Two Big Redevelopment Proposals, Treated Differently

Thursday, February 23, 2017, 6:28 pm
By: 
Alice Dreger

Above: Artistic renderings of the last version of the Park District proposal (top) and the current version of the Center City proposal (bottom).

The new $132 million Center City District redevelopment proposal for East Lansing’s downtown is now in the approval-process queue, putting it ahead of the Park District blight redevelopment proposal. How did this come about, and what could it all mean for the future of downtown East Lansing? Will it prolong the blight? This special ELi report aims to answer these reader questions.

The Center City District proposal is introduced to East Lansing with unusual fanfare:

On Tuesday, ELi broke the news of a new $132 million redevelopment proposal for East Lansing’s downtown. First called the “Downtown Lifestyle District” proposal, the name has already changed to the “Center City District” proposal. The proposal features a pair of twelve-story high buildings with a new six-story high parking garage and stretches from Grand River Avenue on the south to Albert Avenue on the north, just a few hundred feet east of Abbot Road.

Above: rendering of the new project showing Albert Avenue reconfigured with the new parking garage.

The developers for this project are Harbor Bay Real Estate Advisors working in conjunction with the Ballein family, long-time local business owners. On Wednesday morning, East Lansing Mayor Mark Meadows held a press conference to announce and praise the proposal - something we haven’t usually seen for developments in East Lansing. Meadows has had a long and warm relationship with the Ballein family, whom he specifically praised at the event.

In another unusual turn of events, later that same day East Lansing’s Planning Commission heard a short presentation from the project’s developers. Ordinarily, the first time the Planning Commission and the developers would meet to discuss a project would be at a public hearing on the proposal, scheduled in this case for March 8.

At the Planning Commission meeting, Chair Laura Goddeeris noted this “warm-up” presentation by the developer was outside the normal governmental process, but indicated that City Planning staff had asked for it to happen. Actively limiting the discussion of the project at the meeting, Goddeeris said she wanted to try “to follow consistent process” with this project.

The Park District blight redevelopment project is in flux:

Meanwhile, the would-be developer for the blighted Park District Area, DRW/Convexity, out of Chicago, has had to go back to the drawing board and has not yet formally submitted new plans to the City. It is expected to do so soon.

DRW/Convexity had obtained site plan approval from City Council last month for a very large redevelopment that would have included the company’s blighted properties along with the nearby publicly-owned Evergreen Avenue properties (see map). But the tax deal ultimately offered to DRW/Convexity by City Council for this site plan was one the developer called unworkable, because it asked the developer to bear the cost of financing public infrastructure.

As Chris Root recently reported for our readers, it’s looking now like DRW/Convexity will come back with a new proposal to develop only its own properties, particularly the blighted properties along Grand River Avenue. DRW/Convexity is expected to still propose a 12-story building for the northwest corner of Abbot Road and Grand River Avenue, featuring many of the same kinds of things as the Center City District proposal would put along Grand River Avenue - retail at street-level, including possibly a small urban grocery story, and over a hundred market-rate rental properties above.

The result of what has happened recently is that the Harbor Bay/Ballein Center City District proposal has now jumped ahead of the DRW/Convexity Park District proposal in East Lansing’s approval-process queue.

Above: Convexity's rendering of "Building A," at the corner of Abbot Road and Grand River Avenue, in the last discussed verison of the project.

Why does it matter which proposal is reviewed and potentially approved first?

Technically these projects are separate but, in fact, the various entities involved in the review and approval processes will inevitably be thinking about both as they do their work on each. That’s because there are certain resources that are limited - limited enough that both sets of developers may not be able to get what they want.

Whoever is first in line may have an advantage. Right now, that’s the Center City District proposal put forward by Harbor Bay and the Balleins. That said, alternatively, if those involved in the review and approval are more eager to get rid of the blight than to see the Center City District happen, they might withhold limited resources from the Center City District project to provide for the Park District project of DRW/Convexity.

What are these limited resources?

