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The following is a staff report from the City of Owen Sound regarding the lease of the former CP Railway Station to Mudtown Station Inc. (Harold J. Kloeze).

Recommendations:
That in consideration of Staff Report CS-17-076 respecting Request for Proposal RFP-16Z.08 Lease Opportunity Former CP Railway Station, City Council authorize a by-law to execute a lease agreement with Mudtown Station Inc.

Strategic Initiative:
Financial Sustainability: Fiscal responsibility
Economic Development: Growing and retaining the existing business base
Cultural Focus: Preserving and celebrating the City's unique history

Background:
In 2010, the City purchased the historic CP Train Station. As a condition of the sale, the property was designated under the Ontario Heritage Act and an Ontario Heritage Easement (OHE) with the Ontario Heritage Trust (OHT) was registered on the property.
The building had been left to deteriorate for several years and upon purchase the City initiated several capital upgrades to the building exterior including:
- Roof, soffit and fascia;
- Exterior pot lights in soffit;
- Repairing windows/doors and stone sills;
- Repointing;
- New storm windows and glass block windows;
- Interior remediation of environmental issues (lead paint and asbestos);
- Filling pit in the crawl space.

The repairs and upgrades were done with the approval of the Ontario Heritage Trust (as required per the OH Easement).
The interior has been cleaned and the environmental issues have been addressed (lead paint, mould and asbestos) however; interior renovations have been minimal to ensure that any work is appropriate to a future tenant.
The building systems (e.g. heat, cooling, electrical) need to be completely replaced. Insulation needs to be added and the heritage features including the wood panel walls, doors, etc. all require cleaning and in some cases replacement. The challenge to renovate the building to suit a tenant are not insignificant and require coordination of effort between the City and the tenant.

A Heritage Conservation Plan has been approved by the City and is intended to provide significant direction to a potential tenant in undertaking the building renovations and upgrades relating to the designated heritage elements. City staff will work with the tenant to obtain the necessary OHT approvals and this is reflected in the lease.

The City's goal has been to find a tenant to lease the building located in the east harbour area as a catalyst to waterfront re-development as well as to manage environmental risk as supported by the City's Strategic and Official Plans.

In October of 2016, Council had directed:
R-161031-008
"THAT in consideration of Staff Report CS-16-157 respecting the former CP train station, City Council directs staff to prepare and issue an RFP for the property at 1198 1st Avenue East."
An RFP was updated and prepared for the lease of the CP station.

At its meeting February 13, 2017, Council directed:
R-170213-013
That in consideration of Staff Report CS-17-028 respecting Request for Proposal RFP-16Z.08 Lease Opportunity Former CP Railway Station, City Lease of the Former 
Council directs staff to prepare a letter inviting the proponent to enter into lease negotiations and that the details of the lease and financial terms come back to Council for consideration and approval.

Analysis:
The tenant Harold Kloeze has proposed that the CP station is an ideal location for a brewery and restaurant serving high quality food and beer crafted on-site.
The proposed "brew pub" is Mudtown Station. Their proposal sees this site transitioning to a downtown destination for shoppers, tourists, visitors and residents.
The vision put forward for the CP station is in keeping with the City's Downtown and Harbourfront Master Plan as well as the Official Plan. It will bring people to the waterfront, acting as a destination, creating interest and purpose in being there.

The proposed transformation of the building for a brew pub put forward by Mudtown respects and builds on the heritage character of the building and in preliminary meetings with the Ontario Heritage Trust, the planned renovations were received positively. Having a meaningful purpose with a business that brings people into the downtown and harbour as well as to this historic building is the best solution to preserving this historic building and ensuring its long term sustainability.

Draft Lease
The draft lease is attached and provides for the following:
- Tenant may terminate the lease by May 30, 2017 if they cannot secure financing or the approval of the OHT.
- Term – is 15 years plus 2 five year options for renewal. At the time of the first renewal, the lease stipulates that the lease terms, including rental rate will be renegotiated, and reflect fair market value.
- Rent starts at $29,325 per year and increases 1% per year. Given the investment required by the Tenant, the lease rate is fair.
- Tenant pays all taxes and utilities and is responsible for snow removal and summer maintenance.
- Responsibility for repairs and maintenance is outlined in Schedule E to the Agreement and generally has the City responsible for the more structural aspects with the tenant being responsible for the maintenance of the interior features and building systems.
- Schedule F to the Agreement outlines the work that must be completed both inside and outside the building to provide for occupancy. The chart includes an estimate of cost and the responsibility for the work and costs. The work, particularly the work inside the building will require significant coordination and cooperation between City and Tenant. Consequently, for some of the work, the City will make a capital contribution to the building's structural elements based on actual invoices and costs to the upset limit shown in the Schedule.
- The City has tendered the outside work and this tender closes April 14.
- City work in the Schedule is to be completed by August 1, 2017 at which point the building would be handed over to the tenant and the lease term would commence. Mudtown hopes to be ready to open late in 2017.
- The combined investment in the building and property is $1.3 million dollars.

Financial/Budget Implications:
As outlined in Schedule F to the Agreement, Mudtown and City will make a significant investment in the building and property. This is estimated at $1.3 million.
Over a 20 year period, the City will use the lease payments to repay its investment in the building.
At the end of the term, using only the lease revenue, the deficit is estimated at $161,230. Over the 20 year term, this will be capitalized by the City so that at the end of the 20 years, the City has no outstanding debt relating to the redevelopment of the CP station.

The following merits note and support the financial arrangement proposed:
- The building had been left to deteriorate prior to the City purchase and any redevelopment was going to require significant capital investment;
- The investment is in the building and property, but also in overall economic development for the waterfront and in retaining and repurposing a heritage building for the long term;
- At the end of the 20 year term, the value of the building, including all the building improvements should far exceed the unfunded debt;
- The approach manages the City's environmental responsibility with the site;
- The city will collect taxes over the term as well as water and sewer charges.

Communication Strategy:
The Request for Proposal was published on the City's Bids and tenders site and the Biddingo website which fulfills the requirements of Chapter 5, Procurement, Agreement of Internal Trade (AIT) and negotiations completed in accordance with the direction of Council.

Consultation
The City Manager, Director of Public Works and Engineering and Manager of Property were consulted during the preparation of this report. The agreement has been reviewed by the City solicitor.

source: city council report, City of Owen Sound

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