Above: City Manager George Lahanas and image of the planned Target store downtown
East Lansing City Manager George Lahanas informed Harbor Bay Real Estate Advisors yesterday that the City sees no significant problems raised by the third-party due diligence report on Harbor Bay and its proposed project for downtown East Lansing. Lahanas’ determination means that the developer may now move forward with plans for the market-rate and “active senior” rental apartments and Target store proposed to be built under the City Center District redevelopment proposal.
City Manager George Lahanas wrote to Harbor Bay’s Mark Bell yesterday, July 11: “Pursuant to Section VI, paragraph d, of the Master Development agreement please accept this as notice that the City finds the report satisfactory.” (See Lahanas’s letter.)
Lahanas’ letter points out that Harbor Bay is required by the development agreement to complete several other steps before the project gets underway. Under that agreement, “the parties must agree on the terms of the remaining Exhibits to the agreement, the Developer must provide the required performance bonds and the Developer must provide satisfactory proof of funding before beginning the project.” Lahanas characterizes these steps as part of the City’s due diligence on the project.
Lori Mullins, Community and Economic Development Administrator for the City, evaluated the due diligence letter provided to the City by third-party consultant Brad Beggs of Development Strategies on July 7. Mullins sent a memo to Lahanas recommending that the City accept Beggs’ report as “satisfactory to the City.”
The City’s decision to accept Beggs’ due diligence report was made despite incomplete information from the developer. (See ELi’s report from Monday on the content of Beggs’ report.) On the issue of incomplete documentation, Mullins included in her memo to Lahanas a quote from Beggs that came in follow-up communication: “the documents are as complete as should be expected at this point in the process. As they [the developers] proceed with their financing options, they will have a more firm sources and uses statement and pro forma.”
Mullins expressed the same conclusion in her memo to Lahanas. The pro forma, which estimates the income, expenses and reserves of a project to demonstrate its financial feasibility, was one part of the due diligence that was not finalized, according to the third-party consultant. Mullins pointed out that a potential lender will conduct its own due diligence review and that “[a]pproval of the pro forma by the lender will come to the City in the form of the proof of funding letter. For now, the review by Development Strategies is satisfactory in testing reasonableness and providing assurance that the project is feasible.”
Mullins concluded, in her advice to Lahanas:
“With a positive due diligence report that supports the project feasibility and validates statements made by the developers, review of the LLC complete, a solid development agreement, and a project that will bring additional revenue, 55+ housing and a grocer [Target] to downtown East Lansing, staff is optimistic about the proposed redevelopment project. We therefore recommend that the City notify the Developer that the report is satisfactory to the City. That notification will allow the developer to move forward with seeking financing and providing a proof of funding letter to the City for further review.”
With the City Manager indicating he is satisfied by the findings of the due diligence report, Harbor Bay now can move ahead to complete all the components of the development agreement with the City and seek funding for the private part of the project and a Michigan Community Revitalization Program grant.
See an overview and links to all our reporting on the Center City District proposal here.