Roads: The area of Abbot Road, Grand River Avenue, and Albert Avenue already turns into a traffic snarl at least twice a day on weekdays. Questions have been consistently raised about how that problem is going to be managed if the Park District project gets built, because that project - with a hotel, retail, and apartments-will be adding a lot of car traffic, and potentially a lot more foot and bike traffic, too.

If the Center City District were built, there would be a similar surge of car, foot, and bike traffic in the same area. Can East Lansing’s downtown public streets handle both redevelopments? The Planning Commission may well say “no.” Notably, Planning Commission is advisory to Council, so even if Planning Commission advises that both could be accommodated, Council might decide Planning Commission is wrong and that they can’t both be built. In East Lansing, Council gets the ultimate say in site plan and tax deal approvals.

The market: Some key differences between these two projects are that the Park District project would include a hotel at the main corner, while the City District project would include apartments for people aged 55 and older along Albert Avenue, above the new parking garage. The Center City project is set to have a “medium box-store,” like an urban Target store, along Grand River Avenue. The Park District project may also add 40,000 square feet of office space, if the developer can get a lease signed for that; in that case, the Park District developer would build fewer apartments.

But to a large extent, the markets for these projects would substantially overlap. This week at Planning Commission, Commissioner (and former Councilmember) Kathy Boyle asked the Center City District developers to be prepared to provide evidence that there’s a market for what they want to build. Boyle specifically wondered aloud whether the market could bear both the Center City District project and the Park District project. The Commission and City Council could well decide both can’t realistically happen, in which case both might not be approved.

A long-time proponent of more and better senior housing, Boyle also questioned whether senior citizens would really be interested in the proposed senior housing. The Center City project would put the senior housing amidst a student rental district and near a number of downtown bars and would face, among other things, the old Grove Street parking ramp, a 7-11 store, and student rentals. To this, Mark Bell of Harbor Bay answered that the Center City’s senior housing constitutes a “delicate component” in terms of market realities.

This matters for more than just the market issue; the current City Council has passed an ordinance (Ordinance 1384) requiring that these large downtown redevelopments have at least 25% of their housing units be specifically owner-occupied or for seniors or for something else other than the usual student rental market. Developers have consistently said the market for this “other” type of downtown housing is weak.

MSU’s master lease possibility: One of the “other” types of housing that might fit this Council’s 25% housing diversification requirement is rental apartments provided to MSU-related personnel under a master lease with MSU. MSU has expressed interest in potentially renting hundreds of apartments, at once, downtown in a new development. If one of these two developments were to score the master lease with MSU, this could win them double points: hundreds of guaranteed renters along with something that might satisfy the Council’s 25% housing diversification requirement.

The odds of MSU needing both projects to meet its needs appears to be low. So whichever MSU throws its weight behind could matter substantially to a project’s success.

Local tax benefits: Both of these projects are likely to require very expensive public infrastructure upgrades, including to sewer systems and streets, as well as potentially to public parking systems. These are likely to be funded via tax increment financing (TIF) plans, which will use taxes generated by the redevelopments to pay for the public infrastructure improvements.

TIF is in theory a useful development tool, and in practice complicated and highly political. It is often the case that Council discusses whether the City “can afford more TIF.” If Council approves a very big TIF plan for one of these proposals, it’s quite possible it will decide it can’t afford a big TIF plan for the other. And without the City committing to provide the massive infrastructure upgrades needed for a big project, a big project simply can’t get built.

Above: 300 Grand River Avenue, which was constructed using tax-increment financing (TIF) following a 3-2 vote of the last City Council.

State-level and Lansing-area economic support: Developments of the size we are talking about for the Park District and Center City District invariably involve developers hoping to get state-level tax assistance. It’s possible that the Park District developers and the Center City District developers won’t be going for the same state-level tax assistance. But odds are state-level “asks” for these two projects will overlap, at least in the minds of those making state-level decisions.

