City Affirms Center City District Project Is “Not Dead”

Thursday, October 26, 2017, 3:48 pm
By: 
Chris Root and Alice Dreger

Above: Center City District renderings of buildings for Grand River Avenue (left) and Albert Avenue.

The City says it is still “having conversations” with the developers of the Center City District redevelopment proposal. At a meeting of East Lansing’s Downtown Development Authority this afternoon, Director of Planning Tim Dempsey told those assembled, “At this point, the project is not dead. The project is still in play, if [the developers] can resolve their issues.”

This confirms what ELi reported earlier this week with regard to what Mayor Mark Meadows told the Council of Neighborhood Presidents on Monday night.

Dempsey said at today’s meeting, “The developer continues to work on ways to meet their obligations” as set out in the Master Development Agreement between the City and the developers. Among those “obligations” required by the City are proof of adequate financing and proof of adequate financial insurance for the project.

After today’s meeting, Meadows told ELi that all of the sub-agreements (called “exhibits”) in the Master Development Agreement have now been completed. According to Meadows, the last exhibit to be finished was the condominium agreement, specifying who has what responsibility in the public-private structure meant to be built along Albert Avenue as part of the project. Meadows says City Attorney Tom Yeadon approved this agreement late last week.

Meadows said the Development Agreement is still not signed, but that he is ready to sign it on behalf of the City of East Lansing. He said he is not sure if the developers are ready to sign it. City Council voted unanimously in June to let Meadows sign it when the exhibits were finished and he felt ready.

The question of the “death” of the project is being discussed because, as ELi reported on Saturday morning, lead developer Mark Bell of Harbor Bay Real Estate called Mayor Pro Tem Ruth Beier last Friday evening to say he and his colleagues were “walking away” from the project and that the project had “come to a halt.”

In a voicemail left last Friday evening, Bell told Beier, “I never thought I’d actually say these words, but unfortunately the Center City project has come to a halt. I don’t know if you’re aware. We certainly can talk about it. But there’s been some recent correspondence that has more or less imploded and besides that, the City and the developer are at an impasse, and unfortunately we’re walking away.” Bell added that he was “very perplexed” as to “how we got here.”

Asked for a comment on this, Meadows told ELi on Saturday morning, “The Developer has indicated an inability to comply with the performance bond requirement, claiming that it understood the language to require an ‘industry standard’ performance bond from the developer’s sub-contractor which provides assurance to the developer. In fact, that was not the requirement of the Development Agreement, and such a bond does not provide assurance to the City” in the event the project is half-built and the developer runs out of funds.

Meadows told ELi this afternoon that Bell’s call to Beier about “walking away” came a day after a discussion between the City and the developer regarding the performance bonds. He has suggested Bell’s call might have simply been a negotiating strategy. Bell did not call Meadows, according to Meadows.

On Saturday, Meadows also said, “The developer appears to be undercapitalized at this time, which is likely the reason it was unable to obtain the required assurances.” ELi has reported that Bell has had to turn to a company owned by his father, Scottsdale Capital, to come up with the $31 million needed to build the public infrastructure, including a new parking garage, and that the Bells’ two companies share an address and key personnel.

The financing of this proposed project is made particularly complicated by the fact that, while it is designed to use 30 years of captured local taxes to pay for the construction of the public infrastructure, the tax capture is anticipated to be several million dollars short of the amount needed to pay back investors for loaning the money to build that infrastructure.

Counsel to the City has estimated that the tax capture will come up an additional $4.9 million short if voters enact the two East Lansing tax proposals on the November 7 ballot. That’s because, if the income tax and property tax proposals pass, property taxes will fall on all properties in the City, and this will negatively impact development tax-capture schemes, as ELi has reported.

As a consequence of the City asking for millions more out of the developers than the tax capture can cover, developers for Center City have had to indicate that they are likely to provide their investors some additional security besides the tax capture. That said, if Bell’s father’s company is the investor and is willing to take a loss, that additional security may not be required of the developers.

The City negotiated a “non-recourse” arrangement where, if the tax capture total is inadequate to pay off investors, that is the problem of the investors and the developers, not the City or its Brownfield Redevelopment Authority (BRA).

The City had been expecting that outside investors would carefully scrutinize the developers’ finances before investing, as a way to protect the City. In July, following a “due diligence” review by a consultant hired by the City, Planning staff member Lori Mullins told City Manager George Lahanas that “Approval of the pro forma by the lender will come to the City in the form of the proof of funding letter.” The pro forma shows that a project is financially feasible.

Now that the investor for the public infrastructure will be Bell’s father, it is unlikely that that layer of scrutiny that had been expected will come into play for the public infrastructure construction. Meadows said at City Council this week that the City might ask investors in the private portion of the project to tell the City what they know about the developers’ finances and ability to see the project through.

Meadows did not indicate that the City would seek any other additional review of the developers’ finances.

Dempsey said at today’s meeting, “Once we know more information about whether we are able to proceed or not definitively, we will announce that.” Asked what would trigger such an announcement, Meadows was not certain. He did indicate that the project cannot move forward without the Master Development Agreement being signed by him.

 

The reporters for this article, Chris Root and Alice Dreger, work voluntarily to bring you this news. But for them to bring you this news, they need ELi to have the finances necessary to stay alive. Value this service enough to pitch in a few dollars? Click here. Your donations are tax deductible.