Ongoing eBay Land Sale Drama Shows Marijuana Goldrush Has Hit East Lansing

Wednesday, August 28, 2019, 3:05 pm
By: 
Alice Dreger

Above: Mike Abdulnoor of MHS Group (left) and Kodiak Landarc’s attorney Mike Bahoura present to City Council on August 13. Photo by Raymond Holt.

An attorney representing a company that purchased property on Merritt Road from the City of East Lansing for about $1 million via eBay tells ELi that his client’s $12 million listing of the property is aimed at finding "investors and non-traditional financiers" in the planned marijuana provisioning center and other commercial redevelopment at the site.

There are also hints the buyers may be interested in a simple flip if they can obtain one.

What level of profit the buyers of the land will ultimately see remains still an open question. What we do know now is that the amount the developers will have to spend managing prior environmental contamination on the former site of the East Lansing Department of Public Works may not be as much as the $3 million suggested in statements from the City of East Lansing.

A specific marijuana retail operator was named for approval, but may not turn out to be the one

On August 13, East Lansing’s City Council unanimously approved the site plan and Special Use Permit (SUP) applications from Kodiak Landarc for the six-acre wedge of property where Merritt Road and Park Lake Road meet.

The approved plans called for construction of three buildings: a marijuana provisioning center, which the developers told Council would be run by EVO Pharms, LLC; a hotel, which the developers indicated would be a Holiday Inn Express; and a small strip mall.

The buyers had made the purchase agreement with the City contingent on getting City Council’s approval for a marijuana provisioning center. For that, Kodiak Landarc had to name a specific, state-prequalified medical marijuana seller. They named EVO Pharms.

But it looks possible EVO Pharms was effectively slotted-in for approval purposes. Documents obtained via the Freedom of Information Act (FOIA) show that back in February, two members of Kodiak Landarc’s team had asked City staff if they could transfer the marijuana provisioning center SUP to another company after approval.

The Director of Planning told them they could: “there is nothing in our ordinance prohibiting sale/transfer of the business from one owner to another as long as the business operating the facility is properly licensed through the State and meets all the applicable medical marijuana laws, regulations, etc.”

About a week after Council’s August 13 approval of the site plan and SUP, the buyers had listed the property for sale at $12 million with an ad that began, “Make this provisioning center your flag ship location!” That suggests interest in a quick flip.

Below: Kodiak Landarc's rendering of the provisioning center, not yet built.

The $12 million listing for the property is ambiguous. It offers the whole property (6.42 acres) for $12 million while also suggesting that just the provisioning center (not yet built) is for sale for that amount. It seems to suggest that the property sale would include the three not-yet-constructed buildings, but the sidebar listing identifies what is for sale as 7,000 square feet of retail space, which would include only the provisioning center.

Lawyer for the buyers says “investors and non-traditional financiers” are sought

ELi’s requests for clarification of the $12 million listing were answered in an email from attorney Mike Bahoura, who negotiated the purchase agreement and also represented the purchasers at Council. Here’s what Bahoura told us:

“Thanks for your interest in our development project and questions regarding its listing. Because of the inability to obtain traditional financing in the Cannabis Industry, throughout the country cannabis entrepreneurs will list their development projects for sale so as to attracted potential accredited investors and non-traditional financiers for these capital intensive and highly regulated projects. We too have chosen this standard industry practice. Our team couldn’t be more excited about our mixed-use development in the City of East Lansing and look forward to a long relationship with the City and community.”

Bahoura has not responded to follow-up questions sent three days ago aimed at finding out more. But what he did tell us alludes to the fact that marijuana is still federally illegal, which means it can be difficult to manage the money involved in working in the industry. Traditional banks and lenders won’t finance marijuana businesses because of the possibility for prosecution and asset-seizing.

So, the ad seems aimed at finding investors willing to take the risks associated with the marijuana industry.

That said, the ambiguity of the $12 million listing may not be attributable simply to the project having a marijuana industry component.

An expert in commercial real estate (who does not wish to be named) tells ELi the Merritt Road listing contains the sort of ambiguity sometimes seen in commercial real estate ads having nothing to do with the marijuana industry. Ads for big commercial properties often dangle various options to find out what interest there might be in purchase, leasing, or development of a commercial property.

Environmental cleanup costs remain unclear

The land for sale occupies the former Department of Public Works site and has environmental contamination from that use.

The City stated plainly in the eBay listing and purchase agreement that the City would not provide tax incentives for the cleanup necessary for redevelopment, and City leaders have identified the cost of cleanup as a reason it might have been difficult for the City to find a buyer for the property.

In the March statement on the matter, City staff said that a buyer interested in the property back in 2017, the year before Council rezoned the property for marijuana industry use, “indicated the need for significant brownfield tax increment financing (TIF) support of more than $3 million.”

That prior potential purchaser was revealed through a FOIA request to have been developer Sam Eyde. In 2017, Eyde was considering asking for a tax incentive for redevelopment of that property; he hoped to have the cost of environmental remediation reimbursed to him from property taxes if he purchased and redeveloped it. (You can see what Eyde’s environmental consultant found in documents we’ve obtained via FOIA and uploaded here.)

The $3 million estimate was for removing up to 10 feet of soil, rather than paving over it. We don’t yet have the “due care” plan the Kodiak Landarc developers are submitting to the State for the cleanup, so we don’t know what approach they are planning to take and whether the State will approve their desired plan.

But what they said publicly has suggested they’re planning something less intensive than Eyde was looking to do. That might be possible given what's there.

At the Council meeting on April 13, 2019, City Manager George Lahanas explained about the site, “The issues of the environment are not contamination per se, like there’s a plume under it or something of that nature. It really is bad fill, bad soils.”

Explaining further, Lahanas said, “it’s just poor fill because the site has been used as a public works site for 60 years. So it’s bad soils and environmental issues but it is not true, true contamination.”

Lahanas then called up to the podium Director of Public Works Scott House to confirm what he had just said. House said that his understanding is that “it is more benign material.”

Below: Lahanas at the August 13 meeting of Council.

Representatives of the buyers spoke at Council to indicate a plan to pave over the problem soil, something sometimes permitted by the State if there is not contamination leaching into groundwater. The idea is to use an approach that protects construction workers and future users from exposure to contaminants.

If that less intensive approach is approved, it will probably cost less (possibly much less) than the $3 million approach Eyde had been considering, as Eyde’s approach had presumed removal of tons of soil to be paid for with TIF.

So, could the City have sold the land for $12 million if it had been advertised broadly?

That is a question we’ve gotten from ELi readers. The answer is: almost certainly not.

The buyers who now control the property seem to be including in their $12 million “ask” the cost of at least some of the property redevelopment, including possibly the cost of environmental cleanup. The asking price in the listing may also be well above what the market will really bear.

But what the facts do seem to suggest is that the buyers bought the property in the City’s poorly-advertised auction knowing they might be able to make a hefty profit on it.

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