City Center II developer overcoming troubles
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Nathan Triplett
East Lansing’s skyline might not be getting a little higher any time soon.
City Center II, a $116.4 million project slated for the Grand River Avenue and Abbot Road area, is being developed by Strathmore Development Co. The company is developing Broadway Village — a similar project — in Ann Arbor, where construction has yet to begin.
That project has faced a few financial and construction issues, which doesn’t concern East Lansing officials. They say City Center II is likely to move forward with few glitches.
The setbacks
Broadway Village, a $172 million project, had a ground breaking ceremony in January, but no construction has occurred since then, said Alexis DiLeo, a city planner for Ann Arbor.
“Everything hinges on Strathmore’s ability to get financing from outside sources,” Ann Arbor City Councilmember Sabra Briere said. “Developers have to convince banks and other financing institutions that their plan and financial footing is sound enough that they can guarantee a profit, and they’ve not been able to do that.”
Scott Chappelle, president of Strathmore, said in an e-mail that he is not concerned about developing Broadway Village.
“We have not had difficulty in obtaining financing,” he said. “The difficulty comes from getting the financing to work with the public components.”
Ann Arbor Councilmember Stephen Kunselman said although it would be nice if the project could move forward, he has seen a number of projects under various developers fall through in Ann Arbor.
“I think any development is on shaky financial footing — that’s just the nature of where we are in our economy,” he said. “I wouldn’t think one developer over another would be able to do better.”
However, the Broadway Village project has faced several obstacles, including a check Strathmore wrote for taxes that bounced in January.
“In these economic times, we expect that developers are going to be trying hard to make their ends meet,” said Roger Fraser, Ann Arbor’s city administrator. “The fact that a check bounces — it’s not common, but it’s not totally unusual.”
There also have been two construction liens filed against the property, totaling slightly more than $1.3 million.
One of the liens was mutually agreed upon, and the other will be paid after studies showing hazardous materials in the area are on file, Chappelle said.
“There’s no reason to think they couldn’t do a really fine job somewhere else … but they certainly have not done a fine job in Ann Arbor,” Briere said.
East Lansing City Councilmember Nathan Triplett said these issues were brought before the council’s attention, but most of the council had a chance to speak with Chappelle.
“With a project of this size, there’s always a chance there will be complications, but the more planning we do up front, the smoother the process will be,” Triplett said.
Jim van Ravensway, director of planning and community development for East Lansing, said he is fully aware of what is going on in Ann Arbor, but he is not at all concerned.
“Things are progressing as we anticipated, but we don’t have a firm date on when this project will actually begin construction,” he said.
Financing the project
The Ann Arbor project is partially funded by tax increment financing, which means the tax revenue the project generates during the next 30 years will pay for part of the project.
That process could begin in the next five years. It was slated to start before December, but Strathmore is asking for an extension.
“At this point, (the revenue) would be very small — it (would be) putting the project at risk to be paid back within the remaining 25 years, and five additional years assures that they have more time to pay it back,” said Patricia Denig, director of the Planning Services Division for Washtenaw County, which is the county where Ann Arbor resides.
Although Ann Arbor originally intended on issuing bonds for Broadway Village, it will be entirely financed without the city’s money. Eventually, a parking deck will be city owned, DiLeo said.
A different approach
The East Lansing City Council will vote on a plan to open a dialogue with the public on using city bonds as one method for financing the City Center II project at its meeting tonight. It is scheduled for 7:30 p.m. in the Union’s Gold rooms A and B.
If approved, a notice about the potential use of bonds would appear in the newspaper, said Mary Haskell, finance director for East Lansing. The bond issue will be put on the ballot if 10 percent of registered voters file a signature within 45 days. But, if no one files or a petition is invalid, the decision will go before the City Council.
The money that would be generated by this bond is estimated to be between $25 million and $30 million, Triplett said.
“The parking structure is going to be city owned, as well as the public space. We’re not issuing bonds for the developer, we’re issuing bonds for city-owned infrastructure,” Haskell said.
The rest of the project will be covered by Strathmore.Under the project’s financing, the bonds should be paid back by the tax dollars it produces.
