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By Christopher Mullins | Senior Director, Cost & Project Management AND David Eger | Western Canada Vice President, Research, Valuation & Advisory | January 28, 2019

Adjacent to a newly–built, modern church is a seniors’ residence. The residence houses vulnerable members of the community in a building proudly funded by the congregation. They were able to exchange valuable real estate for a new church, a new seniors’ residence, a mid-rise residential strata building and an ongoing revenue stream that helps to fund programs.

This is a scenario that many institutions would like to realize. Churches, schools, libraries, recreation centres, hospitals and many other institutional buildings constructed in the building boom of the 1950s and ‘60s are aging and deteriorating. While in imminent need of upgrade or replacement, this can be extremely difficult for these institutions to do given risks such as a tenuous financial situation, constrained business model, dwindling membership, few volunteers, scarcity of donors, rising debts and more.

As land values climb and structures wear out, rather than simply selling their property and bidding goodbye to their buildings and land forever, more and more institutional administrators and boards would like to determine whether a redevelopment partnership may be possible to safeguard their future. Can redevelopment realize long-term income that will enable them to continue providing services to their communities – maybe even attract more members?

At the same time, they want to avoid making expensive mistakes. Redevelopment projects can present daunting challenges.

  • How do we honour the values and needs of our members and the community?
  • How can we secure our future in the present location?
  • Is there a way to preserve the existing building as a landmark heritage site?
  • How do we protect our tax-free charitable status?
  • How do we raise financing?
  • If we work with a developer, how can we be confident it will be a successful partnership?
  • How can we minimize financial and other risks?

Concerned about potential pitfalls, limited expertise and funds, many institutions delay decisions. Sadly, this often reduces the alternatives available to them.

But where to begin? From affordable rental units to residential or commercial strata buildings, to mixed use developments, there are many redevelopment options to consider.

Once they determine the status quo is no longer an option, institutional administrators and boards can consider the following suggestions. These actions, if undertaken before making major decisions, will be an effective and affordable way to clarify the current situation, identify appropriate options and safely guide an institution along a path that will unlock land value and achieve an organization’s goals.


Identify the constraints and opportunities of the property

First, bring in real estate valuation experts to begin identifying opportunities for the use of the land. This generally involves assessing the value of the property in its current state and conducting a highest and best use analysis, which considers the current use of the property, its potential uses and their corresponding value.

Studying constraints and opportunities answers a number of vital questions.

  • What is the current zoning for this property? Could it be rezoned?
  • What is the existing and future community vision for this area? Is there a land use plan? Municipal strategy?
  • Does the existing zoning align with these plans?
  • What government entities have jurisdiction over this property?
  • What physical and legal restrictions are there?
  • What is the neighbourhood attitude about new development?

If an institution owns more than one property, it would be wise to conduct a review of the entire portfolio of properties to identify those with potential, and to determine which structures need to be looked at in the short term, mid-term and long term. This provides a specific planning horizon.


Assess development options in terms of short and long-term goals and needs

Next, a feasibility study will determine whether potential projects are financially, legally and technically feasible and whether local regulations will/could permit them. This type of study narrows down alternatives by looking at market conditions and trends and local land use policies in light of an institution’s financial objectives.

The outcome is a clear picture of the various options that will enable an organization to make sound decisions before committing resources, time and budget. A feasibility study is unfailingly a worthwhile investment because it also presents the business case that will gain support for the resulting project.

Sometimes, feasibility studies uncover entirely new ideas. For many organizations, the best option is not necessarily the one that results in the most amount of money. For example, selling land to an investor who builds a 40-storey condo may not fit in with the ongoing operation of a church and a community centre. Many institutions have unique requirements they wish to include, so they may want to explore creative options.

A cost-benefit analysis is often the next step. This assesses the strengths and weaknesses of the alternatives – isolating and estimating the specific costs and benefits of different courses of action.

Essentially, the analysis adds up the total costs of a project and compares it with total benefits – tangible as well as intangible returns to organizations and to people. The result is essential information for go/no-go decisions.


Assemble a development team of experienced, objective professionals

A well-managed redevelopment can deliver rewarding dividends on many levels. But it’s essential to go about it the right way. Real estate and construction involve complex physical, financial, regulatory and political issues. Planning and zoning alone can cause complications and delays and lead to serious funding shortfalls.

Any development must limit the risk as much as possible, yet few institutions have the capacity or expertise to guide development through completion: identifying a development partner who’s the right fit, structuring a safe joint venture agreement, setting up a reliable financial structure, sourcing sound legal and accounting advice, finding an appropriate architect and engineer, negotiating with the municipality and neighbourhood, and more.

If your organization doesn’t have the requisite capacity or expertise, consider partnering with an independent third party that will protect your various interests. A partner can help your institution thoroughly explore a range of options and identify the greatest potential returns for the institution, its members and the community. They can also help to speed the process and prevent a situation where buildings fall into dangerous decline.

It takes more time than most people realize to move through all of the phases and decisions involved in a redevelopment. If your organization is interested in exploring opportunities, don’t delay; start sooner rather than later to take advantage of the most options available. Begin with a feasibility study. It’s an informative and affordable investment for a clear picture of what is possible.

It could just prove to be as good as gold.

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