What's Going on Now with the Center City Project? (UPDATED)

Thursday, October 19, 2017, 6:10 pm
Alice Dreger

Above: The planned structure to replace what is now Lot #1 downtown.

What’s up with the Center City District project, set to transform a large chunk of East Lansing’s downtown? Why is Parking Lot #1 now open and why are there various trucks there? And what is the project looking like economically for City taxpayers?

Update: According to a message on October 19 from Caleb Sharrow, Administrator for East Lansing Downtown Parking, "With the Center City project demo schedule getting pushed farther out," Lot 1 will again become a pay-lot starting on Friday, October 20, at 8 a.m. "until further notice." According to Mayor Pro Tem Ruth Beier, the performance bonds are not yet in place.

(The remainder of this article was originally published on Tuesday, October 17, at 10 a.m.) 

The performance bonds are still not yet in place:

According to Tim Dempsey, Director of Planning for the City of East Lansing, “The developer is still working on finalizing the performance bond.” That means the financing is still not yet set.

Dempsey is referring to the insurance-type bonds that are meant to protect the City in the event the developer starts the project but fails to complete construction of the public infrastructure. That infrastructure includes a major new parking garage set to be built on what is now Lot #1, the big surface lot off Albert Avenue near HopCat.

Responding to questions from ELi, Mayor Mark Meadows said last week, “We need to be satisfied with the performance bonds. If we are not, we will not consider them adequate.”

The Development Agreement between the City and the developer specifies that the developer must put up a performance bond “in an amount not less than 125% of the costs of the public Infrastructure Improvements and construction of the…Parking Structure, to guarantee their full completion by the Developer…or a return of Lot #1 to its current state” if the private development along Grand River Avenue is not built.

The developer is allowed, according to the agreement, to substitute for the performance bond “an irrevocable letter of credit in a form reasonably acceptable to the City”.

Given that the public infrastructure, including the parking garage, is estimated to cost $30 million, this would mean the developer would have to put up a performance bond of about $38 million or put up an irrevocable letter of credit for about that amount.

The Development agreement also calls for “an additional bond (the ‘Demolition and Site Restoration Guarantee’) to guarantee demolition of existing or future” construction if work is not completed as expected. This bond also has to guarantee pay-out of up to 125% of the estimated costs.

We’ve reported previously that experts in development say that the City requiring these bonds makes financing a large public-private project difficult. A developer has to put up so much money to obtain such a bond, the requirement cuts greatly into profits and also front-loads expenses.

Lender for the private development seems to be on board:

We have previously reported that Scottsdale Capital, the financial company set to help the developer pay for the public infrastructure construction, is owned by Peter Paul Bell, father of Mark Bell of Harbor Bay Real Estate, the lead developer for the project.

Communications between the City and the developers show that the lender for the private portion of the development, along Grand River Avenue, is the First National Bank of Nebraska. That bank’s website does not show Michigan in its “regions we serve,” but apparently the bank is considering investing tens of millions of dollars in this East Lansing project.

Asked whether First National Bank of Nebraska is aware of the familial relationship between the lead developer of Harbor Bay Real Estate and the principal owner of Scottsdale Capital, Kevin Langin, Senior Director of Public Relations for the bank, responded, “We are aware of the relationship between the bond investor and the developer and have no concerns.”

Meadows indicated in his response last week that he trusts the City is adequately protecting itself against financial risk: “I am skeptical of all developers. That is why we put firewalls and protections in our agreements. I rely on the advice of our staff and of experts we hire, not people hired by the developer. “

What’s going on and around Lot #1?

Visitors to downtown this past Sunday may have noticed a fleet of Consumers Energy trucks in public Parking Lot #1. According to Dempsey, “Consumers was working on utility disconnects.” Generally major utility disconnects are not done on Sundays, so it’s unclear whether this was planned work or if unexpected lines were found during demolition preparation, as has happened with other construction projects, including the Park District project.

Meanwhile, “cherry-picker” trucks have been working on preparing the privately-owned commercial buildings along Grand River Avenue for demolition. These include the buildings that used to house Panchero’s Restaurant, Sundance Jewelers, Ned’s Bookstore, Charlie Kang’s, Noodles & Company, Clever Clover, and Cellular & More (the Verizon dealer). All these vacated buildings are set to be demolished for the Center City District project, and will likely soon be gone.

What is the project costing the City, and what will it bring in?

Right now, Lot #1 is being intermittently left open, meaning people can park there for free, and the City is not obtaining the usual revenues. According to Dempsey, this is happening is “to allow for shutdown of the equipment which was necessary for utility disconnects. The equipment cannot be live during a disconnect for risk of damage.”

According to the Development Agreement, the developer will be paying the City a lump sum for the period when the lot is under construction and unusable, but as that hasn’t started, the loss of revenue from Lot #1 is currently the City’s problem.

What other previously unplanned costs are accruing to the City from this project? City Council recently voted to give nearby businesses $100 in parking vouchers each per month as long as there is no parking possible at what is now Lot #1 because of construction. Asked what this will cost, Meadows estimates it to be about $70,000 in total.

Once the project is completed, the City estimates that between lease payments from the developer, new parking revenues, etc., the City’s general fund will be obtaining over $400,000 per year from the project. For thirty years, all of the City taxes from the project area will essentially go to reimburse the developer for the costs of building the public infrastructure, including the garage.