Right now, the Park District developer is still hoping to obtain a $10 million credit that requires approval by the Michigan Strategic Fund Board, which is advised by the Michigan Economic Development Corporation (MEDC). Meanwhile, based on what Bob Trezise of the Lansing Economic Area Partnership (LEAP) told me yesterday, the Center City District developers will be asking for MEDC funds.

While technically these funds would come out of two different pots of money, the same actors are likely to be involved in some of the review process at the state-level—and the state probably isn’t going to want to give East Lansing more than what is perceived as its fair share.

Above: the proposed Center City District building along Grand River Avenue, showing retail space.

When I interviewed LEAP’s Bob Trezise after the press conference on Wednesday, I asked him if he’s been working with MEDC on the Center City District project. Trezise told me yes, he’s been working on the Center City District project for five months, “working with partners,” including Mayor Meadows.

Asked specifically if he worked at all on the DRW/Convexity project, he said, “Not much.” Trezise told me he’s “not very familiar” with the Park District project, saying by contrast he’s “very familiar” with the Center City District project. At the press conference, Trezise joined Mayor Meadows in highly praising the Center City District Project and the developers of it. Trezise called the Center City District project “transformational.” When I asked him if the Park District project was not “transformational,” he said again he wasn’t very familiar with it.

Staging the construction: East Lansing has never seen a project the size of either of these proposed redevelopments actually happen, but experts say doing both at once would be extremely difficult from the point of view of “staging” the construction. Meadows named this specifically as a difficulty when I asked him, after the press conference on Wednesday, if he could imagine both being constructed.

Boards, staff, commissions, and Council: Finally, proposals of these size take up enormous amounts of staff time as well as the time of those who have to review and weigh in on the proposals—including Transportation Commission, Planning Commission, the Downtown Development Authority, the Brownfield Redevelopment Authority, and City Council. When one of these big projects takes up these resources, there’s less time for another to move along as quickly as it otherwise would.

Above: the blight of the Park District area, properties owned by DRW.

So, what happens with one project will likely impact the other’s chances:

In summary, resources are not infinite. The two projects’ would-be developers are no doubt thinking about this as they try to move forward.

I saw evidence of that when, on February 2, I asked Brad Ballein, one of the Center City District developers, about his then-rumored project. Ballein reminded me that one of our other reporters had asked two weeks earlier, and that he had had no comment then, and added, “Nothing has changed since then except for DRW pulling their project,” after the “unworkable” TIF vote by City Council.

I wrote back, “I’m curious what the DRW project pulling has to do with this?”

Ballein replied, “Actually DRW not moving forward has NOTHING to do with it. We are all ready for something to get built on that DRW site.”

What does or doesn’t get built at the DRW site, however, is likely to impact what the Balleins can do, for all the reasons named above. Each project could profit its developers by many millions of dollars.

DRW says if it can’t get its project done soon, it will lose the ability to profit from its project:

DRW says that to make a profit on its Park District project, it needs the $10 million Michigan Strategic Fund tax credit. This credit dates back to the previous redevelopment proposal for the area, known then as “City Center II,” and DRW is hoping to convince the Strategic Fund Board that old promised credit should be given to its project. But to do so, DRW has to adhere to a lot of legalistic rules about the credit, including about by when it must be built: It has to be ready for occupancy by May 2021.

The possibility of obtaining this $10 million credit, DRW/Convexity says, is the reason it hasn’t demolished the blighted buildings along Grand River Avenue. DRW did demolish the old Evergreen Arms apartments, properties it owns just north of Peoples Church, because they saw no reason not to. But lawyer David Pierson, representing DRW/Convexity, again told Council this week that he believes demolishing the Grand River Avenue properties now could jeopardize the $10 million credit.

Council continues to discuss whether to override DRW/Convexity’s wish and order the buildings demolished. Meadows and Mayor Pro Tem Ruth Beier have been particularly clear about wanting the buildings demolished soon, but so far Council has allowed extensions.

Above: The former Evergreen Arms apartment buildings, now demolished.

So why did the Convexity deal fall apart?

