Demolition for City Center II project stalled
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Demolition for a multimillion dollar development in East Lansing is now projected to begin at the end of this year or beginning of the next, following a finance meeting between city officials and the developer.
City Center II, a $116.4 million mixed-use project slated for development on the corner of Abbot Road and Grand River and Evergreen avenues, has been plagued by delays in financial planning for the last two years.
In summer 2009, city officials said demolition was projected to begin in spring of this year. Earlier this summer, officials said a demolition date would be decided after the August finance meeting with the developer and city officials.
The project, proposed by Strathmore Development Co., is on hold while a financing plan is worked out, said Scott Chappelle, president of the company.
“We believe we have all the pieces of financing and we’re working on moving the project forward,” he said.
The project cannot progress until Chappelle submits a finance plan and legal descriptions of the properties contained within that plan, East Lansing Mayor Vic Loomis said.
Chappelle has not provided a time line for the completion of the documents, Loomis said.
“Those are the two documents that the developer owes us under the agreement,” he said. “Until he is forthcoming with those documents, there is really nothing that the council can do.”
Chappelle could not be reached for further comment on the status of these documents.
New project underwriting standards set by the Federal Housing Administration and a high demand for U.S. Department of Housing and Urban Development, or HUD, funding have presented delays in preparing the financing plan of the project, said Tim Dempsey, East Lansing’s planning and community development director.
“In the current economic climate, the HUD source of funding is one of the primary opportunities for developers right now,” he said. “As a result, there is a high level of demand for the program (and) processing for these loan reviews is taking longer.”
The project will begin demolition later than originally planned because of the reappraisal and submittal of updated information regarding the property, Dempsey said.
“The timing on this is taking longer than we had hoped, but that’s the nature of the real estate market,” he said.
“Lenders are being very cautious.”
The developer and East Lansing officials have done as much as they can to keep the project moving, Councilmember Kevin Beard said.
“We have progressed on our end of this deal,” he said. “The Downtown Development Authority has purchased property on Evergreen Avenue where the ramps are located. We are trying to be as responsible as we can be with the property we have acquired through this process.”
City officials have requested frequent updates from the developer about the financing of the project, but the current loan market makes finding funding difficult, Beard said.
“It is just very tough to find a lender to put money up for something of this scale,” he said. “We have seen this all over the country. It’s not unique to us by any means.”
Commentary
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Eliot Singer
(09/07/10 10:30am)Report
The same old excuses. This getting tiresome, not to mention the continued threat City Center II poses to the city’s finances.
Even with the annual turnover, State News reporters need to stay up with Public Response, which is where critics of East Lansing government try to act as citizen-watchdogs, something that is really the job of the press. Of course, city officials like to portray whistleblowers as cranks and bad guys, but we have the facts on our side. For the most recent on City Center II, look under “East Lansing” (also lots of history):
http://www.publicresponse.com/?page=article&cid=378
For City Center II, East Lansing government has already borrowed $700,000 from the state (Michigan Economic Development Corporation), of which half the loan was forgiven ($350,000 lost to state taxpayers), with, as far as we know, the other half still owed by the city. The city has also already taken out a $5,495 million LTGO bond for the project. We have no idea how much has been expended by the city in planning, spin, legal fees, and so on.
The plan calls for the city to issue $30 million in LTGO bonds, plus over $10 million in Parking Bonds. $5,852,544 from the LTGO bonds is to be given to the developer as part of its share of the financing!!! The LTGO bonds are supposed to be paid for by tax increment financing (probably the parking bonds can’t be covered by parking fees, so they will have to be paid for by TIF as well). LTGO bonds are guaranteed by the full faith and credit of the city, that is, by tax revenues that are also used for public safety and public services, the city’s operating budget. Tax increment financing counts on a development project succeeding and having a high enough State Equalized Value to cover bonds and other costs. This means the development must be completed and avoid being auctioned off in foreclosure should it be unable to pay its bills, to have a high enough SEV for TIF to work.
City Center II has always been extremely risky. City government is guilty of putting tax revenues at risk to engage in real estate speculation. And it is doing so in partnership with a developer with a history of unpaid taxes, properties with liens and foreclosure proceedings, and serious credibility problems.
The developer told the State News last spring he had submitted an application for a HUD loan guarantee. Repeated Freedom of Information Act requests to HUD have shown no such application. The City Manager has also said there was considerable correspondence between the developer and HUD, though no such documents have been found.
It should also be understood that there has never been a chance this developer would receive a HUD loan guarantee. City officials seem to think that because they can get letters of support from the governor, senators, etc.—how hard is that?—it will pressure HUD. Believe it or not, unlike the Michigan Economic Development Corporation, HUD actually has standards. It will not give a loan guarantee to a developer with a bad credit history. Period.
The continuing excuse that there is a tough credit market is a crock. The credit market isn’t as loose as it was when bankers were actively laundering high-risk loans (which is what brought down the banking system and the economy), but there is lots of capital out there desperately looking for returns better than Treasury bonds. The real reasons City Center II can’t get financing is because the developer is a very high credit risk (last known to have been using mezzanine financing, which is more or less the corporate equivalent of going to a loan shark) and because the projected costs for building CC II are so high, even with all the government subsidies and tax breaks, the developer would have to charge multiples of the current highest local market rates just to cover annual expenses. (City government officials have refused to produce an independent market analysis, but it isn’t hard to come up with our own—we know how many square feet and we known how much current premium square footage is going for.)
