In Extraordinary Process, Developers May Obtain Exclusive Contract on Public Land

Monday, October 22, 2018, 7:12 am
By: 
Dan Totzkay, Alice Dreger, and Chris Root

Above: The developers' idea for the buiding that would replace Dublin Square.

The redevelopment concept known as Park Place has headed in a direction we’ve never seen before – with a complex and exclusive Purchase & Sale Agreement being negotiated before the project has even been formally proposed. That agreement could be executed by East Lansing’s Downtown Development Authority (DDA) as soon as this Thursday.

The developers of the Park Place vision have yet to submit any site plan. All they have shown so far are rough ideas for the area that now houses Dublin Square, a City parking lot, and a number of properties along Evergreen Avenue owned and operated by the DDA.

Nevertheless, the DDA has on the agenda of a midday meeting this Thursday a draft legal agreement with co-developers Paul Vlahakis and Illinois-based Royal Apartments USA, Inc. to sell them the DDA’s Evergreen Avenue properties.

City staff and the City Attorney have taken a Letter of Intent from the would-be developers and turned it into a draft formal Purchase & Sale Agreement with numerous conditions. They’re now presenting that for the DDA’s consideration and possible vote.

The drafted agreement seeks to allow the DDA to pull out if certain benchmarks aren’t met by the developers.

But as it currently stands, it also commits the DDA to not seeking any other buyer for its properties – on which $5.6 million is owed – “while this Purchase and Sale agreement is in effect,” during which time Vlahakis and Royal Apartments would be working through a months’ long submission and review process.

That the DDA is even considering this approach appears to be extraordinary in the history of East Lansing development deals.

Some members of the DDA have suggested that such a legal Purchase & Sale Agreement is necessary for the developers to submit a site plan proposal that includes the DDA properties.

In fact, all that is required for that to happen is for the DDA to make a relatively simple vote to let a developer submit such an application. This was done in the case of DRW/Convexity’s Park District application, which at one time included the same Evergreen properties.

The DDA could give permission simultaneously to more than one developer to submit proposals including the Evergreen properties. In fact, it still might: Besides the purchase agreement, Thursday’s DDA’s Business Agenda also includes an outline of a Request for Proposals (RFP) on the DDA’s properties and a draft rating matrix for proposals from multiple potential developers.

DDA Chair Peter Dewan met in September and October with a specially-convened Evergreen Properties Marketing Committee to discuss an RFP that would be open to all comers.

According to a staff memo, this committee “worked to encapsulate their perspectives by working with staff to develop an RFP outline and scoring matrix… Staff [now] recommends that the DDA provide feedback and comments, and direct staff to continue the process of creating a final RFP which can be reviewed by the DDA and made ready for release.”

So, the DDA could decide on Thursday to release an RFP to all potential developers and not give Vlahakis and Royal Apartments an exclusive deal with contingencies.

Or the DDA might hold off on releasing the RFP and release it only if Vlahakis and Royal Apartments can’t meet the benchmarks of whatever legal agreement the DDA votes to enter.

Or the DDA could decide something else.

Who is negotiating this unusual deal for the public?

The staff memo attached to materials for this Thursday’s meeting tells us that City staff and the City Attorney have been meeting with the developers, and that they “ultimately created a draft Purchase & Sale Agreement to provide a framework for advancing a conversation with the developer.”

City records also show that – in addition to City staff and the City Attorney – DDA Chair Peter Dewan, Mayor Mark Meadows, and Mayor Pro Tem Erik Altmann met with Vlahakis and representatives of Royal Properties on this project on October 8.

In an effort to find out if any elected official besides Meadows and Altmann been involved in these discussions, last week ELi asked all Council Members if October 8 was the first and only time any Council Members have met with Vlahakis on this project.

Council Member Shanna Draheim responded, “I've never met with Paul Vlahakis or anyone associated with the Dublin Square project yet.”

Council Member Aaron Stephens responded, “I have not met with that developer nor has he reached out to me. I just recently met him after this past council meeting where he briefly introduced himself.”

Meadows, Altmann, and Ruth Beier did not respond. There is no public record of Beier meeting with the developers.

General plan:

As ELi has reported, Vlahakis, whose company owns Dublin Square, and Royal Apartments hope to combine for a $100 million “Park Place” redevelopment:

  • the current site of Dublin Square, which is owned by Vlahakis’ company;
  • an adjacent City-owned parking lot (Lot 4, shown below);
  • the DDA-owned “Evergreen Avenue properties” to the immediate west of Dublin Square (314, 328, 334, and 340 Evergreen Avenue).

 

The plan may also absorb a privately-owned rental property at 404 Evergreen Avenue. Brian Hagan, whose family owns that property, tells ELi that “we’re aware [that Vlahakis] wants to include 404 Evergreen. He has reached out to us, but we have not discussed any specifics at this point.”

According to plans shared with ELi in August, along with further updates provided by Vlahakis more recently, Park Place would probably have two major new structures.

