Developers “Walking Away” from Center City District Project

Saturday, October 21, 2017, 8:14 am
By: 
Alice Dreger

Above: Rendering of what was supposed to have been built along Albert Avenue as part of the project.

Mark Bell of Harbor Bay Real Estate says he and his co-developers are “walking away” from the $132 million Center City District Project. The news comes just one month after the collapse of the redevelopment deal for the Park District, half a block west.

Only a few months ago, East Lansing expected to see two major redevelopment projects downtown. Now, both are off the table. In the case of the public-private Center City District redevelopment deal, it appears Bell could not satisfy what the City of East Lansing was requiring in terms of proof of adequate financial insurance.

ELi learned late yesterday from Mayor Pro Tem Ruth Beier that, according to Bell, correspondence between the City and the developer “imploded” such that the two parties “are at an impasse.” Yesterday evening, Bell called Beier to tell her that the project was at an end and to thank her for her work on it.

Plans for the Center City District had called for a new parking garage on City parking Lot #1 with new retail space along Albert Avenue and five stories of senior rental apartments above the garage (shown above). Along Grand River Avenue, using privately-owned land now housing vacant commercial buildings, the developers had planned to build a twelve-story building with a smaller-format Target store on the ground floor and market rate rental apartments above.

The development team for the Center City District project represented a collaboration of Harbor Bay Real Estate of Northbrook, Illinois, and Ballein Management of East Lansing. The Balleins have been moving tenants steadily out of the Grand River Avenue buildings that were supposed to be demolished for the project.

Sundance Jewelers, Cellular & More (the Verizon Dealer), Noodles & Company, Charlie Kang’s restaurant, Clever Clover, and several other businesses have been moved out of their original locations in anticipation of the project.

What will now happen to those buildings is, at the moment, unclear. For the last several days, construction trucks have been parked behind those buildings, but they have not been in use.

The Center City District project had moved relatively fast from the time it was announced on February 20 through approval by City Council on June 20. As late as this week, City staff was handing out parking vouchers to local businesses to help them manage while Lot #1 was expected to be closed for over a year for construction of the project.

But on Wednesday of this week, Mayor Mark Meadows told ELi that, while it was true that Council had approved the Master Development Agreement with the developers on June 20, he had not yet signed it and would not “until all of its components are complete.” He added, “it is not operational at this time.”

Meadows indicated that the developers had not produced the performance bonds required by the City. These are essentially insurance policies meant to protect the City’s interests in the event the developers were unable to see the project through to completion. As we reported previously, development experts have told ELi that the performance bonds required by the City would be expensive and difficult to obtain.

The Center City District project had been relatively controversial from the start. While some local business owners vocally supported the project, others came out strongly against it. East Lansing’s Planning Commission formally voted against recommending the project.

The developers also struggled at various steps in the process. For example, when East Lansing’s tax assessor’s estimates showed the project’s finances to not be viable, that data was withheld from City Council and the public. The tax assessor was later convinced to increase his estimates, which kept the plans going.

Then, when the project went to City Council for a public hearing on an accelerated schedule at the developers’ request, the developers announced the day before that they weren’t ready and would not present their project.

In a more recent twist, Bell turned to his father’s company, Scottsdale Capital, to put up the money to get the public infrastructure built. But that father-son relationship was not revealed in paperwork provided to East Lansing’s Brownfield Redevelopment Authority as it was being asked to issue bonds to support the project. Nor was it disclosed to or by the City that Scottsdale Capital, an apparent “outside investor” for the project, actually has its office at the same address as Harbor Bay Real Estate in Northbrook, Illinois.

All five members of City Council had supported the project when they approved it in June saying they welcomed the Target store with a downtown grocery, senior rental housing, and high-density housing downtown. They also welcomed the revenue the project was supposed to bring in once built—estimated at over $400,000 per year—and the redesign of Albert Avenue as a new “main street” with a new parking garage where Lot #1 now stands (shown below).

But the finances of the project were always questionable. Many doubted the senior rental housing could bring the high rents estimated in the planning documents, and the project did not appear likely to generate enough in new taxes to repay investors for the cost of the public infrastructure, even with a $58 million tax increment financing deal set to last 30 years.

Then there was the matter of what the City was requiring in the form of the performance bonds, which experts have been saying were simply too expensive to make the project viable.

Beier tells ELi, “We included the performance bond [requirement] in the Development Agreement to protect the City. It is disappointing to lose the project, but we could not compromise on this issue.”

This morning, Mayor Meadows tells ELi, "If he has pulled out, it is because of his inability to comply with the clearly stated and unambiguous requirements of the Development Agreement. Specifically, the requirement that the Developer provide a performance bond or some other acceptable assurance in the amount of 125% of the cost of construction of the public infrastructure improvements. That portion of the Development Agreement is designed to eliminate any risk that the citizens of East Lansing would later be required to contribute resources to complete the public infrastructure portion of the project."

Says Meadows, "The City offered an alternative to the current language. The alternative was to issue the construction bond in its entirety, place it with the trustee and agree that the proceeds could be drawn by the City to complete the project. That agreement would be coupled with an expansion of the scope of the demolition bond in an amount equal to 25% of the projected cost of the public infrastructure, which would remain in place for the approximately one year required to accomplish the public infrastructure improvements."

But, says Meadows, "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."

Meadows' statement concludes, "The developer appears to be undercapitalized at this time, which is likely the reason it was unable to obtain the required assurances. It has an approved project. It still has the ability to proceed if it acquires the capital necessary to acquire the performance bond or to comply with the alternative offered by the City."

A "due diligence" review of the project and developers was conducted this summer by a firm hired by the City. The City manager received in it July and determined that it showed the developers had enough assets to make the project work. But, at that point, the City still required proof of adequate financing and financial insurance before it would allow the project to start.

 

Read ELi's complete coverage of the Center City District project.

Note: This article was updated at 9 a.m. on October 21 to add the Mayor's statement and the paragraph that follows.