Council to Consider Complex Agreement with Park District Developer

Tuesday, May 30, 2017, 7:44 am
By: 
Alice Dreger

Above: The building planned for the northwest corner of Grand River Avenue and Abbot Road.

East Lansing’s City Council is set to take up a complex Development Agreement with the would-be redeveloper of the blighted Park District area next Tuesday, June 6. The developer cannot move on to the next stages in the process without the agreement being reached and signed. City Council and staff have been looking to build in various kinds of financial and legal protections for the City under this agreement.

The project involves the land of the long-vacant and blighted commercial buildings on Grand River Avenue between Peoples Church and Abbot Road, as well as other properties owned by the developer, the City, and the East Lansing Downtown Development Authority (DDA). While legally no public hearing is required for Council’s consideration of the Development Agreement, citizens can comment on the matter in writing in advance of the June 6 meeting and at the meeting itself.

Below: The blighted buildings that DRW/Convexity would demolish and replace with the building shown above. 

If constructed as planned, the redevelopment will include a 13-story building along Grand River Avenue. This building will house: The Graduate hotel with 150 guest rooms, private meeting space, and a ballroom; ground-floor retail space; 197 market-rate rental apartments; and two floors of fully-screened private parking. A public plaza will be constructed on the northwest corner of Abbot Road and Grand River Avenue.

North of this area, near the east end of Valley Court Park, the developer will construct a new 7-story condo building with 66 owner-occupied apartments and on-site private garage space for 68 cars. Four older DDA-owned rental houses would be razed and turned into surface parking.

Below: The condo building planned at 341 Evergreen Avenue, near Valley Court Park.

The project is legally and financially complex. It includes, among other elements, transferring ownership of some public land to the developer, including the southernmost portion of Evergreen Avenue and part of 303 Abbot Road (the former “little bank building”).

It also involves the City essentially hiring the developer to manage the significant public infrastructure work, and using the $19.6 million tax increment financing (TIF) plan to reimburse public infrastructure costs as well as to pay off the DDA’s approximately $6 million debt on the rental house properties. The developer will be reimbursed from the TIF for about $2.5 million of costs associated with its private buildings, including for environmental clean-up costs.

City Council unanimously approved DRW/Convexity’s site plan and the TIF plan for this project at its April 25 meeting. On that date, Council also unanimously approved a Memorandum of Understanding about the Development Agreement, authorizing the mayor to sign when the actual agreement was hashed out. But now the Agreement itself is coming back to City Council for review and approval.

City Attorney Tom Yeadon and DRW/Convexity’s attorney David Pierson have been working on the Development Agreement, which now reaches 48 pages and includes many exhibits as attachments. Negotiations have apparently been complex enough that the Agreement was pulled off City Council’s agenda last week just hours before the meeting. At last week’s DDA meeting, Yeadon and Pierson indicated they are finished working on the document, leaving the matter now to City Council.

Both parties have reason to want to see agreement reached. The developer is hoping to secure a $10 million State-level tax credit for the project, but to do so, it must obtain State-level approval soon, as the window for the credit is closing. The developer says that, without this credit, the project is impossible.

This, then, has created an incentive for the City to want to see the deal completed soon. City Council members have stated they want to get rid of the long-running blight on this key corner of downtown, they want the income to be generated for the City from the project, and they want the Evergreen Avenue debt refinanced through this redevelopment.

Below: Older houses along Evergreen Avenue owned by the DDA, typically rented to students, and set to be replaced by a surface parking lot as part of the Park District redevelopment.

The Development Agreement includes the following provisions:

  • The developer will obtain the legal rights to the southernmost portion of Evergreen Avenue, a public street that now runs between the vacant commercial properties along Grand River Avenue owned by the developer. (The land is needed for the construction of the big building along Grand River Avenue.) But if the project is not constructed as planned, the City will again own that land.
  • The developer will obtain the legal right to the southernmost one-third of 303 Abbot Road, a property owned by the DDA. The DDA will be paid $250,000 for this land out of the new taxes generated by the property. That one-third of the property includes a BWL trunk line; legally the developer is required to manage this during construction. If the project is not built, the land will revert to ownership by the DDA.
  • If the developer builds the Grand River Avenue building but fails to construct the condo building, the developer will essentially lose $2.5 million in reimbursements out of the TIF. This provision is included because the condo building is of questionable marketability, so Council has been concerned that the developer might never construct the smaller building.
  • The City and DDA will not start making plans to build anything else on what will be the new surface-level parking along Evergreen Avenue until the developer has sold 85% of the condos or until three years after the condo building opens, whichever is first. This is because the developer is worried that if the City makes a move to build something more there soon (like a parking garage or another building with a large footprint), the unpredictability or construction could interfere with the developer’s ability to sell the condos.
  • The developer must show evidence of having secured appropriate financing for the various project portions before redevelopment of those portions can begin.
  • The developer will be able to master-lease up to 75 parking spaces in the new City lots. But unlike previous development deals, according to this one, the developer agrees to pay “regular monthly market rate,” not a discounted rate. That rate will be determined by the City.
  • The developer will “make every reasonable effort to utilize residents of Michigan” as construction workers and will build “in accordance with the City’s prevailing wage policy or subject to a project labor agreement.”
  • The project will also follow the City’s Green Building Incentive Policy and the Urban Design Guidelines, and will include public art or funds for art under the Percent for Art ordinance. (Details of the public art are not contained in the Development Agreement. The developers’ representatives have said that placing artwork in the public corner plaza is under consideration.)
  • The developer is required to obtain performance bonds “to guarantee full completion of the public portion of the Infrastructure Improvements to be undertaken by Developer.”
  • The developer is required to start demolishing the vacant buildings within 10 days of obtaining assurance that the project will be awarded the State-level tax credit (assuming the demolition permits have been issued) and to finish demolition within 8 weeks of starting.
  • The developer has to apply for building permits for the major Grand River Avenue building by May 1, 2018 and for the condo building by May 1, 2019.
  • If the developer does not obtain the $10 million State-level tax credit, the whole deal is off. The whole deal is also off if the developer doesn’t obtain what it needs from the City in terms of permits and approvals or if, for whatever reason, the developer decides the project is not feasible as planned.

If City Council approves the Development Agreement next Tuesday, the developer will be heading to the Michigan Strategic Fund Board to ask for the State-level tax credit. The Development Agreement must also be approved by the DDA and Brownfield Redevelopment Authority (BRA), two authorities which have the same membership. The DDA Executive and Finance Committee has scheduled a special meeting on June 1 to consider the agreement after the Council takes action on it.

The developer is hoping to be on the Strategic Fund Board’s July 25 agenda. If the Board approves the credit application, the vacant buildings along Grand River Avenue could be gone by this fall, and construction could begin next spring.

But, as noted above, there are still a lot of “ifs” built into this redevelopment possibility.