Debt and Demolition at DDA-Owned Property

Friday, August 24, 2012, 2:27 pm
Alice Dreger

A Lamar construction trailer has abruptly disappeared from a key publicly-owned parcel in downtown, raising a host of questions -- all of them implicating EL property owners' wallets.

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What City Center II's Collapse Left Us:

The massive development project known for years as "City Center II" officially came to an end at the June 26, 2012, City Council meeting where, virtually without warning, Planning staff presented their opinion that the project was not financially feasible. In response to Planning's presentation, Council immediately and unanimously passed a motion indicating that the project "poses substantial and unacceptable financial risks to the City of East Lansing and is therefore not in the City's best interest."

The area that was targeted for "City Center II" contains a mix of publicly- and privately-owned parcels. This mix matters for two major reasons: (1) who owns which part determines who has the power to do what; (2) the publicly-owned properties may create substantial financial burdens on the taxpayers of East Lansing.

"City Center II" was designed to include in part the site now occupied by the two vacated bank buildings sandwiched between Albert and Grand River on Abbot. The larger vacant bank building structure, on the northwest corner of Abbot and Grand River, has come to be known as "the big bank building." It is privately owned. Just north of there, at the southwest corner of Abbot and Albert, stands a publicly-owned brick structure commonly referred to as "the little bank building" (see picture). Its address is 303 Abbot Road.

While some residents have been extending efforts to provide input about what should happen to these properties, others have been trying to figure out something on which all dreams must rest: the actual status of the properties. East Lansing residents Phil Bellfy and Eliot Singer have been working to ascertain the history of 303 Abbot in order to understand its ownership, debt load, and physical status. Their newest findings on the status of the property are raising big questions and concerns.

Little-discussed debt on 303 Abbot growing:

The East Lansing Downtown Development Authority (ELDDA or DDA) owns 303 Abott. Because the DDA's financial obligations ultimately fall to the City, DDA ownership of the property means East Lansing property taxpayers are financially exposed on it.

The DDA purchased 303 Abbot from Ballein Management LLC for $700,000 on November 2, 2001. Per Singer, "The purchase was financed by a no-interest loan from the Michigan Economic Growth Authority (MEGA). In 2009, $350,000 was forgiven by MEGA." As to the other $350,000? This apparently turned into a grant that has been accruing interest since 2007.

Using the Freedom of Information Act (FOIA), Bellfy recently uncovered a letter dated March 19, 2011, from the Michigan Economic Development Corporation (MEDC) to Tim Dempsey, Director of Planning for the City, and Scott Chappelle as President of the development conglomerate "City Center II, LLC." The letter reveals that, as of the letter's date, MEDC believed a Core Community Grant of $350,000 given to East Lansing in relation to 303 Abbot was in default. This grant began in November 2007 and accrues interest at a rate of 3%.

After Singer raised questions, based on the 2011 MEDC letter about whether the City is in default, City Manager George Lahanas found and provided a copy of an agreement dated August 25, 2011, signed and dated by Lahanas's predecessor, Ted Staton. That agreement extended the MEDC grant on 303 Abbot through December 31, 2012.

It does not appear that Staton checked with City Council before signing this extension. Indeed, this debt appears to have fallen off of many people's radar. As Singer noted on Public Response, the City budget has not prepared the City to pay the approximately $410,000 owed this New Year's Eve on 303 Abbot.

The idea behind this loan was apparently that it would help support the City Center II project and would be paid back via the project. Although the project never happened, the debt we owe on it continues to accrue.

Curious clues to how "demolition" played out:

Bellfy's FOIA requests have also turned up some interesting hints about planning for demolition of 303 Abbot played out. The compilation provided by Bellfy shows that Chappelle and his colleagues were very concerned that, if they didn't demolish something in the development area by April 6, 2012, key project agreements with the city would expire.

FOIA and public records suggest that the City staff and a majority of Council did all they could to help Chappelle's company get demolition under way by that date, so he would not lose his deal with the City.

In a last-minute assist to Chappelle, on April 3, 2012, council members Goddeeris, Triplett, Beard, and Power  voted to give Chappelle's group permission to demolish 303 Abbot -- a publicly-owned property -- in order to help preserve his company's legal position.

Vic Loomis refused to go along. According to the minutes of the April 3, 2012, Council meeting, Loomis "said he would like to defer any substantial demolition of structure until City Council has concluded its due diligence period and can then make a final determination of how to proceed."

But with the majority of Council giving Chappelle their blessing, Chappelle proceeded. A burst of activity started the morning after the April 3 Council meeting -- a construction fence went up, the Lamar trailer moved in. Then, just as quickly, activity at the site ceased. But not before the publicly-owned property at 303 Abbot was rendered unusable, and probably degraded in value.

Today, 303 Abbot is showing an assessed value of zero.

Yesterday, Bellfy shared with Council his latest findings, including evidence that the City Attorney refused on June 8, 2012, to sign a "Notice of Commencement" Chappelle had earlier put forth on the project. The City Attorney attributed his refusal to his understanding that, by signing Chappelle's document, "we could be consenting to a potential lien being filed on the ELDDA property [i.e., 303 Abbot] where no such lien is allowed by law."

From the point of view of East Lansing property taxpayers, it would seem that another lien is the last thing that 303 Abbot needs.

Bellfy has formally asked Council to "check into the status of the demolition and update the public." He has informed us at ELi that he has not yet received a response.