One concern with this type of financing is that if the project does not generate enough taxes, there is a substantial risk that bonds couldn’t be paid back, said Karen Sidney, a CPA in Ann Arbor, who has concerns with the project there.
However, this isn’t expected to be a problem for East Lansing, van Ravensway said.
“Bonding will occur simultaneously with the project — we would not be bonding if (construction) didn’t occur,” he said. “We anticipate for that, we prepare for that.”
Commentary
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student
(09/16/08 12:10am)Report
Lets move forward with City Center II. This will improve East Lansing in a variety of ways. Also, lets move forward with the East Village development. Along with these two projects, plus the changes in the campus of Michigan State University, we are looking at the economic, lifestyle, and architectonic transformation of MSU-EL-Lansing. This will bring progress to our beautiful town.
Steve
(09/16/08 4:54am)Report
HAHAHA the developer bounced a check to the City of Ann Arbor! are you kidding me!
spartan
(09/16/08 7:04am)Report
i think the city needs to be careful with these projects and make sure they aren’t the ones getting screwed in the end
spartan22
(09/16/08 8:12am)Report
Just to note that not a single person opposed to this mostrous project was interviewed or quoted in this article. Only local government officials and developers. How’s that for “fair and balanced”?
Also, Strathmore owes back taxes, bounces checks, and runs roughshod over civic opposition in East Lansing (and there is vocal opposition) but we are supposed to chill out and not worry about anything? How’s that for transparency, accountability, and sound leadership?
FYI
(09/16/08 10:09am)Report
anybody who agrees 100% with city center 2 and east village is kidding themselves…both of these projects are immensely flawed in more ways than one and this article only further proves it…mayb after enough failed attempts to create an over built(city center2) or cookie cutter (east vilalge)east lansing the officials will do the right thing and go back to the drawing boards (and mayb listen to the community too for once)
Dave
(09/16/08 12:25pm)Report
It is unbeleivable Jim VanRavensway is fully aware of what’s going on in Ann Arbor, but not at all concerned. How is a developer who bounces checks and owes back taxes going to make a project like this successful? These are red flags that should warn him,the Mayor,and the City Counsel something is wrong.
neighbor
(09/16/08 12:38pm)Report
As someone who has watched CCII closely from the….when it was finally made public, I am pleased with many of the changes that have come about because of community input. Having said that, I am still extremely concerned and nervous about whether or not this project is successful. From the onset of construction, to the months and years of having the area torn up, to the filling of business and residential units. All these things have to go almost perfectly, or else the city is in real trouble. This beginning does not give me a real warm and fuzzy feeling.
thyneighbor'swife
(09/16/08 1:55pm)Report
Actually, this article is far more balanced than what appeared in The Lansing State Journal today; the LSJ article makes very little of Strathmore’s financial difficulties or the situation in Ann Arbor. I think this piece represents much deeper thought and better research, and I will add that I am a person who has publically opposed City Center II, Ms. Bush contacted me for an interview, and I didn’t get back to her in time. All of that aside, it is not news to the City that Strathmore has issues in Ann Arbor, or that they are having difficulty with financing the project. The City really wants development in that area, and Strathmore, for better or worse, was the only developer willing to take on the project. Time will tell whether their decision was worth the risk, and I hope that part of the “reveal” involves neither taxpayers on the hook if the project doesn’t work out, nor condos and apartments turned into rentals if the units don’t sell.
Andrew
(09/16/08 2:23pm)Report
come on people! this project is exactly what EL needs. downtown is pretty lackluster now… it needs more cafes, more resturants, more bars, more retail, more condos more apts. The same people against this project are the same ones that want like a Traders Joes to come to downtown…well traders joes or whole foods, wont move down, until a market is established. this project, will help bring in the retailers and lifestyle that we all want. Far too much is at stake to let this project die. I cant wait for this to be completed! Plus it will be great when the “lot 1” redevelopment goes thru. two other big name developers are bidding for that, and that will definitly change the face of downtown. Then east village :) cant wait!
Hans Larsen
(09/16/08 3:10pm)Report
City Officials misled the citizen taxpayers and deceived them by promising that the taxpayers would not have to fund this private development.