City officials are not willing to admit the obvious, because they have vested so much in it and want to postpone the day of reckoning, but City Center II is dead. Actually, it was never anything but an expensive delusion.
Philip
(09/07/10 11:23am)Report
I’d like for the critics of the project to explain what exactly the city should do with all those unsightly, ugly abandoned buildings right in the heart of the downtown business district if this proposal doesn’t pan out?
I don’t see a line of developers, or even development ideas for using that land or the buildings, or even getting rid of the old abandoned, unsightly and economicly damaging buildings there.
The problem is that the economy is terrible, and this is especially so in the commercial real estate market. The fact that there is a developer even willing to do anything at all with that property is a miracle at this point.
Downtown East Lansing, right now, offers almost nothing for people over the age of 25. It is a disgrace. Unless something better comes along, I say give this developer as much time as they need.
Eliot Singer
(09/07/10 3:20pm)Report
Critics of CC II are just as unhappy with the disaster zone as everybody else, although we do point out it is much worse because it was trashed so it would qualify as a Brownfield site for tax breaks. It is possible more modest development would have occurred with some of the buildings according to the market had the city not insisted on pursuing a grandiose plan (actually much scaled back) that is much too expensive for the existing East Lansing market.
I wish I had a clue what to do with the site. I wish I had a clue what to do with all the houses that can’t sell or the empty offices and closed shops. I wish I had a clue how to produce jobs for recent MSU grads so they didn’t have to move home with their parents. This is the worst economy since the 1930s, only officials in East Lansing don’t seem to get it.
Putting tax revenues at risk to engage in real estate speculation in partnership with a developer with a long history of financial troubles and credibility problems is not the solution. The city needs to get out at as little cost as possible.
If the developer wants to pursue his own financing for the property he already owns, he can have as long as he likes. Not that he is going to get it. But the city has debts already for the project and will need to deal with the $5.5 million bond before long. We can’t afford to have more money spent on pursuing a boondoggle when public services are suffering. And we certainly can’t afford to have more bonds issued for a project that is fiscally irresponsible.
CCII
(09/07/10 4:37pm)Report
This is getting old already. When will the developer just admit that this is the same as all of the other projects they have started and then failed at, and just throw in the towel. There are many better things that could be built on this site, by developers that can actually develop a project.
why so much
(09/07/10 7:10pm)Report
how is it that they built a half mile tall palace of a sky scraper in dubai (burj Khalifa) for 1.5 billion dollars, and a development as small as City Center II is going to cost 115 mill? Yes cheap imported labour explains some of the cost, but come on! How does this project cost 115 million dollars?
Philip
(09/08/10 3:17pm)Report
Again, it is easy to criticize this developer without coming up with a counterproposal for what to do with the abandoned buildings downtown. aybe the City is giving them all this leeway because there are no better offers? If someone has any better and cheaper ideas, I bet the City would gladly review those and send them to the planning comission.
And, it is hardly surprising that financing a big commercial real estate venture in the State of Michigan during this economic climate is difficult. Patience is a virtue.
RC River
(09/08/10 10:15pm)Report
View the plans. The problem location is short and block-sized. The intended solution is both tall and wide. The EL page for “City Center” states:
“The proposed 5.25-acre project includes a ten-story, mixed-use building at the corner of Grand River Avenue and Abbot Road, which will include residential units, retail, restaurant and office space, along with a boutique hotel, public exhibition space and a 400-seat performing arts theater. To the north would be a five-story, mixed-use building with retail and restaurant space on the first floor and residential units on the upper floors. Along Evergreen Avenue a 520-space parking structure is proposed to serve the development. An overhead skywalk is proposed to connect the buildings along Abbot Road to the parking structure. To the west of the parking structure is a four-story residential building. The last building being proposed includes 9 townhouses backing up to Valley Court Park.”
It’s like needing a nose job but being offered a total face transplant.
City Council has never lacked the power to order abatement of a nuisance. They allow it to persist. They pretend that this gold-plated plan is the only option.
Philip
(09/10/10 11:10am)Report
I wonder of the folks complaining about the project understand how things work. The City iof not the driving force behind the project. A private developer came up with a proposal to re-develop that property, and the City chipped in some tax increment financing and other things to help the developer with the project.
This doesn’t mean that the City prefers this project over others. It may mean that THERE WERE NO OTHER VIABLE PROJECTS.
The provate develpper can come up with whatever plans and financing it wants. So long as the project meets the relevant city ordinances and state and federal guidelines, etc, there isn’t a lot the city can do about it.
But, as I said, if people don’t like this particular project — there is an easy solution. Go out and find money and a developer who will do what YOU think should be done with the property (keeping in mind that the developer will not work for free and will expect to make a profit). When you find a willing buyer for the property (Also keep in mind that they OWN that property and have the right to develop it as they see fit), who will pay what the current owner is willing to accept, you can come up with your own ideas.
Until then, please for the love of God stop whining.