From the point of view of DRW/Convexity, in spite of the company working with the City on what the City indicated it wanted—namely a project that incorporated the publicly-owned properties in the area and provided a new parking garage in the Park District—the Council agreed to this project only if Convexity took a huge economic hit, so big a hit, the developer says, it’s a non-starter. That’s why Convexity has gone back to the drawing board.

What happened? Council approved a $26 million TIF plan for this project, one that would pay exclusively for the City’s expenses. Additionally, Council declined to allow for interest payments on the TIF, and asked DRW/Convexity to fund the infrastructure improvements, including building a parking garage for the City, and essentially to pay for the DDA’s Evergreen Avenue properties, which are millions of dollars underwater.

While DRW would be reimbursed from tax-capture over 30 years for $26 million, DRW says taking on this $26 million debt would cost them tens of millions of dollars in interest payments over that period. They suggest it would put them in the red.

Before the vote on this TIF plan, Councilmember Shanna Draheim tried to get Council to add in reimbursement for the interest. But the rest of Council denied her motion. Because she believed they were killing the Convexity project with their TIF plan, Draheim voted against the TIF plan the rest of Council voted for. After the 4-1 vote, the developers essentially threw up their hands, saying they’d have to go back to the drawing board and start over.

Mayor Meadows and Mayor Pro Tem Beier have said DRW is overestimating by millions how much the deal they offered would cost the company. Beier has repeatedly said that she believes that even with the deal Council offered, DRW would still make a very large profit, and that the company should therefore bear this expense. She notes DRW/Convexity has not shown Council its “numbers,” so we have no idea what their profit margin would be on this project.

Meanwhile, Meadows has repeatedly made it clear he wants the DDA’s Evergreen Avenue debt problem somehow paid for with the Park District project. The DDA, which includes Meadows and Brad Ballein, has also specifically stated they want the Park District project to be used to solve the DDA’s debt somehow.

Beier tells ELi, "The previous city council paid more than the Evergreen properties were worth, and the current council has to deal with the fact that we can't afford the debt service [on those properties]. While it would  be great to roll the property into a large development project, I never thought that would happen. At this point, one option is for Convexity to develop the property it owns, actually PAY its taxes, and for the city to use that tax revenue to pay off the debt on the Evergreen properties."

Without Council’s approval, DRW won’t be able to get anything built, and they won’t get the $10 million tax credit. It takes three Council votes to get an approval on a site plan and on a TIF plan. Councilmember Erik Altmann has consistently voted with Beier and Meadows, and Beier has almost always voted with Meadows. It’s hard to see how DRW can get a workable deal with the City at this point—how it can get the three votes it needs from Council on a plan it believes it can do—but it is going to try.

Below: East Lansing's current City Council includes (left to right) Mark Meadows, Shanna Draheim, Susan Woods, Ruth Beier, and Erik Altmann.

DRW points to problems it sees with how its project has been handled:

At first, DRW’s Park District project had been moving right along, starting shortly after DRW bought the properties following foreclosure action against the prior owner. The developer was working closely with the City to build into the proposal what City officials were indicating they wanted to see. In fact, the approval process was moving too fast according to some citizens watching, namely those who wanted more careful, in-depth review of things like DRW’s legal problems.

But starting late last year, things started to get more challenging for DRW, with increasing pressure from the Mayor and Mayor Pro Tem to demolish the blighted buildings, and less cooperation from the Mayor, the DDA, and staff on getting a deal worked out. In fact, after the “unworkable” Council TIF vote, the developer took the unusual step of providing ELi a statement describing the problems it saw with the City’s management of their project.

In a special ELi report on the statement, we explained some of what the company was referring to. This included DRW presenting the Mayor and Planning staff with a highly detailed proposed development agreement in early December, but getting no answer, although one had been promised.

Indeed, it appears the formal December 5 letter from DRW about the proposed agreement was never even shared with the DDA or with City Council. It appears simply to have been shelved by the Mayor and Planning staff. We found out about it only by connecting dots.

