Ask ELi: The Evergreen Problem in the Park District

Monday, February 6, 2017, 7:49 am
By: 
Alice Dreger

More than one reader has asked us to explain why there is so much discussion of “the Evergreen properties” every time we cover the Park District redevelopment saga. Today we explain why these properties are creating an economic drag on the City’s attempts to revitalize that area.

The short answer is that the taxpayers of the City owe far more on these properties than they are worth because they were purchased for us for over three times their assessed value in 2009. This means they are “under water” and that debt makes it hard to move forward in a way the City wants—namely, with the redevelopment somehow solving that debt.

The properties at issue:

There are four parcels which, somewhat confusingly, include five structures:

  • 314 Evergreen Avenue: a relatively modern brick building across the alleyway from Dublin Square, containing commercial space and rental apartments;
  • 328 Evergreen Avenue: an older house, now rented out to students by East Lansing’s Downtown Development Authority (DDA);
  • 334 Evergreen Avenue: an older house, now rented out to students by the DDA;
  • 340-344 Evergreen Avenue: a parcel containing two twin older houses, now rented out to students by the DDA.

 

Photos are provided at the end of this article. You can click here to see a map of where these properties are located.

Why the DDA purchased these properties:

In 2009, East Lansing’s City Council elected to support East Lansing’s Downtown Development Authority (DDA) in the purchase these four private properties along the east side of Evergreen Avenue, just north of Peoples Church. The DDA bought these properties in order to support the major redevelopment plan in the area then known as “City Center II.”

At the time, the developer was Scott Chappelle, working under the business name Strathmore Development and later PDIG (Park District Investment Group). Chappelle’s companies owned the “big bank building” and the other now-vacant commercial buildings along Grand River Avenue, as well as the old Evergreen Arms apartment buildings across Evergreen Avenue from the DDA’s properties. (These privately owned-properties have since been sold following a foreclosure action, which is why the current owner is DRW Finance, using the development company Convexity Properties.)

For years, the City was trying to effect a public-private deal with Chappelle’s companies, which is why the DDA purchased these properties with the support of City Council. That deal eventually collapsed.

The DDA paid at least three times what the Evergreen Avenue properties were really worth:

The DDA’s Evergreen Avenue properties were purchased for far more than they were worth at the time. Total assessed market values of the four properties in 2009, about the time the properties were purchased, came to about $1.6 million. The DDA paid the owners of these properties a total of about $5.1 million—over three times their assessed value.

At the time, the City Manager was Ted Staton. The Mayor was Vic Loomis, the Mayor Pro Tem was Diane Goddeeris, and Kevin Beard, Roger Peters, and Nathan Triplett were also on the Council. Members of the DDA included Robert Potvin as Chair, Eric Sudol as Vice-Chair, with the other members being William Newberry, Ted Staton, Vic Loomis, Brad Ballein, Colin Cronin, William Mansfield, and David Krause.

Why would the DDA and City Council have agreed to pay three times the assessed values of these properties? They wanted to see the project done, as it had been in the works for years by that point.

East Lansing resident Eliot Singer, who has long tracked this story and who assisted ELi by providing information about these properties, tells ELi, "City Council, City Manager and staff, and the DDA screwed up big time in 2009 when they issued bonds and bought the Evergreen properties, obstinately ignoring well-founded warnings from knowledgeable citizens. There are no excuses. The continuing attempt to deny responsibility and avoid accountability has come at an enormous additional financial cost to the city and delayed real action to clean up the blight by at least 5 years.”

The debt will soon start causing budgetary pressures to the City:

These four properties are now worth at most half of the debt the DDA owes on them—the debt being about $5.6 million—and the City taxpayers are on the hook for this expense, because the City is on the hook for the DDA’s debt.

For years, the City has been paying interest-only on this debt. In Fiscal Year 2019, the City has to start paying principle as well as interest. The payments owed will increase from about $113,000 per year to about $375,000 per year.

According to numbers provided to ELi via current Mayor Pro Tem Ruth Beier, right now the income from these properties comes to about $180,000 a year. So the income will not be enough to pay the amount owed once the City begins to pay off the principle.

The City may be shifting plans for these properties, from a parking garage to something else:

The City has long sought to have the structures on these properties demolished and replaced by a major new parking garage to support existing and additional development on that side of the city.

Now that the deal with DRW/Convexity Properties has collapsed, Mayor Mark Meadows suggested at the last Council meeting that the Evergreen Avenue properties might simply be sold off, leaving new owners to decide what to propose for the properties. (Any redevelopment would have to go through the usual planning and approval processes.)

The problem with this is that it’s unclear who, then, would pay the gap between what the properties get on the market and what is owed on them. As noted above, they are millions of dollars “under water.” Legally the taxpayers are responsible.

Other options for dealing with the Evergreen Avenue debt:

The DDA had been hoping to somehow get the debt for these properties rolled into the tax increment financing (TIF) plan for the Park District redevelopment. Under this scheme, taxes generated by redevelopment of the area would be used to pay off the debt. This is what City Council proposed to the developer as part of the approved TIF plan, but the developer declared that plan unworkable.

What do these properties look like now?

314 Evergreen Avenue is a relatively modern brick building across the alleyway from Dublin Square, containing commercial space and rental apartments, shown here looking from where the “little bank building” stood until recently:

328 Evergreen Avenue is an older house (just north of 314 Evegreen Avenue), now rented out to students by East Lansing’s DDA:

334 Evergreen Avenue is an older house (just north of 328 Evergreen Avenue), now rented out to students by the DDA:

340-344 Evergreen Avenue (just north of 334 Evergreen Avenue) is one legal parcel containing two twin older houses, now rented out to students by the DDA:

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ELi thanks Marie Wicks, Mary Haskell, Ruth Beier, and Eliot Singer for assistance with this report.