City Attorney Says Citizens Won't Be Asked to Vote on Center City Deal

Thursday, May 4, 2017, 4:50 pm
By: 
Alice Dreger

Above: The developers’ rendering of what they have said they would construct on City Lot #1 on Albert Avenue and on their own land along Grand River Avenue. This image is looking southwest from where Albert Avenue meets Abbot Road.

City Attorney Tom Yeadon tells ELi the Center City District proposal being considered by City Council next Tuesday will not be subject to voter approval. Responding to an ELi reader question conveyed to him, Yeadon has said that the way the complex real estate deal is being structured does not trigger the need for majority electorate approval under East Lansing’s City Charter.

What are the two Charter clauses that might apply? We explain here, including explaining why the issue may not be fully resolved just yet.

The background:

The Center City District redevelopment involves City parking Lot #1, real estate owned by the City in the core of East Lansing’s downtown. Lot #1 is generally understood to be the most valuable piece of undeveloped City-owned real estate in terms of square-foot-to-dollar value.

Over the years, several developers have expressed interest in redeveloping this property in partnership with the City. But the Center City District proposal, jointly put forth by Harbor Bay Real Estate and the local Ballein family business, has been the first one to come forward for full review.

The Center City District plan, which would be funded in part through a $55 million tax deal, includes building a 12-story apartment rental building on Grand River Avenue on commercial properties that are now privately-owned by the Ballein family business. On the bottom floor would be a Target store of the smaller, "urban" variety.

Relevant to this report, the current proposal also includes plans for development on publicly-owned Lot #1. On this land, the plan calls for the developer to construct a five-story-high parking ramp, to be City-owned. Along the Albert Avenue side of the ramp at ground level would be about 20,000 square feet of privately-owned retail space to be leased out to businesses by the developer. Above the east end of the ramp, the developer would build six stories of apartments to be rented out to people aged 55 and up, reaching a total of 11 stories. The developer would rent out those apartments to senior citizens and gain the profit from them.

To be clear, this involves private development on public land. The retail space and the senior rental building would be owned by the devleoper and built on public land.

The City is planning to charge the developer $75,000 per year for these uses of Lot #1, a parking lot that now brings in over $600,000 in gross parking revenues per year and is estimated to be worth several million dollars. (The City would obtain parking revenues from the ramp after it is built. The City would have hourly/daily parking, including 40 spots more than now on Lot #1, and would give the developer a master lease for several hundred additional parking spaces in the ramp at a substantially discounted price.) In working with Harbor Bay and the Balleins on the proposal, the City has not sought an appraisal of Lot #1 as it now exists, nor has the City sought to formally ascertain the value of the proposed redevelopment elements.

So we don’t know what the publicly-owned property in its current and planned state could bring if the City opened it up to all comers in an open Request for Proposal (RFP) process. According to those we’ve spoken to, the $75,000 per year figure was arrived at after the developers proposed that as an amount they would accept in a deal with the City.

Based on what retail space is going for around the City, it is safe to guess that, if the developer pays $75,000 per year for the use of Lot #1 as proposed, the developer will have a profit margin of several hundred thousand dollars a year from the Albert Avenue-fronted retail space alone. It’s unclear what the developers will make from the senior rental apartments built on public land. The developer declined to state what the senior apartment rents would be when asked by Commissioner Kathy Boyle at the last Planning Commission meeting.

The Charter passages potentially at issue:

Section 4.81 of the City Charter contains conditions for when majority voter approval is required for development involving the City. The relevant part of “Restriction on Powers of the [City] Council” reads as follows:

“The Council shall not have the power to sell any real property of a value in excess of four dollars ($4.00) per capita according to the last preceding U.S. Census, or any parkland, or a cemetery, or any property bordering on water, or vacate any street or public place leading to a waterfront, or engage in any business enterprise requiring an investment of money in excess of ten cents (10¢) per capita, unless approved by a simple majority of the electors voting at any general or special election. An annual inflation adjustment, tied to the consumer price index, shall be added to the current four dollar ($4.00) per capital dollar limitation to sell real property.” (underlining added)

We consider separately these two Charter restrictions on Council’s power as they may relate to the Center City District proposal.

The Charter and the selling of real property:

The population of East Lansing at the last census was 48,579. That means the property-value trigger point for voter approval of a land sale by the City would currently be about $194,000. While we don’t have a current appraisal on Lot #1, everyone in the redevelopment business seems to agree it is worth millions of dollars, well above the trigger threshhold.

The Mayor and others have said that the land-sale clause in the Charter isn’t an issue for the Center City District deal with Harbor Bay and the Balleins because the City is planning to lease the retail space to the developer and lease the air rights above the parking garage to the developer to build the senior housing. They say the City won't be selling anything to the developers.