This silence around that key proposal letter was followed a few weeks later by a highly unusual action at the Brownfield Redevelopment Authority (BRA), which has the same members as the DDA. Usually, for a project like this, the BRA would negotiate and approve a lengthy and highly detailed TIF plan to send to Council for approval. But in this case, the BRA instead passed a plan with no real details, simply advising Council it should be for around $25 million and should be limited to dealing with the public infrastructure expenses.

That unusual motion at the BRA was made by Mayor Mark Meadows and seconded by Brad Ballein.

The plan then went on to Council. At that Council meeting - the one where Council ultimately voted 4-1 on a TIF plan the developer called a deal-killer - not only were the proposed TIF plans by DRW not shown in advance to the public as would be typical, the developer was denied any opportunity to talk with Council about the TIF plan before the vote.

The developers of the Center City District have had a different kind of experience with the Mayor and City staff:

So far, the Center City District has seen a different kind of handling, particularly by the Mayor. As noted above, Meadows has a warm and long-standing relationship with the Ballein family. At the press conference he called this week to announce the Balleins’ project, Meadows specifically praised the family, including Howard and Viv, parents of Brad and Greg. (Howard and Viv contributed $100 to Meadows’ campaign for Council, an amount that will trigger a requirement for Meadows to disclose that contribution when he votes on the Balleins’ project, although as we have reported, Council hasn’t been following the ethics rules it passed.)

As noted above, Meadows has also been working with LEAP (the Lansing Economic Area Partnership), which is preparing this project for MEDC support, something Meadows has not done for DRW/Convexity.

The Center City District project also seems to be getting unusual support from the City’s Planning staff so far. The special “warm up” presentation given by the developers to the Planning Commission this week was arranged by staff. DRW/Convexity has not been accommodated in the same fashion.

The project has also not been sent by staff to Transportation Commission for review in advance of Planning Commission, as is standard practice. The project, by not being on the next Transportation Commission agenda, appears to be skipping the usual process.

Above: properties to be demolished under the Center City District proposal.

The Harbor Bay/Balleins’ proposal has popped up in the window opened by DRW having to go back to the drawing board:

Notably, although the Ballein Center City District project has just risen to public attention, records obtained by ELi indicate Meadows started meeting with Brad Ballein to work on his project by May of last year. According to Mark Bell of Harbor Bay, the project has been in the works for at least five years.

But the timing of the Center City District proposal being brought forward right now is such that it lands in an opening between the Park District’s last iteration and the next, effectively putting it in the approval-process queue ahead of the Park District. If the Center City District went through the usual process - going first to Transportation Commission before Planning Commission - it would be slightly behind the Park District in the approval queue. But that’s not how the City staff is handling it.

What’s next?

Things are sure to get complicated in the next few months. On top of everything else, the rules governing these projects are actively changing. The state legislature is considering legislation that might provide significant funding to projects like these. The East Lansing City Council is revisiting rules about how much parking these projects would be required to have.

Additionally, a new City committee is now being formed “for purposes of preparing an updated downtown housing policy.” This committee was commissioned after Meadows introduced a resolution to do so in the consent agenda of City Council, just after the DRW/Convexity project collapsed. No explanation was publicly provided about this resolution and committee formation, and Council did not discuss the matter before simply voting to approve the committee’s formation.

What we know about it so far is that the Committee will be revisiting the City’s Downtown Housing Policy. That policy includes guidance about which kinds of projects should be given “various public incentives such as a tax increment financing.” Yesterday at the DDA meeting, Planning staff announced which two members of the DDA would serve on this committee. Those two members are Lynsey Little Clayton and Brad Ballein.

ELi will continue to follow these development proposals.

 

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Note: This article was corrected on February 24 at 2:40 p.m. Mayor Pro Tem Ruth Beier sent the statement that begins "The previous city council paid more than the Evergreen properties were worth..." to clarify that she does not believe (as we erroneously reported) that DRW/Convexity has to provide a plan that deals with the Evergreen Avenue properties' debt directly. We corrected this article to remove the erroneous attribution and to add her provided statement.