Item - 2016.EX16.4

The Executive Committee recommends that:

1.  City Council adopt in principle the directions to move to a centralized real estate operating model as broadly described in Appendix A of the report (June 13, 2016) from the City Manager and authorize the City Manager to:

a.  recruit and appoint a transition team; and

b.  develop a transition strategy and implementation plan, in collaboration with affected City agencies and corporations listed in Table 1 of the report (June 13, 2016) from the City Manager, including a recommended governance model incorporating a core city building mandate that considers public policy objectives such as affordable housing, public realm, public transit and economic development and report further to Executive Committee in the first quarter of 2017.

2.  City Council establish a Council Advisory Body (Real Estate Advisory Committee) for the real estate transformation pursuant to the Terms of Reference in Appendix B to the report (June 13, 2016) from the City Manager.

3.  City Council request the Boards of relevant agencies and corporations listed in Table 1 of the report (June 13, 2016) from the City Manager to participate in the development of the transition strategy and implementation plan, and provide information as required.

4.  City Council‎ request that the City's affected City agencies and corporations listed in Table 1 of the report (June 13, 2016) from the City Manager, during the development of the real estate transition strategy and implementation plan, co-operate and coordinate with the transition team, when undertaking any real estate transaction or development work of significance (whether in dollar value, City building potential, size of site, or otherwise). 

5.  City Council approve one-time transition costs over the next 9 months of $1.702 million ($0.788 million in 2016, $0.914 million in 2017) and 8 temporary positions with funding provided from the Innovation Reserve Fund (XR1713). This increase is for the establishment of a transition team, including a cross-functional Program Management Office for a 9 month period ($1.143 million) and for continued support from Deloitte LLP, the City's third-party consultant retained to support the City-wide Real Estate Review ($0.559 million).

6.  City Council amend the 2016 approved operating budget for Facilities, Real Estate, Environment and Energy by adding $0.788 million gross and $0 net and request the Chief Corporate Officer to report back during the 2017 budget process on future requirements.

7.  City Council authorize the City Manager to negotiate and execute an amending agreement with Deloitte LLP to assist in the transition phase of the City-wide Real Estate Review initiative at cost of $0.550 million net of all applicable taxes and charges ($0.559 million net of HST recoveries) which increases the value of the existing contract from $0.2 million ($0.203 million net of HST recoveries) to $0.750 million ($0.762 million net of HST recoveries), on terms and conditions satisfactory to the City Manager and in a form satisfactory to the City Solicitor.

This report is further to City Council's direction to the City Manager to undertake a City-wide Real Estate Review to provide an objective assessment of the City's real estate services delivery model across applicable divisions, agencies and corporations. Its purpose is to provide an update on the status of this review and outline the City Manager's advice to Council related to the opportunities identified through the review process.

This report is intended to set the future direction for the City of Toronto's extensive real estate holdings, the scope of which has been fully captured for the first time through this review process.  The City of Toronto owns an expansive, diverse and valuable real estate portfolio with significant operational and capital expenditures. With holdings conservatively valued at $27 billion including 6,976 buildings covering 106.3 million square feet (9.87 million square metres) and 28,882 acres of leased and owned land, the City of Toronto, including all its divisions, corporations and agencies, has one of the most significant real estate portfolios in the country.

Although it is recognized that many of these assets can never be sold, ensuring the City is effectively positioned to strategically leverage its real estate portfolio, and maximize operating efficiencies is consistent with the City's Long-Term Financial Direction report recently adopted by Council. The Long-Term Financial Direction is focused on strengthening financial processes, strategic planning, oversight and decision-making, while taking a "whole of government" approach to all aspects of City operations, including those of divisions, agencies, and corporations. Further, optimization of the City's assets will aid Council in achieving long-term strategic objectives and city-building priorities.

Table 1 shows there are 15 entities identified as managing their portfolios with varying governance arrangements, mandates, strategic and operational objectives related to real estate assets:

Table 1: 15 City Real Estate Entities

Real Estate Services within the City's Chief Corporate Officer Organization provides day-to-day transactional real estate services to the majority of divisions and agencies. When entities manage their real estate portfolios autonomously, it limits the City's ability to achieve long-term strategic objectives, develop a holistic City building strategy, explore co-location opportunities, maximize the value of assets and find efficiencies in operations.

The City Manager retained third-party expertise from Deloitte LLP (Deloitte) to assist with this initiative in partnership with the Chief Corporate Officer Organization. Deloitte's review concluded that the status quo will not provide the appropriate framework to unlock land value potential and ensure the strategic use of land and building assets. As a result, a comprehensive plan to co-ordinate all City-owned real estate is required, producing long-term efficiencies and improvements for the City.

Deloitte's findings suggests that there is an opportunity for the City to align its real estate operations by creating a new leading edge centralized real estate entity that consolidates all core real estate and facilities management operations and functions over the next two to four years.

Deloitte advises that making these changes will help the City of Toronto to:

- Strengthen the City's ability to make strategic and informed decisions that promote city-building and  City-wide objectives;

- Maximize the value of the City's land and property assets and find savings through co-location and joint ventures while reducing the City's state of good repair backlog;

- Create more mixed-use developments that bring important services closer to residents;

- Develop improved technology platforms and streamlined work and approval processes; 

- Integrate modernized approaches to space planning to allow for enhanced staff productivity and efficiency; and

- Provide better solutions through proactive engagement with all stakeholders, including Council, City staff and the community.

The transformation process to successfully establish a new real estate entity will require significant executive leadership, change management, policy and practice re-engineering, organizational change and information technology investment.

As an immediate first step, the City will need to put in place a comprehensive transition framework, which will include engaging with senior executives and creating a transition team reporting to the City Manager.

The transition team will develop a strategy and a detailed implementation plan, including new policies and practices, and identification of a technology platform by the second quarter of 2017 to help facilitate the restructuring and move to the end state.  It will develop a core city building mandate that considers public policy objectives such as affordable housing, public realm, public transit and economic development.