While Minto submitted a higher-than-expected bid for the residential component, a lack of industry interest in constructing an office building on the site means the project's proponents will have to take on an additional $2.6 million of debt.
In a report going before the city's finance committee on Thursday, staff say Minto Properties Inc. was the only developer to submit a bid to build an office tower, even after the municipality dropped a requirement for bidders to chip in for associated development costs.
The city had expected developers to pay $6.95 million just to cover a portion of the development costs related to the required infrastructure upgrades, underground parking garage and other expenses. That's in addition to the market value of the development rights themselves, which the city estimated at $198,000 annually.
However, Minto is only offering $3.49 million for the office development rights, plus a one-time payment after the building's tenth year of operations equal to 50 per cent of the profits in excess of an 11 per cent internal rate of return.
While the exact revenues from the office won't be known until the tenth year, the city is facing a shortfall of up to $3.465 million.
City staff say there are several reasons developers may have been hesitant to bid on the office rights.
With no ability to pre-lease space, a developer would have to construct the project on speculation. This often makes it difficult to obtain financing.
There are other risks. The building is outside the central business district, meaning the landlord will likely only be able to charge lower suburban rents. However, most developers of suburban buildings don't have to assume the costs of providing an underground parking garage.
The proposed office building will contain 100,000 square feet over seven storeys, sitting atop a single-storey retail building.
On the residential side, Minto was one of three bidders vying for the rights to build up to 280 new homes, totalling approximately 373,000 square feet. These include a nine-storey condo atop a two-storey commercial podium at the corner of Bank Street and Holmwood Avenue, a four-storey low-density building along Holmwood Avenue and a high-density mixed-use building beside the Bank Street Bridge over the Rideau Canal.
Minto submitted a bid of $30.5 million, which includes $19.135 million to cover a share of the broader infrastructure and amenity upgrades required for the site.
That exceeds the expected bid for the residential component by $1.16 million.
Earlier this week, the city released detailed renderings of the envisioned designs of a redeveloped Lansdowne Park.