Is this deal going to involve a lease or a sale of land?

ELi learned from Mayor Meadows at the Council of Neighborhood Association Presidents meeting on April 24 that the plan is currently to create a commercial condominium on Lot #1. It would have three real estate components: (1) the parking ramp; (2) the retail space at the base of the parking ramp; (3) the senior housing building above the parking ramp.

Basically, this commerical condo arrangement would carve out three connected three-dimensional spaces, making it easier to legally specify who has what kind of responsibility for what in a building that, in terms of construction, will all be connected. This commercial condo structure also would mean that the developer would be obligated to pay property taxes on the retail space and senior apartments, according to Meadows.

The City is planning to lease the rights to the air space of (2) and (3) to the developers for 49 years. The Staff Report provided to the Planning Commission states: “The developer has proposed a public-private partnership whereby they would lease the Albert Avenue Parking Lot (Lot #1) from the City for 49 years, with an option to renew for 49 years.”

The City Council would avoid having to go to the voters through this arrangement. If Council approves this deal, the developer will build private property on public land and, if they keep up the terms of the lease, will own that property for 49 years. So there would be private property constructed and owned on public land without a formal sale of public land. The lease arrangement means it doesn't count as a land sale, according to City Attorney Tom Yeadon, so the voters have no direct say.

What happens if the developer defaults on the lease isn't clear, but it appears the City would then own the structures and would have to figure out what to do with them. The lease terms have not been made public, so we don't know for sure.

Engaging in the business enterprise requiring investment of money”:

The second part of the charter that might trigger the Center City District proposal requiring majority voter approval is the section that stops Council from “engag[ing] in any business enterprise requiring an investment of money in excess of ten cents (10¢) per capita, unless approved by a simple majority of the electors voting at any general or special election.”

This is phrasing taken from Michigan’s Home Rule City Act. Given East Lansing’s population of 48,579, the dollar amount threshold for this City Charter issue is about $4,800.

From documents provided, it seems clear the City is seeking to have private buildings built on public land for a specific private company in order for that company and the City to ultimately earn signficant sums of money.

But according to Yeadon, “The City is renting [out] the land. No investment from the City in that aspect of the project.” Yeadon says regarding the retail space proposed to be constructed, owned, and leased out by the developer, “even if that was a business enterprise, the $0.00 investment by the City in that aspect is below the Charter threshold.”

It appears Yeadon believes there is no monetary investment by the City in this business enterprise, because the City isn't putting up cash to make it happen. What the City is paying Yeadon to manage this complex deal as our attorney almost certainly comes to more than $4,800, but it would appear Yeadon believes those kinds of expenses don't count as monetary investments in a business enterprise of the type described in the Charter.

I have asked Yeadon several times to provide an example of what “engaging in a business enterprise requiring an investment of money” would look like, and he has not provided one.

Lawsuits brought against various Michigan cities under this kind of wording have generally been ruled in favor of the cities. That said, what’s being proposed for the Center City District deal doesn’t look like the deals which were the subjects of previous lawsuits. It's a pretty complicated real estate scheme involving construction of privately-owned properties on public land, with no appraisal and no open bidding process. So it’s hard to say what might happen if someone tried to sue the City of East Lansing for the right of the people to vote in this case under that clause.

What’s next:

City Council has on its May 9 (next Tuesday) agenda public hearings on and possible decisions about the Harbor Bay/Ballein site plan application, special use permit applications, and TIF deal. We will continue to try to ascertain details of the proposed terms of the legal agreements for this project.

But it is possible that details of the proposed financial partnership will not be made public until the date of a possible Council vote. In the case of the Park District deal with DRW/Convexity, approved by Council last week, the major terms of the Development Agreement were being negotiated right up until Council’s meeting. The document Council voted on (which was not the complete Development Agreement but which laid out the major terms) was made available to the public just as the meeting started.

This is a big and complex project. The Center City District proposal involves a TIF that is 250% the size of the Park District TIF, and the Park District TIF is so far the largest Brownfield TIF approved in East Lansing’s history. Also, the Center City District project involves 49-year use of valuable public land by private developers, again making it unusual.

How this will play out remains to be seen.

Citizens who want to weigh in can speak at City Council on May 9. The meeting will start at 7 p.m. in the courtroom upstairs at City Hall. Citizens can also write by email to City Council.

 

This article arose out of a question posed by a reader. Have a question you want to “Ask Eli to Investigate”? Contact us.

 

Note: This article was updated on May 6 to reflect new information provided after publication.