City officials said that Strathmore Development would fund it:
“East Lansing residents will not bear the cost of the $116.4 million City Center II project, despite concerns, City Manager Ted Staton said.”
Here is the link.
http://statenews.com/index.php/article/2008/06/city_center_ii_to_be_funded_by_developers (9-16-08 article in State News)
Now the truth has surfaced that the City of East Lansing would like to consider issuing municipal bonds that must be repaid by the citizen taxpayers. Furthermore, most of the $125 million project will be paid for in taxpayer money: mis-using TIF funding (property tax revenues earmarked (taken out of the general revenue fund)to pay off the debt, eliminating the single business tax (money that would have otherwise gone to worthy causes), using Brownfield Redevelopment incentives (misused in this prime piece of real estate that takes money away from other, more needy causes), utilizing MEDC (Michigan Economic Development Corporation) funding (taxpayer money used for private development).
The City Council voted in favor the project months ago, and now they are trying to figure out how to pay for it. With all of the empty hotel rooms and the oversupply of housing (and dropping home values)in East Lansing, who needs a fancy boutique hotel, posh restaurant, and condos/apartments? In this economy, who needs another performing arts theatre? The citizen taxpayers do not understand the fact that WE(the 14,000 households) are on the hook to pay for all of this debt, for a private development that we do not need and cannot afford.
It is not too late to do the responsible thing and stop this project now. We must put the bond issue on this autumn’s ballot now, and fight the public financing of this wasteful, pork-barrel project.
Chewie
(09/16/08 5:14pm)Report
Having followed this continuing story closely, I’m starting to get the feeling that the EL City Council is in a bit over its head with this project. They’re staking an enormous share of the city’s future prosperity to a developer (Strathmore) that is apparently barely financially solvent. That’s a recipe for municipal disaster, as many small cities have learned the hard way.
All EL residents — homeowners especially — should keep a close eye on this one.
Kate
(09/16/08 9:54pm)Report
CCII is definitely NOT what this city needs. I’ve been following this project for months now and it really seems to follow only City Council’s agenda. Strathmore wants to put in high-end apartments and condos, which, with today’s economy, probably won’t sell. They are targeting young professionals and young families, and while I totally agree that EL needs to foster better student-nonstudent relationships, I don’t think that putting a bunch of apartments and condos for families right next to a bunch of frat houses is such a great idea.
I love the idea of getting rid of that old bank and putting in something worthwhile and I think new restaurants and shops would be great, but not the upscale types of establishments that Kevin McGraw was alluding to when I talked to him about this project a while ago. Students make up a lot of downtown’s customers, and things should be put in there that students can afford. If you need an example from Ann Arbor, take the Earthen Jar as opposed to, say, PF Changs.
Pepper
(09/16/08 9:56pm)Report
this is all just part of the city’s attempts to push all students to the “north tier” IE Chandlers.
how smart is it that EL is trying to move studnets away from campus while the university is trying to get rid of roads and discourage people from driving on campus?
i wish the city didnt hate us.
sparty2
(09/17/08 1:26pm)Report
once the city builds these half thought out projects that sit half empty they’ll realize how much they need the students…it does create other opportunities for a city like Lansing though…could u imagine if they do a direct line from old town to campus and create housing for students in old town…it could help jump start that area in a huge way and beats living in the middle of a nowhere(chandlers)…so if el decides to give students the finger hopefully better housing options than chandlers become available for students
Phil Bellfy
(09/23/08 12:28pm)Report
Students should be aware that City Center II was conceived of as a way to eliminate affordable student rentals in an effort to attract more “up-scale” patrons and residents to “our downtown.” Consequently, it is in the student’s best interest to get behind those of us who are opposing this ill-conceived project. But, please understand that we are not opposed to “development” per se, and certainly not at all opposed to bringing in more shops, restaurants, etc. to our downtown. But, with the glut of condos on the market now, and the glut of parking capacity in downtown, it is fiscal folly to go forward with this project as if the financial world isn’t in a serious “meltdown” mode. As was mentioned in the article, developers are having difficulty attracting capital —the City Center II project faces the same hurdles (and I think the “liquidity crisis” we now face has placed those hurdles at unprecedented heights).