Answers to Your Questions about East Lansing’s eBay Land Sale

Friday, March 8, 2019, 11:27 am
By: 
Alice Dreger

Above: The four City Council Members who voted on the land sale agreement this week.

On Tuesday, ELi broke the story that East Lansing’s City Council was planning to vote on a million-dollar contract arranged by a marijuana industry player for a six-acre parcel of public land on Merritt Road. The vote on the contract was scheduled by the Mayor on the meeting’s consent agenda, meaning it was scheduled for no discussion.

The draft contract came with an “explanatory” staff memo that left a lot unexplained.

On Wednesday, ELi’s Dan Totzkay reported that Council voted 4-0 in favor of the contract (Council Member Aaron Stephens was absent), and that Council answered none of the questions we had raised in advance of the vote.

Our questions were aimed at trying to ascertain who knew about the sale – had it been handled in a transparent fashion? – and whether the City had maximized the price, to get East Lansing’s taxpayers the best deal possible on the sale of a major public asset.

On Wednesday afternoon, as public criticism of the deal continued to mount, the City released a statement revealing that, from January 6 – February 7, the City had put the property up for auction on eBay. The City said it had notified “approximately 12 interested parties” about the auction – and apparently no one else, not even a local business that had told the City last year that they wanted to buy the property.

On Thursday morning, an anonymous tipster sent us the eBay listing, which allowed us to find out a little more about what had happened with this deal. Today, we’re answering readers’ questions raised by this story.

Who did the City inform that the property was up for sale?

So far as we can tell so far, the City informed only “approximately 12 interested parties.” There does not seem to have been any other announcement or communication on this sale whatsoever, except the listing on eBay.

The bid history on eBay masks all of the bidders. We have filed two Freedom of Information Act (FOIA) requests with the City of East Lansing on this story aimed at trying to find out the identities of the “approximately 12 interested parties” that got to know about the sale and aimed at seeing all information available about the bids. Those FOIA requests have not yet been answered.

Why does it matter who knew?

Even without the financial crisis that led this City Council to ask voters to approve an income tax, citizens would reasonably expect City Council to try, all other things being equal, to maximize income from the sale of assets. If only a handful of potential buyers were informed of this sale, the profits may be lower than they could have been.

Keep in mind that in the last few hours of the sale, the price went up by $50,000. If there had been more bidders, it might have gone even higher.

Who did the City not inform?

We know that the local owner of a moving company who was interested in buying the property was not informed. (Read more.) We also know of one other local business person who wanted to buy the property for something other than marijuana business not being informed. Additionally, local attorney Jeff Hank tells ELi he was not informed, even though City Council Members and City staff know he is active in the marijuana industry statewide.

So far, we haven’t located anyone who was informed. (Remember you can always send us anonymous and confidential communications via our contact page.)

Could this be a case of bid-rigging?

Bid-rigging occurs when conspirators hatch a scheme to “fix” an auction or bidding process so that a particular party wins. When it involves public property or public contracts, bid-rigging robs the public by selling assets at too low a price or awarding contracts at too high a price. Bid-rigging is a federal crime in the United States.

We have not seen any evidence of bid-rigging here. But we can’t see the bids, and we haven’t been told who was notified of the auction, so we really have no idea what happened in terms of who was bidding.

What we do know is that it appears the City did not advertise the sale to all comers through the channels the City ordinarily uses to communicate, including the City website, press releases, announcements at City Council, the City’s newsletter, and so on. All of those channels were silent on this auction. We only found out about the auction after it was well over.

Did the buyers contribute money to anyone on City Council?

Last year, we reported that individuals with commercial business likely to come before East Lansing’s City Council were contributing to the “yes” income tax campaign. That was a campaign supported by all five members of City Council.

While some of the contributors to the “yes” campaign were marijuana industry players, we don’t see any obvious connections between donors to that campaign and the individuals involved in this particular deal, including Jeff Yatooma, owner of Cannabis Property Brokers of Michigan, and Kodiac Landarc.

We also don’t see donations from the buyers to the campaign accounts of City Council members, and we haven’t yet found any active 527 accounts among this City Council like the kind that have led to criticism of Lansing’s Mayor Andy Schor.

Can City Council decide with whom to make land deals?

