East Lansing will spend $2 million more on the Virginia Avenue project than originally was projected in 2004.

City officials attribute the larger budget to rising property values.

The project's updated budget calls for an investment of $5.3 million by the city. In 2004, preliminary estimates showed the project might cost $3.3 million — which then increased to about $4.6 million by the end of that year.

The Virginia Avenue project involves demolishing about 19 homes on the avenue's 600 block and building 16 single-family homes and 10 townhomes. About 75 percent of homes on that block are occupied by renters, but the new homes will be targeted toward permanent residents, especially those with children.

During the March 23 East Lansing City Council work session, city staff presented a comprehensive update to council members, which included a revised budget, the status of property acquisitions and demolition, and a proposed site plan for the development.

"We're pretty confident that within the next 30 to 45 days, we should be able to bring to you a final development agreement, a final site plan and a final project budget that will allow us to be in a position to actually start building some homes yet this year," Planning and Community Development Director Jim van Ravensway told the council.

Deal or no deal

By June, city staff said it expects to finalize purchases on four more homes — bringing the total to 14 — and demolish five of those already acquired.

The five homes are undergoing asbestos inspections, which must be completed prior to demolition, said Heather Pope, community development specialist.

City staff has ongoing negotiations for the remaining properties that aren't expected to close by June. The six property owners left on the avenue's 600 block manage nine properties altogether. One of the remaining properties is owner occupied.

"We do believe we'll be successful in acquiring all the properties at this point," Gingerich said.

But the city isn't having luck with at least one property owner: Hagan Realty, which manages two rental homes on the block.

The city has presented at least two offers to Hagan Realty, and the offers have been too low to make the sale worthwhile, said Matt Hagan, an agent at the company.

"We have nice properties there — it wasn't something that we were interested in selling," Hagan said. "At this point, we're not real close to coming to terms.

"They will have to change their philosophy in regards to how they're looking at it. We know what we want, and we've told them what we want, and they're just not doing it."

Other Virginia Avenue property owners declined to comment.

City staff needs to acquire 100 percent of the properties in order to cover costs of the project.

A changing market

The now-15 percent increase in the project's budget since the end of 2004 is due to a stronger housing market during the past several years, city officials said.

"The key factor there is that we based our estimates in 2004 on data generated in 2004," said Tim Dempsey, East Lansing's community and economic development administrator.

Dempsey added that because the houses are worth more now than in 2004, the city must pay a higher cost to acquire them for the project.

But recent trends in the East Lansing housing market indicate the city might actually save money on the homes it purchases, said Brian Huggler, a Lansing-area associate real estate broker who focuses on East Lansing homes.

Huggler acknowledged East Lansing has seen a strong increase in property values during the past five years. But he added that it has stabilized in the past year and a half, to the advantage of home-buyers.

"The city should be able to buy the properties at a more favorable price than they would a couple of years ago," Huggler said, adding that the city would likely see savings of a few thousand dollars.

"I've never seen a better market for buyers in the 16 years that I've been selling homes."

The finances

The city's ability to afford this multimillion dollar venture hinges on state and federal aid and the public's investment in the final product.

Under the development agreement that is being finalized, the city will retain ownership of the land and receive funds for the land's sale, whereas the developer, Lansing-based Mayberry Homes, will earn money from the sale of the home itself, Dempsey said.

"We're providing a developable site to Mayberry, and Mayberry is the one who invests the dollars in the home," he said.

The city is anticipating $1.3 million from the sale of the land, assuming 100 percent of the properties on the block are acquired. But that transaction won't be made until the homes are built and sold to new residents.

The remaining $4 million is expected to come from a variety of sources, including loans, grants, financing plans and the city's Community Development Block Grant fund.

East Lansing officials have $425,000 budgeted to come out of the city's block grant fund, with $170,000 in payment recommended for the 2008 fiscal year.

Of the public services portion of the block grant, almost 52 percent of the funds are recommended for use solely on the Virginia Avenue project. The remaining funds are recommended for use toward housing programs that aid low- to moderate-income households.

Although $1.7 million of the Virginia Avenue project's budget isn't yet guaranteed for the city's use, Dempsey said it's not a problem.

"We're very confident in our funding sources," he said. "In a lot of cases, it's just a matter of process. Certainly if that funding source was either reduced or didn't materialize, we'd look at some other sources."

Alternative sources of funding would be sought through revenue-sharing plans and assistance from outside housing agencies, which already is a possibility under the existing budget, Dempsey said.

But as the city approaches discussions for its 2008 fiscal budget, officials have commented several times recently on the lack of funds available at all levels of government.

"As we go through this process, I would really want to make sure before we went down certain tracks that we're really doing it to pay ourselves back for the delivery costs — rather than absorb them and look at the budget and not have it," East Lansing Mayor Sam Singh told city staff March 23.

Kristen Daum can be reached at daumkris@msu.edu.