On Abbot Road, where Dublin Square now is, the developers currently imagine a 12-story building which would include retail and office space, market-rate rental apartments, and owner-occupied condominium apartments on the top two floors.

The second building is currently envisioned as having 10-stories overlooking Valley Court Park, and would be built on the site of the Evergreen properties. This is conceived as holding a twelve-screen movie theatre, several floors of parking, and rental apartments, with two floors of condo apartments on top.

These condos are designed to satisfy the City’s Ordinance 1384, requiring downtown developments of this size to dedicate at least 25% of housing units to something other than market-rate rental apartments of the type that appeal largely to MSU students.

How firm are these plans? Vlahakis told a DDA committee last Thursday that the developers are in “discussions” with two movie theatre companies. He also said they “haven’t really reached out to office [space] users yet,” but, he said, “that will come soon.”

An unusual process:

Ordinarily, what would happen with this kind of redevelopment proposal is this: A developer would submit a site plan application, which would be reviewed by staff and then sent to East Lansing’s Planning Commission and Transportation Commission for their review. The public would be invited to comment during these reviews.

The DDA would also need to be involved, to review and agree to a Development Agreement, since properties it owns are part of the project. The Brownfield Redevelopment Authority would also have to review and eventually vote to approve a tax increment financing (TIF) plan. Again, the public would be invited to comment during these reviews, before votes.

Ultimately, City Council would hold public hearings and would need to approve the site plan, a Special Use Permit (with any conditions), a TIF plan, and a Development Agreement (because the project involves publicly-owned land, including streets that would be reconstructed).

What’s happening here is something really different: An advance legal agreement is being worked out, under the City Attorney’s guidance, that identifies a host of specifics which should be included in the agreement. These include criteria for such key issues as who will be hired for construction, what captured taxes may pay for, how public roads will be redesigned in the area, and more.

Without the normal public review and comment period happening first, many other specifics are also being negotiated in this pre-submission process, including, for example, that the developer will own on-site parking but have to price that parking so as not to undercut the City’s public parking lots.

The draft agreement also suggests that City-owned land – Parking Lot 4 – will be leased for 49 years to the developer, a decision that would ultimately have to be made by City Council. (The price of the lease is not specified in the draft agreement.) As with the Center City District’s use of what was Lot 1, a lease of Lot 4 avoids having to ask voters for permission, because the City Charter only requires the voters' consent for a sale, not a lease, of Lot 4.

The staff memo accompanying the draft Purchase and Sale Agreement suggests that the DDA set several “right to cancel” dates in the Purchase and Sales Agreement, including completion of the Development Agreement (the last step in the local process) by March 1, 2019.

If signed by the DDA Chair as drafted, the DDA could not seek proposals from other developers if Vlahakis and Royal Apartments were meeting the terms of the agreement.

The debt problem:

At the same time a Purchase & Sale Agreement is being negotiated and an RFP is being discussed, City staff is recommending what they see as a cautious plan for restructuring of the debt on the Evergreen Avenue properties (shown in part below).

A major impetus, in the eyes of those who appear to be interested in moving forward quickly with Vlahakis and Royal Apartments, is that the deal would pay off the about $5.6 million in debt on the Evergreen Avenue properties. Vlahakis and Royal Apartments are offering to pay $5.8 million for the properties if they can obtain a total package acceptable to them.

The Evergreen debt will soon be requiring principal payments of over $100,000 per year, so City staff has been trying to figure out how to restructure the debt to buy the City and DDA more time in terms of solving the problem of how ultimately to pay it off.

The Evergreen Avenue properties were purchased in 2009 at higher-than-market-value prices by the DDA to support the “City Center II” project envisioned by developer Scott Chappelle that dragged on for years and ultimately failed to materialize.

Since that purchase, the DDA and the City Council have had to try to manage the debt on those properties. Plans to include the Evergreen Avenue properties in the DRW/Convexity Park District plan were shelved during that project’s restructuring.

At a DDA committee meeting last Thursday, East Lansing Community and Economic Development Administrator Tom Fehrenbach told those present that staff is recommending a restructuring option for the Evergreen bonds that will give the City predictability and flexibility in terms of that debt, to “give us more safety.”

Fehrenbach’s comments suggest staff sees the possibility that a redevelopment of these properties may actually take a long time to play out.

What happens next?

So far, as noted, the developers have made an offer through a Letter of Intent, and the City staff, with the City Attorney’s help, have countered with a complex draft Purchase & Sale Agreement.

According to City staff, a response to that draft agreement from the developer “is expected prior to the DDA meeting on [this Thursday,] October 25, 2018, and will likely form the basis for the discussion/any potential action by the DDA.” Whether that further response will be made public before the meeting is unknown.

The draft agenda for Thursday does allow for public comment before any votes on this matter are taken. The meeting starts at noon in City Hall's Conference Room A, on the second floor near the CIty Manager's office. Comment can also be sent in writing to the DDA via Fehrenbach’s email address.