Center City Goes Back to Council Next Tuesday, But Many Details Still Not Available

Tuesday, June 6, 2017, 7:45 am
By: 
Alice Dreger

Above: A month-old rendering of the Center City District proposal, showing Grand River Avenue in the foreground. Inaccurate renderings of the Park District project and Peoples Church are shown in the background.

East Lansing’s City Council is set to take up the Center City District proposal again—a proposal for a large, complex, public-private redevelopment downtown, involving a $56 million tax increment financing (TIF) plan—next Tuesday, June 13. Council had held public hearings on the project on May 9, but the developer had no revised plans to present at that point. Next Tuesday, Council could approve some version of the project, or could put off the decision further.

In communications to Council, developer Mark Bell of Harbor Bay Real Estate has indicated he wants the negotiations settled as soon as possible because he wants the demolition and construction to start this summer. Results of Freedom of Information Act (FOIA) orders submitted by East Lansing Info show that, in mid-April, Bell told Mayor Mark Meadows that without the deal settled with Council, he can’t get the financing worked out and might lose the lease with Target for the planned commercial space on Grand River Avenue. Bell described the timing of the situation as putting Harbor Bay “under the gun.”

In mid-May, Bell told Mayor Pro Tem Ruth Beier, “we are at a delicate threshold where I cannot keep spending design, engineering, and legal costs without a better understanding if there is a pathway to a finish line.” He said, “We are over $1.5 million in design engineering and legal costs” on the project.

Bell told Beier that the developers had paid high prices on land and had high carrying costs as a result, and that if the project start is put off later than this summer, “We will have missed the summer commencement construction cycle.” Bell told Beier he was “fearful that the goal line continues to get moved” in terms of the negotiations between City Council and the developers.

Records show that, throughout this spring, City Council members—particularly Meadows, Beier, and Councilmember Erik Altmann—have been meeting frequently with representatives of Harbor Bay outside of public meetings, presumably in an attempt to negotiate a deal. Whether Council has reached a deal it plans to pass next Tuesday is not clear. The records of these meetings show that Councilmembers have avoided meeting more than two at a time with Harbor Bay, since doing so would violate the state “sunshine law” for a quorum of a legislative body to meet in private.

So what do we know at this point? And what do we still not know?

The project will need four votes at Council to succeed:

The height of the two proposed buildings requires Special Use Permits (SUPs), and an SUP requires at least four “yes” votes at Council to pass. That means for this project to pass, it needs at least four “yes” votes on the SUPs. The other elements of the approval process require only three votes “yes.”

Below: East Lansing’s current City Council.

Meadows and Councilmembers Susan Woods and Shanna Draheim have already indicated support for the project, as noted in the minutes they later approved for the May 9 meeting. That said, Draheim has said her vote isn’t settled until it happens and that she’s concerned about financial risk to the City. Meadows has also said his statements so far should not be interpreted as indicating how he will vote in Council. What we know is that there have been a lot of meetings and other communications with the developers since the May 9 public hearings at Council, including by Altmann and Beier, who have been less publicly enthusiastic than their colleagues about the project. 

So what we don’t know and are unlikely to know before the June 13 meeting is what agreements may have been reached or how the votes will play out.

The site plan:

This map, created by ELi, shows the area to be redeveloped. (Click here for a larger view.)

Although the map provides some sense of what is planned, it is difficult for us to report of what exactly the site plan for this area currently consists, because the staff report describing the project has not been updated. The last available report is from April 21, before Planning Commission formally voted against recommending the project to Council.

We are therefore having to base the following description on piecing together previous versions and the drawings made available last week on the City’s dedicated webpage for the project. (Note that no written description from the developer accompanies the drawings.)

Along Grand River Avenue, a series of older commercial buildings would be demolished and replaced by a 12-story, 140-foot-high building. On the ground floor would be retail space, for which Target has signed a lease, and above that would be somewhere around 270 market-rate rental apartments housing upwards of 400 people. The developer’s communications suggest these are expected to house MSU students, which most people view as the likely market. This is being called the “south building.”

This image shows the span of buildings to be demolished and replaced with the “south building” along Grand River Avenue:

We think the following image shows what the Grand River Avenue “south building” would look like:

Another building, the “north building,” would be constructed on what is now City Parking Lot 1. This building, set to face Albert Avenue, appears set now to be a 10-story building. On the first floor would be retail space operated and rented out by the developer along Albert Avenue, with mechanical and storage space behind that, on the alley-side. The second through fifth floors would be a parking garage owned and operated by the City. The sixth through tenth floors would be apartments for people aged 55 and over, operated and rented out by the developer.

