Ask ELi: What’s the Attraction of the Royal Vlahakis Deal?

Monday, May 6, 2019, 11:27 am
By: 
Alice Dreger

Above: Michael Henneman and Kelly Kenefick of Royal Apartments and Paul Vlahakis.

Today’s Ask ELi column addresses a question ELi has been getting from readers: What do those who support a continued exclusive contract with developers Royal Apartments and Vlahakis Development for the Evergreen Avenue properties see as the advantage over putting those publicly-owned properties out for bids by other developers?

The Downtown Development Authority’s Evergreen Avenue properties include 314 Evergreen Avenue (a modern brick building containing commercial space and rental apartments) and 328, 334, 340, and 334 Evergreen Avenue (older houses now rented out to students by Cron Management, on contract for the DDA).

ELi reported on Friday that DDA members voted 8-1 in favor of a contract addendum that essentially extended the “Park Place” deal with Royal Vlahakis, giving those developers exclusive rights to purchase the Evergreen properties.

While those eight DDA members did not specifically explain their votes when they voted, the rationale behind votes in favor can be ascertained from the terms of the deal and the months of discussions about it.

The DDA doesn’t want to contribute to the perception that East Lansing is a hard place to do redevelopment.

At last week’s meeting, as at previous meetings, representatives of Royal Vlahakis emphasized that they have put a lot of time and money into making and revamping proposals for the project they call “Park Place.”

Some changes have been made in response to things about the proposal that members of the City Council or Peoples Church found problematic. But the major changes have happened because the developers couldn’t get financing for what they proposed and couldn’t obtain land included in their original proposal.

Nevertheless, a concern expressed by some people on the DDA is what message it will send if the DDA now pulls out of the exclusive contract rather than giving Royal Vlahakis more time to try to pull a workable plan together.

Specific mention was made this past week at the DDA of the experience of local redeveloper/landlord DTN when DTN “won” a Request for Proposals (RFP) for this area of town years ago for a project that never came to fruition. One DDA member suggested DTN would never come back, after having a difficult experience trying to get a project done.

But other developers, including DTN, tell ELi that the Evergreen Avenue properties should go out to bid.

Is the concern about scaring off other developers by pulling out of the Royal Vlahakis deal justified?

I asked Colin Cronin, co-owner of DTN, by email for his reaction to the claim that his company would not come back for more redevelopment in downtown East Lansing given their experiences.

Cronin responded, “I’m sure we will consider a project at some point in the future, but we would not be interested in responding to an RFP in [East Lansing] at this point.”

“But,” he added, “I would argue that any city land that would be considered for sale, land lease or use by a private party should go through an open process of offers and proposals to ensure the best use and price is considered by the city. Not publicizing a land sale would be like selling your house to someone that just knocked on your door . . . and ignoring the potential for fair market value and the opportunity to evaluate alternative uses and values.” (The ellipses were in his response.)

Cronin said he understood the Royal Vlahakis point-of-view: “If I was the developer going into a new town and looking to buy prime real estate, I wouldn’t want it dragged through an RFP either.”

He noted that the RFP approach “can cause time delays, possibly increased price for the land, and gets other players and ideas involved with the possibility of someone else getting the land.” But, he asked rhetorically, “is it in the best interest of the city” to avoid an RFP?

I shared Cronin’s response with other developers, two of whom answered on the record.

One response came from Matt Hagan, who decided against selling Royal Vlahakis his property on Evergreen Avenue for the project. Wrote Hagan:

“We would agree with Colin's comments and believe the City would get the best possible price if they made public properties that are for sale available in an open process. This most likely would also encourage different types of developments to be presented since a variety of people would be looking at them.”

We also got a response from Chris Oakley of Convexity, whose company is now constructing The Abbot and The Graduate hotel on Grand River Avenue between Abbot Road and Peoples Church. Said Oakley, “I would agree that a well-organized RFP process should be considered for city/DDA properties of value. I would have included parking lot 1 in that category.”

Parking Lot 1 is public land being leased, for at least 49 years, to Harbor Bay Real Estate and Ballein Management for the Center City District project in the heart of downtown. That deal was struck without an RFP.

So why would the DDA avoid an RFP on the Evergreen Avenue properties at this time, and stick with Royal Vlahakis?

The DDA and City Council want to see the Evergreen Avenue debt eliminated soon.

The DDA purchased this series of properties in 2009 for the failed “City Center 2” deal, and paid far more than they were worth on the open market then. The debt is still much greater than they are likely worth on the open market now. Unloading that debt requires some solution.

If the deal with Royal Vlahakis makes it to the finish line, according to the exclusive Purchase and Sale Agreement with the DDA, the developers will pay $5,580,000 for the DDA’s Evergreen Avenue properties. That would pay off the debt.

For a long time, the DDA has been making interest-only payments on the debt. Rental income from the properties has covered those interest payments. But starting this month, the DDA is paying principal payments, too, and those will get larger in the coming years.

Recognizing that it might be a while before the debt gets paid off, City staff recently restructured the debt to give the DDA some breathing room. But one way or another, this debt has to be paid off. (The taxpayers of East Lansing are ultimately legally responsible for the DDA’s debt.)

Having a developer effectively pay off the DDA’s debt would be a big deal financially for the DDA and the City. Mayor Mark Meadows alluded to this when, in an interview with ELi on April 23, he referred to Royal Vlahakis as “a bird in the hand.”

He also noted that no other developers had come forward offering to buy the properties at this time – although several developers have told ELi they believed the properties had gone from being “promised” in the failed City Center 2 deal, to “promised” to DRW Convexity for their Park District project (the Evergreen properties were in the first version of the DRW Convexity plan), to being “promised” to Paul Vlahakis for his redevelopment concept. So they didn’t see the properties as “on the market” for proposal bidding before Vlahakis came forward with an unofficial proposal last August.

The DDA has seen other benefits in the Royal Vlahakis plans.

The original plan from Royal Vlahakis called for movie theatres, major new office space, and automated parking – all features that attracted the DDA to the deal. It also included the Dublin Square property, owned by Paul Vlahakis, which made for a bigger project and more potential for tax increment financing (TIF), which meant more potential for public infrastructure fixes.

Now those major features and the Dublin Square property are no longer in the deal. But Vlahakis has told the DDA that he wants to propose quickly a second, “Park Place East” project at Dublin Square and the City parking lot at the corner of Albert Avenue and Abbot Road.

Even with the new plan currently being only for “Park Place West” – that is, only for the publicly-owned Evergreen Avenue properties – the DDA still sees benefits in the emerging plan.

Those perceived benefits include likely extra parking for Peoples Church activities and significant sewer infrastructure work on Evergreen Avenue. (The current plan doesn’t explain how a new sewer and new publicly-owned underground parking can both be constructed partly in the same place, but Vlahakis says the engineers will work on that.)

The developers are now also offering new features, including what might be an indoor “public market,” a pavilion for the farmers’ market, and some income-restricted apartments for people with moderate incomes. While there is no active site plan for the project, these ideas interest some members of the DDA.

Importantly, last week, Rev. Case Van Kempen of The Peoples Church came to the DDA to say the church supported the emerging plan and the extension of the agreement with the developer. That was a big change from the week before.

How much longer before we know whether a deal with Royal Vlahakis will come to something?

That’s hard to say. The DDA’s vote allows for the possibility of months’ more extensions. Meadows told Haley Hansen of the Lansing State Journal last week that “it could take until October or November for the project to reach the City Council.”

One big perceived benefit to the original Royal Vlahakis plan was the idea that it would start fast, reducing the number of years downtown would be subject to major construction upheaval. No one is suggesting now that that is possible.

 

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