Park District Deal Reached Between City and Developers

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Wednesday, April 26, 2017, 6:00 am
Alice Dreger

Above: DRW/Convexity’s plan for the blighted corner downtown, as drawn by their architects.

East Lansing’s City Council reached a deal with DRW/Convexity last night for redevelopment of the blighted area downtown. With the mayor and the developers’ representatives describing themselves as “happy” afterwards, the tone differed considerably from the January City Council meeting when the deal effectively fell apart.

Council unanimously approved the site plan, special use permits, tax increment financing (TIF) plan, and terms of a development agreement, authorizing the mayor to sign the development agreement when it is ready. The project will include a 13-story building with hotel, retail space, and rental apartments on the main corner, and a 7-story owner-occupied condo apartment building north of there, across from Valley Court Park.

Under the plan, four older rental houses owned by the DDA will be demolished and replaced by surface parking lots. The Historic District Commission still needs to approve that part of the plan, as the houses are within historic district boundaries. Additionally, according to the developer, the deal depends on the Michigan Strategic Fund Board approving $10 million in State-level tax credits for the project. The local agreements reached last night were necessary before the developer can seek approval of the State-level support.

Convexity’s Chris Oakley told ELi last night after the meeting, “We’re very happy with everything, and now the hard work starts. The hard work is getting it all pulled together and getting it done.” Asked if the plan works for Convexity from a financial standpoint, Oakley said, “The State [tax credit] is critical.” But, he said, he was glad to be moving on to that step.

If the additional approvals come through as DRW/Convexity is seeking, the plan is to start demolition of the remaining vacant buildings soon, and to begin excavation and construction of the project in spring of 2018. The major corner building would be constructed first and would be completed in 2020. The condo building would be started in 2019 and completed in 2021.

Above: Convexity’s plan for the condo apartment building across from Valley Court Park.

No one came to Council to object to the project, and several people came to praise it, including Joshua Holliday from LEAP (Lansing Economic Area Partnership), who called it “transformational,” and Tim Ryan from The Graduate hotels, the chain that has signed a deal to occupy the 150-room hotel space in the new building.

While no representatives from the trade unions came to speak in favor of the project as they have with the Center City District proposal, the mutually-agreed-upon development agreement terms do call for paying construction labor under the City’s prevailing wage policy or through a Project Labor Agreement, something Mayor Pro Tem Ruth Beier (a labor economist) in particular had wanted to see. City staff estimates that the project will create 165 construction-related jobs and, when completed, add 164 full-time jobs to East Lansing. Those jobs will include employment of people at the hotel and retail space in the major corner building.

Two designated representatives from Peoples Church came to praise the project and the developers: Pastor Andrew Pomerville and Dave Lederbuhr from the Church’s development committee. They told Council the developers had been “outstandingly communicative with us” and said the Church “completely supports” the project. Pomerville told Council the Church is looking forward to being reconnected to downtown, no longer being an island surrounded by blight. They named the developers working with them to protect the sanctity of the Church's Memorial Garden as key to the Church's approval of the project.

Above: People's Church's Memorial Garden, looking towards DRW's property.

Mayor Mark Meadows told ELi after the meeting that he believes “we actually have a better project” now than the one reviewed in January. He said he heard many positives from the community about this project and especially about the desire to move forward replacing the blight. Meadows also told ELi, “these guys [the current developers] have the money to actually do the project, and I think that is an important component. We haven't seen that before.”

The TIF plan will capture a maximum of about $19.6 million in new taxes from the project to pay off the Downtown Development Authority’s (DDA’s) Evergreen Avenue properties debt (about $7.2 million), to pay for public infrastructure improvements (about $6.4 million plus $3.4 million to reimburse the developer for interest on putting up those funds), and to reimburse about $2.5 million of developers’ expenses constructing their two private properties.

The plan has a 20/80 split, meaning 20% of new taxes will go immediately to the usual taxing authorities, and 80% will be used to pay eligible expenses under the TIF, up to the totals allowed. The tax plan is expected to be paid off in about 21 years, but has been written to go up to 30 years if necessary to pay off the eligible expenses to the maximums allowed in the plan.

Above: the blighted area downtown where “Building A” is planned to include The Graduate hotel, retail space, and rental apartments.

Mayor Meadows said that the increased property tax income to the school district and the City, which will begin as soon as the project is constructed, is going to make a substantial difference for both the schools and the City, particularly if the school bond proposal passes next Tuesday. Passage of the school bond next week would mean this development would pay into that bond with newly-generated taxes, which, Meadows noted, would pay the school bond off faster.

Meadows told the Council he was happy that, even during the period of the TIF plan when new taxes were being “captured” to reimburse expenses for the project, the whole project will still be bringing in hundreds of thousands of dollars more revenue to the City than it will cost the City to provide in public services to the new residents of the buildings. He called it an “excellent plan” and said he was “very supportive.”

Councilmember Erik Altmann also said he thought this was an excellent and “creative” tax plan because of how it benefits the City and school district in multiple ways, including in terms of revenue and paying off the Evergreen Avenue properties’ debt. Mayor Pro Tem Beier said she was especially happy about paying off that debt.

Councilmember Shanna Draheim said that, while she acknowledges that the tax plan requires diverting taxes from Ingham County, Lansing Community College, CATA, and other taxing entities to the City of East Lansing, she felt it was worth it for this “truly transformational project.” She said she feels the project “will have a ripple effect economically through the entire region.”

Councilmember Susan Woods had no comment on the tax plan but expressed general support when the votes were over.

Various protections were built by City Council into the legal components of the deal. So, for example, the development agreement terms call for the developers to take out performance bonds to ensure that public infrastructure is completed even if the project is never otherwise completed. There were also conditions built in to ensure that the planned new bike lanes on Abbot Road’s west side and Albert Avenue (west of Abbot Road) are built, that the condos remain owner-occupied and not rented, and that the condo building really gets built. (If the condo building doesn’t get constructed, the developers stop getting reimbursed out of the tax capture.)

Asked afterwards if today’s meeting felt substantially different from the January meeting that ended in the deal falling apart, DRW/Convexity’s local attorney David Pierson answered in the affirmative: “This feels like a different tone, a different sense of participation and cooperation.” Asked to what he would attribute the change, he answered, “An extraordinarily high level of information [being provided], so that people actually understood much better what the interests of both the City and the developers are.”

Mayor Pro Tem Beier told ELi she is also happy with the outcome and happy with how the process ultimately played out. About the City's process of development review and approval, she said, "it's convoluted, but in this case it really worked. And I'd like to think of it as a way to think about future projects." She said that the voters rejecting parking lot sales in the area in 2014 (for a Park District project proposed by different developers) meant the City did not end up with a redevelopment that was "a huge project with too much risk and things we didn't really want."

Beier said that having the deal with DRW/Convexity fall apart in January was ultimately a good thing. "Now we have a project that, if I had to design it by myself, I think I would have designed almost this project. I think it's perfect for that area. Even though developers say [our City's review and approval process] is convoluted and it is hard, with such a vital corner in such a small downtown, we can't make mistakes. This system worked."

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