional project information is available, and when the City has refined the project
delivery options and transaction structures that are deemed to be most acceptable. The selected
participants will be refined to those that offered the greatest feedback from Phase 1, and may
include some new participants that have emerged. Questions would be more focused and directed
to help the City move to the procurement phase. Phase 2 could be completed in 3 to 6 weeks
depending on the availability of participants.
A two-phased approach is highly recommended, as this will allow the City to obtain progressively refined
viewpoints from the market as Project details emerge and thinking by the City is advanced towards
procurement-we have used this approach on recent projects and this has yielded excellent results. The EY
team will take the lead in both phases of the market sounding process. Regardless of phase, our approach
would include:
• Planning the market sounding strategy- EY would develop a market sounding approach that
enables the Project Team to test relevant issues on the project with relevant market participants
who have a track record in delivering similar projects. We will prepare an initial recommended list of
target participants for review and approval by the City.
• Drafting the market sounding/industry consultation brief to be issued to market -We will take a
lead in drafting the market sounding brief, including the co-ordination of input from the City Project
team and its other advisors (if any). Topics will be varied and may include general procurement
issues, attractiveness of the Project, proposed services included in the project scope, site issues,
proposed timetable, and other issues(e.g. honorarium,break fee, etc.). The brief is typically a 10 to
15 page Project background document with a detailed set of questions/topics that is finalized and
provided to participants in advance so that they are able to arrive prepared for discussions with
thoughtful responses.
• Attendance at market sounding meetings- EY will attend and lead the market sounding meetings.
We will be responsible for capturing key issues and observations during the meetings and collating
these for inclusion in a summary report that will highlight key themes and findings. We would
A member firm of Ernst&Young Global Limited
Grande Esplanade Project Market Sounding
• The Corporation of the City of Pickering
EYPage 4
Building a better •
working world
encourage the City to participate in the market sounding discussions with a couple of
representatives to hear first-hand the feedback received.
EY will bring to bear its experience of the infrastructure development, PPP and AFP markets in North
America and will be able to suggest a list of potential proponents that should be invited to participate in a
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market testing exercise. We expect that market soundings will be conducted on one-on-one basis with the
market bidders and we will play an active role in scoping the format of these sessions and in selecting
-participants.
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A member firm of Ernst&Young Global Limited