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Consultant behind Preston Springs redevelopment urges city to keep development charges waiver intact

Council is considering ending policy that exempts developers from paying development charges in city's cores
preston springs demo2
A woman stands with a sign "Heritage Matters" with the wreckage of the Preston Springs Hotel behind her in December 2020. Phi Doan/KitchenerToday

The main players behind two major redevelopment projects in Cambridge pleaded with councillors Tuesday not to end the policy that waives development charges in the city's three core areas before they can submit formal applications.

Development charges, or DCs, are fees the city charges developers to cover a municipality’s growth-related capital expenditures on infrastructure and service improvements. 

Speaking at a public meeting to consider ending the city's core DC exemption policy, Chris Pidgeon, lead planner behind GSP Group Inc., said they are “working as quickly as they can” to put together a formal submission for their client, Haastown Group, to redevelop the former Preston Springs property.

The city stepped in to demolish the derelict heritage hotel in December 2020 after it was deemed dangerous.

The controversial move followed an appeal by the Architectural Conservancy of Ontario to try to save the structure from the wrecking ball after Haastown Group filed for its own demolition permit.

Now that the old hotel is gone and an empty hole is all that remains, the owner is ready to move ahead on redeveloping the property, but not without assurances that core DC exemptions will remain in place.

Pidgeon said they won’t be able to submit a complete application by an April 5 deadline in a staff report that recommends ending the DC core exemptions policy because it has become unaffordable for taxpayers.

The deadline would allow all zoning bylaw amendments or submitted site plan applications to remain eligible for the incentive program. 

As outlined in the report to council, continuing to exempt developers from paying development charges in the city’s three core areas could cost Cambridge an estimated $26 million over the next five to 10 years.

Taxpayers are on the hook to cover the loss of those DCs, which since 2015 amounts to about $24.5 million and has added to tax increases every year.

The city drafted its first policy to waive DCs in the city's three core areas in 2015 to encourage infill and brownfield development. It created another bylaw around core DC exemptions in 2019.

The program has attracted numerous developers to the core areas since.

Pidgeon said one thing the staff report fails to mention is the revenue generated for the city by development. For example, property taxes paid annually on a new condo unit average around $4,000. 

Considering the number of residential units that could be generated if the city continues to waive development charges in its core areas, he said the city’s $26 million investment would be paid off in three years through collection of $8.6 million in annual property taxes.

And that revenue would continue for the city in perpetuity.

While offering no details about what Haastown is proposing for the Preston Springs site, Pidgeon said when the company met with city planners two months ago, they were encouraged to continue with the redevelopment application.

There was no indication back in November that the city was planning a review of its core exemption policy even though it had been discussed informally at council meetings and covered widely in the press.

Pidgeon urged the city to extend the deadline until October or provide an exemption for the Preston Springs application.

David Opie, a co-CEO of Greentown Developments, also spoke at Tuesday’s meeting to express his concerns.

Opie's company is behind a number of local condominium and townhouse developments and purchased properties at the corner of Water Street South and Concession Street in Galt in the fall of 2020 with the intention of building on the site.

He said the core exemption policy was a key factor in the company’s decision to invest in Cambridge and any changes now would “have a major impact on the financial feasibility” of the project.

Although planning submissions are well underway for the undisclosed project at 103-111 Water St. S., Opie doesn’t think they’ll be able to submit a formal application until at least October.

“We are frantically working toward a complete application this winter,” he told council.

“Our concern is that we purchased the land in good faith, met with staff, submitted our pre-consultation application and retained all of the necessary consultants with the view to developing our land under the current development charges bylaw.”

He said should council to decide to remove core area exemptions, he would recommend the city impose a transition period that recognizes projects that have already initiated the planning process through pre consultation.

As explained by city deputy treasurer Katie Fischer, if the core areas exemption remains, the city would lose out on collecting an estimated $54 million in DCs from developers and would have to look to taxpayers to subsidize the loss.

Any extension of the program past April 5 would add to the city’s loss and place that burden on taxpayers. 

If projects in the queue proceed to the building permit phase and are exempt from DCs, Fischer said it will require a further tax increase of 1.52 per cent to 2.37 per cent in 2023 for a cumulative tax increase over four years of 4.02 per cent and 4.87 per cent.

The water utilities budget is also set to increase to cover the exempt DCs for a cumulative increase of up to 2.5 per cent.

“If taxes become too high as a result of funding waived DCs as well as other strategic initiatives the city wants to fund, it may become an affordability issue in the community, which could result in residents moving away,” Fischer warned.

Speaking in favour of the recommendation to end the policy Tuesday, HIP Developments president Scott Higgins said he believes the city should first come up with a strategy to effectively market the core areas while providing enough time for developers to participate in the waiver.

He cited Kitchener as an example of a city that put an economic development fund in place to improve the marketability of its core before it removed a core area exemption for DCs in 2019. 

“Without a marketing srategy in place, it’s tough to see how we fix the marketability problems that exist,” he added.

In Cambridge, real estate is currently trading at $150 to $200 per square foot less than in Kitchener even though the cost of building remains the same.

That's because the city is lacking amenities like light-rail transit and post-secondary institutions, which attract development. 

Higgins said Cambridge would have a hard time marketing itself around post-secondary institutions or office space in the cores, and while transit promises are in place at the region, it won’t see the LRT in Cambridge for at least 10 years.

Instead, the developer behind the Gaslight District believes the city should focus on “placemaking” opportunities.

“We’ve got the bones, we’ve got the beauty, we’ve got the cultural history. How do we package that in a way that makes downtown Galt and Preston and Hespeler places that people can’t wait to move into,” he said.

The city is expected to report back to council with options sometime next month.