Is the Royal Vlahakis Deal Really Falling Apart?

Thursday, April 11, 2019, 3:17 pm
By: 
Alice Dreger

Above: The proposed project showing the 159-foot-tall building that would replace Dublin Square, as seen looking northwest.

East Lansing’s Downtown Development Authority (DDA) might still vote to allow developers Royal Apartments and Vlahakis Development more time to try to rescue their project for the area on and around the Dublin Square property, a proposal called “Park Place.” That’s what the developers are hoping for.

As it stands now, signs point to the deal made last December struggling and the DDA possibly looking to open up publicly-owned land along Evergreen Avenue to bids from other developers.

We reported yesterday that City Council has been talking about the proposal as being on a path to failure. This week, Council even voted against helping the project with a needed zoning change.

So what has happened to the project about which the DDA was once so enthusiastic and which the Council included in its “priorities” in the Economic Development Strategic Plan it adopted in January?

In short, the developers have not produced the materials required, they have come to understand that they need to make major changes to the project to get the four needed votes from the five members of Council, and they have struggled to secure financing.

It doesn’t help that public reaction to the design and the deal has been largely negative. This week, members of Peoples Church came out in force to denounce the proposed size of the project, and numerous members of Planning Commission have stated they find the mass and height of the proposal unacceptable.

Background: The exclusive deal was designed to solve a major debt problem.

Last year, local developer Paul Vlahakis, whose company owns the Dublin Square property, joined with Royal Apartments out of Illinois to redevelop the Dublin Square property along with a series of adjoining publicly-owned lands.

Their goal was to build two large buildings, one rising to 159 feet, including office space, a multi-plex movie theater, condo apartments, rental apartments, retail and restaurant space, and automated parking.

For the project, Royal Vlahakis offered to buy a series of properties along Evergreen Avenue, just north of Peoples Church, from the DDA for about $5.6 million. That’s about what the DDA owes on those properties, so the DDA was hot to sell.

As ELi reported, initial terms of the deal were worked out with Mayor Mark Meadows and Mayor Pro Tem Erik Altmann behind closed doors. Other developers were not invited to make proposals or bid on the Evergreen properties, and at least two members of Council (Shanna Draheim and Aaron Stephens) were left out of early discussions.

In December, the DDA voted unanimously to enter an exclusive purchase agreement with Royal Vlahakis. That agreement required Royal Vlahakis to quickly submit a site plan and Brownfield tax increment financing (TIF) plan. Under the agreement, the DDA would not seek or accept bids from other developers.

So what’s gone wrong for the developers?

Problem #1: The developers haven’t produced what’s required.

Royal Vlahakis did submit significant portions of a site plan by the required deadline of December 17. But the developers have never submitted all that is needed for review of the project by various governmental agencies. Planning Commission took up initial review of the project and then had to stop.

City Planning staff have told us the developers never submitted a complete rezoning application – something that normally comes with the site plan. Also, the developers never submitted the required traffic study. Various parts of the site plan application were also incomplete or missing.

Technically, the developers submitted the Brownfield TIF by the required deadline of January 15. The initial “ask” was for $70 million in tax incentives that would pay for, among other things, the private automated parking. That was withdrawn and soon replaced by a $15 million plan. But then that was quickly pulled, too, and we haven’t seen any new TIF plan come forward.

Problem #2: Many people feel the proposed buildings are too tall.

Even before Peoples Church came out at City Council’s meeting this week to decry the possibility of allowing the 160-foot-tall building that the Royal Vlahakis proposal calls for on the east side, there was strong movement against that height being allowed at that location.

Below: The project as it would appear from above the back of Peoples Church.

In advance of the DDA’s March 28 meeting, Paul Vlahakis sent a letter to the DDA asking for more time to make significant changes to the plans in order to try to get the deal to work.

In that letter, he wrote, “Our first obstacle we are encountering is regarding the proposed height of the Park Place East building at 159 feet. Discussions with City staff, planning commission members, and City Council members indicate that a building that is more in line with current building height restrictions (140 feet) is preferable.”

The nature of this project would require that at least four member of Council vote “yes.” Draheim, Ruth Beier, and Stephens have all expressed dissatisfaction with what had been proposed.