This is the most recent image made available for the north building although, again, we are not sure if this reflects the current plan:

The finances:

Documents obtained via FOIA show that Beier, who has been extremely interested in trying to increase revenue to the City, has indicated she wants to see revenue of upwards of $937,000 per year for the City from this project. She reaches that sum by taking the current net parking revenue from Parking Lot 1 ($537,000) and adding $400,000 which was her “initial estimate of how much City operating tax the project would pay without a TIF.” She told ELi recently the number was still under negotiation.

Meadows has said he wants to see projects like this bring in enough revenue to pay for the City services provided to new residents living in these buildings. In April, City staff produced a memo showing how to calculate those costs, but this memo has not been shared with the public (we obtained it via FOIA) and it isn’t clear which of the suggested calculations Meadows or other Council members might use to determine how much revenue they want to see from this project before voting “yes.” So we aren’t sure what revenue levels various Councilmembers want to see before they vote “yes.”

Original revenue projections for this project showed the City giving a 49-year lease to the developer for the private development on public land at a cost of $75,000 a year, adjusted for inflation. Recent FOIA responses show that the initial land lease amount at one point doubled to $150,000 a year plus inflation, but we don’t know what numbers or terms are in the draft lease, if a draft lease exists.

A FOIA response obtained yesterday provided a copy of what appears to be the latest City tax assessor estimates on the project, dated May 17, 2017. That document shows the assessor expects the developer to gross about $2.4 million in commercial and resident rents annually from the “south building” private development on the public land. (As we reported, the City Attorney has said that because the land is being leased, not sold, no vote of the public is required on this project.) FOIA also turned up tax assessor David Lee's reasoning behind his latest estimates.

As far as the lease goes, we don’t know what the terms would be and what the City is planning to do to provide for costs incurred to the City once the lease ends. At that point, the City will own the until-then-private buildings as well as the public buildings on the public land. We have asked City Council whether a “sinking fund” will be set up to prepare for these eventual costs, but we have received no response.

The revised $56 million TIF plan for this project, a TIF plan not yet approved by Council, is designed to last 30 years with 100% of the newly-generated taxes being used for reimbursement for redevelopment expenses. This means that none of the incremental taxes would be “passed through” to local jurisdictions for that 30 years.

Even (1) using the recently increased taxable value estimates provided by the City’s assessor, (2) assuming steady inflation and no downturns in real estate for 30 years, and (3) assuming no reduction of local property tax rates over time (despite discussions in Council about placing a question on the November ballot that would reduce property taxes in conjunction with implementing a new income tax), City staff have said the TIF will still fall short by about $1 million in terms of paying off the bond.

What bond? The plan has been to have the East Lansing Brownfield Redevelopment Authority (BRA) issue a bond to help pay for construction of the public infrastructure. The bond would not be backed by any City asset or by the City’s “full faith and credit,” but it would have the TIF revenue promised as a repayment system.

An earlier iteration of this plan called for using some City parking revenue to pay for the bond if the TIF reimbursement was insufficient, but that no longer seems to be on the table. The City appears now to be working to design the bond so that any repayment concerns caused by inadequate TIF revenue would be the developer’s financial problem.

That said, we don’t have many more details on this bond. Staff say the reason to use a bond like this is it will allow the developer to ultimately pay a lower rate than conventional construction loans would involve, thus making the project more likely to be financially viable.

The planned Target store:

Bell has said that the deal with Target requires the project to be started soon. Target declined to confirm this but said they plan to open the store in 2019, which would require construction be started this year. ELi has reported that the Target store would bring some grocery options to downtown that are not currently available.

This is the last rendering provided of the outside of the Target store on Grand River Avenue:

The parking garage:

City staff have been saying of late that the parking garage would have spaces for about 700 cars, with about 300 of them reserved for a master lease with the developers for their commercial and residential tenants.

The plan had been to give discounted parking to the developer. However, the recently-negotiated development agreement for the Park District project calls for that developer to pay market rates for their master lease of parking. Again, we don’t have the details or an explanation of why the parking master leases might be handled differently for the two projects, if they will be.

