News Analysis: The Message Behind Royal Vlahakis’ Hail Mary Pass
To understand what happened yesterday at East Lansing’s Downtown Development Authority with regard to the Royal Vlahakis proposal, you have to have been watching the deal since it first surfaced last August. ELi has been doing that.
As we reported yesterday evening, on Wednesday, developer Paul Vlahakis’ team submitted an entirely new site plan. The next day, near the start of the DDA meeting, the team handed out yet another concept for use of the DDA’s Evergreen Avenue properties.
His handouts (shown in part above and below) imagined a “public market” apparently based on those in Grand Rapids, Detroit, or Ann Arbor.
Vlahakis couldn’t even explain where this market was supposed to be. At one point, he said it would be internal to a fourteen-story building. At another, he said it would be sandwiched in a walkway between that building and a five-story building.
The attractive images handed out showed neither.
While the new images did excite some DDA members, and confuse others, the fact is that the site plan isn’t really the issue right now. The site plan is, at this juncture, just one card being played in a big legal game.
And if that game isn’t played very carefully by East Lansing’s City Attorney and the DDA, it could ultimately cost the taxpayers of the City of East Lansing hundreds of thousands of dollars, if not more.
A major clue about what was going on yesterday was how the players suddenly changed.
Until now, it’s mostly been Vlahakis alone showing up at the DDA.
But yesterday, Kelly Kenefick from Royal Apartments came along, too – taking the podium to tell the DDA how she’s worked on billions of dollars in development projects.
Kenefick (below) made a point of saying, on the record, that the deal so far has cost them $400,000, “If you include our time.”
Note the flag-planting about potential losses to one party in the agreement. That’s a subtle message about what a lawsuit might include in damages claimed.
Yesterday, the developers also brought along attorney Brent Titus of Foster Swift. Titus is described by other attorneys to ELi as highly experienced and more than competent.
Titus had clearly gone through December’s Purchase & Sale Agreement for the DDA’s Evergreen Avenue properties with a fine-tooth comb to defend the interests of his clients.
Questions were raised at the meeting about whether the DDA might soon be able to call an end to the agreement and keep the developers’ $100,000 in earnest money, or at least open up the Evergreen Avenue properties to other developers’ proposals.
The DDA had sent a letter on April 2, notifying the developers that if “a fully executed Development Agreement is not received or the default is not otherwise cured within 30 days, the Downtown Development Authority is free to consider the agreement null and void, and may proceed to market the properties.”
But Titus had a different read than City Attorney Tom Yeadon of the Purchase & Sale Agreement.
That Purchase & Sale Agreement says in section 5-b that the purchasers (that is, the developers) would be given 90 days as an “inspection period” to decide if they wanted out. According to section 5-b, that inspection period could be extended with payments of $15,000 for every 30-day extension, at the discretion of the developers, up to four times.
Titus told the DDA that the City was slow to give over the materials required, providing the last ones only on January 25. Titus said that meant the 90-day period didn’t expire until April 25 – just yesterday.
Titus elaborated that this meant that, for $15,000, the developer could take a 30-day extension until May 25. He suggested that the revised May 25 deadline also applied to having a Development Agreement entered into.
So, under Titus’s reading, the DDA’s 30-day notice of default was premature. Thus, it doesn’t count.
Looking to meet the terms of the agreement, on Wednesday, the developers had brought to the City a draft development agreement, a revised site plan, and a $15,000 check to “buy” a 30-day extension to which they say they are entitled.
Titus was making the argument his clients had done what was required of them by the agreement, and that the DDA couldn’t back out now.
He went through the parts of the contract yesterday, checking off what was required of his clients.
He noted that they had, per the agreement, submitted a site plan on the date required.
They had, per the agreement, submitted a Brownfield Plan by the date required. Never mind that the Brownfield Plan was later withdrawn; the contract just says one had to be submitted by a particular date.
What about the contract’s requirement that the developers, City of East Lansing, and DDA “enter into” a development agreement by April 1?
Titus noted the developers had handed the City a development agreement the day before. If it wasn’t “entered into,” he was suggesting, it wasn’t because the developers had fallen down on the job.
Below: DDA Chair Peter Dewan listens to Brent Titus at yesterday's meeting.
Just before Thursday’s meeting, Titus offered Yeadon an “addendum” to the Purchase & Sale Agreement, to “clarify” terms of the deal.
Yeadon wouldn’t say what was in Titus’ proposed addendum, and the City has not released it. Yeadon did say that, before the DDA’s special meeting on May 2, he will work on negotiating a new addendum with the developers’ lawyer.
It was evident at yesterday’s DDA meeting that the developers want to stop the DDA from opening up the properties to proposals from other developers, and, if they can’t achieve that, the DDA and probably also the City can expect to be sued.
Representing the City and DDA, Tom Yeadon acknowledged as much, referring explicitly to the potential for litigation if the deal is not continued.
Yeadon did disagree with Titus on numerous points about the agreement. Yeadon said Titus was wrong about when the “inspection” period began and wrong about the provisions for the extension option.
Yeadon (below) urged the DDA not to deposit the $15,000 check delivered the day before. Doing so could be legally interpreted as accepting Titus’s reading of the contract.
But terms in the Purchase & Sale Agreement that appear ambiguous, plus the structure of the agreement, mean the matter is hardly cut and dry.
That agreement was made much more complex than it needed to be, calling on the City to do various things, even though the City is not even a party to the agreement. (Only the DDA was.)
Also problematic from a legal standpoint, Mayor Mark Meadows, who by virtue of his office is also a member of the DDA, helped to negotiate the Purchase & Sale Agreement and voted in favor of it at the DDA. Then, as a member of Council, Meadows later proposed and voted for a zoning ordinance amendment that effectively killed the project as described in that agreement he had voted to sign.
How can you take someone’s earnest money in an agreement you voted for and then vote against what they need to complete the real estate deal?
It looks, at best, troubling – and it was why some thought the agreement should have been a simple purchase agreement, free of so many conditions which only the City Council could ultimately approve.
So, why did the developers come forward this week with a draft development agreement, a $15,000 check, a new site plan, and an addendum to the Purchase & Sale Agreement?
All of that appears designed to keep their exclusivity and/or lay the groundwork for a major lawsuit.
And why does the new site plan specifically remove Vlahakis’s property (Dublin Square), now limiting the project to only the properties that the DDA owns?
Titus said the developer divided the project into two “phases” so they would be able to move more quickly on the first part – the part with the DDA’s land – noting the tight timeline in the agreement they had signed.
But another possible reason is that, if a lawsuit emerges, it will be the DDA’s properties, and not Vlahakis’, that end up in potentially protracted litigation.
Those properties have $5.6 million debt on them, with payments increasing in the coming years.
Given that the City is ultimately on the hook for the DDA’s finances, the cost to the people of East Lansing from all this could be significant if there are delays or a lawsuit.
Consequently, as with the problems the City’s Attorney apparently didn’t catch in the Center City Development Agreement – problems fixed after ELi brought them to light – it’s quite possible what will happen now is that the DDA will decide to stay with Royal Vlahakis and revamp the deal.
No matter how much they might want out of the deal, it may simply seem too risky for the DDA members to try to end it. Regardless, the DDA will be making big decisions in the coming days for the people of East Lansing.
Grand Rapids public market extends debt obligation again (from Grand Rapids Business Journal)
Note: This article was amended to correct the last name of Kelly Kenefick.
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