Yes. To sell a piece of land this valuable, the voters have to approve the idea of selling the land. (In 2002, voters approved the sale of this piece of land by with an approval of 65% of voters; see the history of land sales in the City from 2002-2014 here.) But then Council can decide to whom to sell it.

So, Council could pick from among potential buyers, even without an auction.

Members of this Council have sometimes opted to do real estate deals involving public land by using a method that negates any need for voter approval, namely long-term leases of public land to developers.

In the case of Center City District, Council leased the City of East Lansing’s most valuable piece of real estate – downtown’s Parking Lot #1 – to private developers for 49 years. (Read more here.) This Council is also now looking at doing a similar deal with developers Royal Properties and Vlahakis Development for other public parking lots in the proposed Park Place deal. (Read more here.)

Council justified the Center City District deal with Harbor Bay Real Estate for Lot #1 by noting that Harbor Bay had a deal with Ballein Management, which owned a major stretch of private property essentially adjoining Lot #1. Council Members have said they are looking at a deal with Royal Vlahakis for a similar reason; Vlahakis owns private land (Dublin Square) near the public land for which the developers would be given a 49-year lease.

The bottom line is that Council can generally decide who gets to buy or lease public assets.

Why would the City use eBay to sell public property?

The City notes that when land is sold via an auction, usually the auctioneer takes a percentage. In this case, eBay charged just $150 for the listing, as per the company’s real estate policy.

It’s worth noting this wasn’t really a conventional auction. The “winner” just won the right to work out a purchase contract with the City. As we reported, the contract that Council approved allows the buyer to back out of the whole deal if the City Council doesn’t also approve the buyer’s site plan and special use permit applications. (Those haven’t been submitted yet.)

What does the buyer, Kodiac Landarc, want to build?

According to the City’s statement on the matter, “It is the prospective buyer’s intent to establish a Medical Marihuana Provisioning Center on the site.”

Some have noted that, at six acres, that’s a lot of land for a retail marijuana shop. Might the purchasers come back looking to do more with the land – including potentially something like a marijuana growing or processing operation? Sure, but in that case they would have to apply for rezoning as well as site plan and special use permit approvals.

What has Council done to enable a provisioning center to be built at this location?

Last fall, as Council was debating where, if anywhere, to allow provisioning centers, this property wasn’t on the map of considered areas.

But then, at the October 30, 2018, meeting of Council, Mayor Mark Meadows put forth a new version of the provisioning center ordinance under consideration. In his new version, the Merritt Road property was suddenly included. In the agenda packet, this was called “Mayor’s suggested replacement for [Ordinance] 1416a.”

Council voted 5-0 to include the Merritt Road property as one of the places provisioning centers could be constructed.

What does Ordinance 1448 have to do with all this?

When deciding where provisioning centers could go in East Lansing, Council chose four areas of the city (including the Merritt Road location) and decided also to require a distance of one thousand feet between provisioning centers in those special overlay zones.

But then some members of Council realized that they could give the City an advantage in the real estate gold rush around marijuana by allowing something different for the zone where the City owns property, on Merritt Road.

So, they introduced draft Ordinance 1448, which would reduce to 500 feet the distance required between provisioning centers but only in cases of zoning like that found in the Merritt Road location, not the three other provisioning center overlay zones. Essentially that gave the City an economic advantage in the marijuana real estate game.

That draft Ordinance 1448 was sent on to Planning Commission for review. Planning Commission came back suggesting a reduction to 500-feet setbacks for all zones. Now, Council is scheduled to hold a public hearing and make a decision on Ordinance 1448 on March 26.

Is it possible that the City kept the land sale kind of quiet because they didn’t want the public to know they were trying to (indirectly) use marijuana to make money?

Some have suggested the optics of the City seeking marijuana industry money wouldn’t play well politically. But if that’s the case, then it’s hard to explain why Mayor Mark Meadows and Mayor Pro Tem Erik Altmann would have specifically said they supported Ordinance 1448 because they see it as their job to maximize profits from the sale of public assets for the citizens of East Lansing.

As he threw his support behind draft Ordinance 1448 back in December, Altmann said, “Imagine the headlines if we didn’t take an opportunity to drive [the Merritt Road property’s] value up.”

 

Note: This article was updated at 12:30 p.m. to provide information about voter approval of the land sale.

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