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Bids closed in December on Town of Pelham land sale: Now what?

As presented in the Collier's web listing of the property, the parcels for sale are identified as "A" and "E." WEB SCREENSHOT

Town Hall silent on sale meant to help pay down $15 million loan

BY VOICE STAFF

Part of the Town of Pelham’s original plan for funding its new community centre was to obtain a $15 million loan from Infrastructure Ontario (through Niagara Region) which the Town said would be a short-term “construction bridge” loan. According to the Town, this $15 million would be repaid soon after the community centre’s completion, and thus did not need to be included in its long-term debt calculations.

Of this $15 million, $12 million was to be paid down through the sale of two parcels totalling 18.5 acres of Town land in East Fonthill, part of the original 32 acres it purchased in 2005. Council declared this area “surplus” last year, meaning that it could be sold. Bidding on the land was invited until December 14, though the property remained on the market afterwards. The Town has since been mum on the attempted sale, though Town Public Relations and Marketing Specialist Marc MacDonald said that formal offers were expected to be presented on February 12. An in camera meeting of Council was held on that date. On the agenda was an item regarding “proposed or pending acquisition or disposition of land by the municipality.” [Editor’s note: After the print edition of this story appeared, MacDonald emailed the Voice to assert that he had never specified the venue in which offers would be made. However, all such offers are presented to Council, out of the public eye. The only Council meeting scheduled for February 12 was the in camera meeting noted above, with the agenda item noted above. At approximately 2 PM on February 8, MacDonald replied to the paper’s request for an update on the sale process, writing in an email: “Hi Sam, The expectation is to have formal offers presented on Feb. 12. Thanks.” This was the entirety of MacDonald’s reply.]

Where is the land?

The land is in immediate surroundings of the community centre, excluding the storm pond on the corner of Highway 20 and Rice Road.

How much is the land worth?

The Town has repeatedly asserted that the land is worth between $600,000 and $800,000 per acre. Last summer, Mayor Dave Augustyn said that the Town was using the low-end of the range, meaning that the land was worth just under $12 million.

At the time, a local realtor consulted by the Voice said the $800,000 was “a ridiculous figure,” and that with considerable vacant real estate in East Fonthill it was difficult to believe that the true value of the land would be this high.

Another realty expert consulted by the Voice said, “I think they will get close to it on some of the acres.”

“People forget that the price of the land is a function of the density,” said the expert. “If the Town lets me build a ten-storey building, then my residential unit cost drops a lot compared to a two- storey home. That drives the land price up. [The Town] received over a million per acre for the eight-storey seniors’ residential lot. That price had nothing to do with the parkland bylaw.”

“The price is also affected by the absorption rate for the type of property you are building.  Can a developer put up a dozen eight-to-ten-storey condo towers at that corner and sell them in a few years? Probably not, but maybe over five to ten years. So you pay less for part of it because it has to sit in inventory for that long. If a developer is looking at more retail and office buildings the absorption rate is a large factor. We have plenty of retail, so a multi-storey office [building] in Pelham is not a good idea.”

The Town has said that it is selling the land as serviced, and that it is expecting the buyer to reimburse the Town (in addition to the sale price) for the costs already incurred, including that of the storm water pond.

“When the new land owner applies for the building permit they have to pay the development charges and hook-up fees for whatever services are at the lot line,” said a real estate expert consulted by the Voice. “That’s standard fare. If they build a road within the acreage they contribute that to the Town along with sidewalks and lighting.”

MacDonald has declined to state how much the Town has spent on servicing costs for the acreage being sold, instead instructing the Voice to submit a Freedom of Information request.

He asserted that an FOI request was required because “this information will require a compilation of information from various sources.”

How is the land being sold?

The Town hired Colliers International to market and sell the land. Colliers’ fee is a three percent commission on the sale price of the land, or $360,000 if the sale price is $12 million.

Was this always the plan?

Yes and no. It was always the Town’s plan to help finance the community centre by selling off extra land it didn’t need. But in 2016, Town CAO Darren Ottaway said that the Town would maximize revenue by gradually selling the land in small parcels. Despite this, the Town decided to sell all the land at once.

Does the Town actually own all of this land?

Yes and no. The Town owns all 18.5 acres, but the Allen Group, the developer with which the Town has long had a relationship, currently has an option to purchase 7.7 acres of the total 18.5. These 7.7 acres front directly on to Highway 20. This option gives the Allen Group the ability to buy all or some of the 7.7 acres for $375,000 per acre, provided that a plan is in place for a retirement home or medical centre to be built on the land. The option expires in March 2019.

However, Town CAO Darren Ottaway has said that because the Allen Group must have an approved site plan before the option expires, the effective expiration of the option is about six months before March 2019—or September of this year.

Wait—how can the Town be selling land that the Allen Group still has an option to buy?

This would seem to be part of the reason that the Town has yet to sell the land. In a meeting with Pelham residents in January, Ottaway said that the Allen Group’s option has been “problematic.”

“It’s not ultimately a problem,” asserted Ottaway. “It’s an irritant.”

Ottaway said that the Town declared in the sale material that there is an option on the land, and that this is part of ongoing negotiations. He said also that a potential buyer suggested that the purchase be phased, in that the part of the land on which the Allen Group has an option may be acquired after the other part.

Is Ottaway’s “irritant” assessment accurate?

Perhaps. However, if the Allen Group exercises its option on all 7.7 acres, it would be able to buy this part of the land for just $2.9 million. This would mean that the Town would need to sell the remaining 10.8 acres for just over $840,000 per acre in order to recover the entire $12 million.

Why does it matter?

According to Public Relations and Marketing Specialist MacDonald, “short-term financing will be needed for the March construction invoice,” since the Town currently has sufficient funds only for the next two weeks.

If the Town is unable to recover the full $12 million from the sale of the land, the remaining amount of this “short-term financing” will become long-term debt. This would mean that the Town would have to finance the debt with operating revenue (i.e. property taxes) over a period of time. It would also push the Town closer to its annual debt repayment limit, and possibly prevent it from borrowing more money to fund future projects.

Where is the sale process currently?

According to MacDonald, it was expected that Council would be presented with formal offers on February 12. MacDonald declined to state whether the Town is negotiating with the Allen Group, saying that, “this is an active process, details cannot be discussed.”

 


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