Current Lot 1 has parking for about 145 cars, so this garage would add several hundred new spaces for hourly and daily parking downtown.

It looks from FOIA like City Council is not going to require the developer to reimburse the City for the total lost revenue from Lot 1 during the two years of construction. As noted above, that lot now nets about $537,000 per year in revenue. Council appears to be accepting the idea that other City lots will pick up parking revenue lost to Lot 1 during construction. It looks likely the developer will pay the City some low six-figure sum to park construction vehicles and workers during the project.

Senior rental apartments:

This is a rendering of the Albert Avenue "north building" from May, showing the senior housing on top of the parking garage:

The developers are planning the senior housing component of this project not because they want to build senior housing, but because City Council passed an ordinance requiring developments like this have at least 25% of their residential components be for something other than the typical student rental market. Bell, like other developers, has indicated he’d like to see this requirement done away with, but so far Council has kept it.

Harbor Bay has provided only a heavily-redacted market study on the question of whether this senior housing is really viable, and some have questioned whether seniors would want to rent apartments on top of a parking garage near so many late-night bars. One senior member of the public has told Council she would like to rent at this location.

The apparently-latest tax assessor’s estimate suggests that the plan for the senior housing includes 33 one-bedroom apartments, 11 one-bedroom apartments with dens, 72 two-bedroom apartments, and 22 two-bedroom apartments with dens.

The tax assessor is estimating, based on comparable properties in East Lansing, that these apartments would rent at $1,400 for the one-bedroom, $1,700 for one-bedroom with den, $2,000 for two-bedroom, and $2,300 for two-bedroom with den. Permit parking would cost extra. These estimates from the tax assessor do not necessarily reflect rents that the developer plans to charge. Earlier documents submitted by the developer included higher rents for these apartments.

The developer has said these apartments would provide the kinds of amenities seniors would seek, including on-site storage, high ceilings, in-apartment washer/driers, and an outdoor “amenity deck” on some upper floor. This is a rendering that was provided on May 8 by the developer of the outdoor senior deck, looking toward MSU; again, we don’t know if this is still planned or if it is accurate:

Incidentally, the only way the public has seen any tax assessor estimates on the taxable value and rental rates for this project has been through ELi FOIA requests; City staff had them starting in January but elected to let the project proceed on the developer's much higher estimates until after ELi uncovered the tax assessor's estimates via FOIA in May.

Due diligence:

Several City Council members have called for due diligence to be performed on the developer, to be sure the developer has the experience and financial capacity to complete this project, and to be sure the developer is not weighted by debt or lawsuits that might affect the ability to get this project done.

To date, there has been no indication of the City having performed due diligence in this case.

On May 11, City Manager George Lahanas told ELi, “We would make satisfactory completion of a financial due diligence process a contingency in the development agreement for moving forward with this project.” Commercial development experts we have spoken with have said they would expect the City to obtain a professional due diligence review and a pro forma (complete financial plan) before signing any deal, but it sounds like the City plans to build those in as a very last step.

What can we expect to see before next Tuesday?

To fully approve this project, the City Council will have to approve a site plan, the Special Use Permits, a TIF plan, and a development agreement (or, at least, a Memorandum of Understanding for a development agreement).

At the May 9 meeting, Councilmember Erik Altmann said he wanted “to make sure this project sits still…long enough that everyone can digest” the proposal. Altmann added, “We are a community that needs things to sit still long enough for things to be digested.”

But, with Council poised to potentially decide on the project next Tuesday, there’s a lot of information that simply is not yet available to the public. ELi has had to work hard and use many FOIA requests to obtain what is presented in this article, and as we’ve made evident here, we are still lacking many key pieces of information.

City Planning Director Tim Dempsey told us last week that we can expect a development agreement to be shown to the public this Wednesday. Meanwhile, the developer is inviting the public to another “neighborhood meeting” on the project this Wednesday, June 7, from 4-6 pm, at Harper’s Restaurant. (View the invitation here.)

ELi will continue to work to track developments on this proposal. Citizens who wish to weigh in on the project can convey comments to City Council by email or in person at any public meeting during the public comment period.

Update, June 7: The City uploaded new renderings today, available through this link. The renderings appear to show the site plan we describe above, but as no narrative has been made avialble about the updated site plan, we can't be sure.

Want to learn more? Check out our comprehensive coverage of the Center City District proposal.