Meadows had begun in February, at a meeting of the Council of Neighborhood Presidents, to express doubts that the Park Place project would move forward. And sometime between December and March, the recorded Council Member contacts with Vlahakis switched from Meadows and Altmann to Beier and Draheim, who met with Vlahakis on March 26.

East Lansing Economic Development Administrator Tom Fehrenbach told ELi’s Chris Root today that the developers are hoping to rework their proposal in the hopes of coming up with something that would get the necessary votes at City Council.

Problem #3: The developers are struggling to get financing.

In his recent letter to the DDA, Vlahakis wrote, “The second major obstacle we are encountering is the lender requirement for presale of 50%-70% of the For Sale [apartment] condominium units prior to construction beginning. While both the market study and the current real estate market conditions of downtown East Lansing indicate that both the presale and resale of any luxury condo unit[s] would occur quickly, it can cause some issues in the initial phases of construction if they don’t sell quickly enough.”

Vlahakis has also been unable to show any solid interest among possible tenants for the office space and multi-plex movie theater, suggesting the deal may simply be unworkable financially. A revised site plan could, of course, change that.

Will other developers be invited to bid?

At the March 28 meeting, the DDA voted unanimously to send Royal Vlahakis a “notice of default,” requiring them to provide “a fully executed Development Agreement” within 30 days – something that the developers have no hope of doing, considering all that would have to happen within City government in advance of that.

The letter informs the developers that once the 30-day period runs out, the DDA will be “free to consider the agreement null and void, and may proceed to market the [Evergreen Avenue] properties.”

Below: Some of the DDA's Evergreen Avenue properties.

But that doesn’t mean the DDA must give up on Royal Vlahakis and move on. If the developers come forward with a new site plan, the DDA might keep the exclusive deal going with these developers.

If the DDA wants to move on and look at other proposals from other developers, it’s well-prepared to do so. In December, when the DDA voted to enter into the agreement with Royal Vlahakis, it also voted to approve a draft “Request for Proposals” (RFP) for the Evergreen Avenue properties so it would be ready to go if the Purchase and Sale Agreement with Vlahakis and his partner did not lead to a project that was approved.

Once the 30-day notice period runs out, at the beginning of May, the DDA will be able to vote to send that RFP out, if it wants to do so.

When the City last solicited ideas for those properties back in 2013, seven sets of developers expressed interest. The DDA decided then to go with a proposal tied to what had been the infamous and ultimately doomed City Center 2 project.

A major challenge to redevelopment of the Evergreen Avenue properties is that they carry $5.6 million in debt – about three times what they are worth on an open market.

But the properties may be of more interest to developers because of some recent occurrences.

City Council recently passed Ordinance 1443, which allows buildings up to 140-feet-tall on downtown land zoned B3 if four or more Council members approve that height for a specific proposal. While the Evergreen properties are not currently zoned B3, a simple majority of Council could rezone them. The possibility of building to that height may make more developers interested in the properties than in the past.

Council is also now moving to possibly remove the properties from the Oakwood Historic District, which would lower one hurdle in redevelopment. Removing these properties from the Historic District had been assumed in previous proposals, but the City had not done the work to carry this out.

Additionally, the Royal Vlahakis proposal rolled in public land beyond the Evergreen Avenue properties, with a plan to long-term lease Parking Lots 4 and 15 to the developers. This is something we haven't seen for redevelopment concepts of this area before. Developers who see that they can include those pieces of land in proposals may be more interested than before.

Whether the DDA decides to give Royal Vlahakis more time, or open the area up to all comers, remains to be seen.

UPDATE: More bad news came in for the project on April 12. Read that report.

 

You may also be interested in:

ELi's Comprehensive Guide to the Royal Vlahakis Park Place proposal

Myriad Developments from Council - But Still No Answer on Land Sale

Revealed: Who the City Notified about eBay Land Sale

 

Note: The article was corrected on April 12. The original version suggested that the Evergreen Avenue properties have now been zoned to allow 140-foot-tall buildings. They are not currently zoned B3, so this point was corrected.

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