Council discusses future financing for City Center II’s parking area
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The East Lansing City Council struggled to come to a decision on financing a portion of the controversial City Center II development project during its work session Tuesday night, debating the pros and cons of both long- and short-term financing.
The council is scheduled to bring up the matter again during its Feb. 7 meeting.
The $97 million development project would bring a theater, office and retail space and other amenities to the area near Abbot Road and Grand River Avenue.
The city owes more than $5.4 million in principal on bond anticipation notes, or BAN’s, it previously bought to finance four parcels of property on Evergreen Avenue planned for use as parking near the project.
The BAN’s — which last three years — were purchased in anticipation of the start of project, East Lansing Finance Director Mary Haskell said during the meeting, but with the project delayed, the city must refinance the parcels.
The payment is due April 1.
The city can refinance the bond anticipation notes for an additional three years before it would have the option to either take on long-term debt or pay off the notes, Haskell said.
Council members debated the merits of both long-term financing and refinancing the BAN’s in the short-term for an additional three years.
Councilmember Vic Loomis said the city needs to “look long and hard” at the various interest rates
and financing associated with the parcels of land.
Councilmember Don Power speculated that the property on which the parking garage would sit might not be necessary to the entire City Center II project, but Tim Dempsey, East Lansing’s planning and community development director, said during the meeting the potential customer demand for the project requires extra parking.
“If those are all occupied, … the answer would be, ‘Yes, you do need some additional parking,’” Dempsey said of the proposed businesses in the area.
The project has been riddled with financial troubles, including foreclosure of portions of the property in 2009 and the June 2011 discovery that Scott Chappelle, president of the project’s development company, owed hundreds of thousands of dollars in personal taxes to the IRS.
Power also said during the meeting that the timeline in which council must make a decision is too short.
“This is a problem,” he said. “I don’t know how we got ourselves into this, but we are here now.”
Commentary
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Eliot Singer
(02/01/12 8:55am)Report
The most appalling thing was that the original intent was to place a decision on how to refinance the BANS on a consent agenda with no public debate and no public input and no consideration of different options and of the whole City Center II disaster. I trust the next work session discussion will be followed by a public session.
Dempsey is full of it. The current site design for City Center II is financially impossible and always has been, which is how the whole mess got started. There has never been a market analysis. The bonds for the project, even ignoring the risk that the developer might abscond with the money, could not be paid for. Staton did us a favor by trying to get $28.5 million bonds issued in secret before he fled, because they show the numbers. There would be an $8-$10 million shortfall in revenues for debt service over the first 10 years, even if CC II was built and successful. So the use of further bonds is out the window. Someone with Strathmore’s track record of a dozen or so foreclosures, breaches of contract, staggering losses to lenders and investors, tax troubles, and so on, is unlikely to raise anywhere near enough private capital for the project anyway, and with more bonds off the table, the whole thing goes up in smoke. Alternative redevelopment by credible developers would be on a smaller scale and would be able to incorporate parking into the portion now owned by Strathmore (and the city owned former bank on Abbot). As to parking, the city’s parking is half empty at peak hours and the City Center I parking lot alone is falling about $600,000 short of debt service on its bonds a decade after being built, with other parking structures also falling short of debt service. If a parking structure is “needed” it will pay for itself with net parking revenues and can and should be financed with parking revenue bonds not LTGO bonds backed by full faith and credit of taxpayers.
City center II is dead (as State News declared a long time ago). The city made an incredibly stupid financial decision to issue $5.45 million in bonds to buy properties worth about 1/3 that in anticipation of a project that defied reality with a developer who even by the properties were being bought was known to be undergoing foreclosures and who had a history of not paying taxes. There is no way these BANs or subsequent refinancing will ever be paid for by City Center II or future redevelopment. If you mail off a check to the guy from Nigeria asking for money and you lose it, don’t try to come up with schemes to get it back. You did something stupid.
Smart people armed with facts and numbers tried to put a stop to City Center II before it became a disaster. They were ignored. East Lansing citizens got what they deserved, which is about $1.5 million worth of rentals for $5.45 million. They are going to have to pay for it.
Phil Bellfy
(02/01/12 3:46pm)Report
I would just like to add a little bit to what Eliot Singer wrote —The biggest problem the City faces is the $6m that needs to be refinanced by April 1. And, yes, the Council (and staff and Ted Staton) were asleep at the wheel, and, in fact, have been asleep for at least 4-1/2 years.
But, the other big problem is that the CCII Development Agreement has expired, and, along with it, the Special Use Permit, and the Site Plan are also “expired” (as in dead, dead, dead) All three of these documents are now —quite literally— not worth the paper they’re printed on.
So, yes, the City, the Council, and the DDA —which means all of us— are in deep doo-doo, and we’ll all pay for their incompetence through higher rents, higher taxes, or reduced services (most likely, a combination of all three).
Oh, one last thing —Tim! I got a bridge in Alaska I’d like to sell you!!
student
(02/01/12 8:39pm)Report
I am afraid most people are evaluating this project based on the explicit costs and are not taking into consideration its positive externalities. This project is currently controversial and tedious but it is necessary for the present and future of East Lansing.
Eliot Singer
(02/01/12 10:16pm)Report
Gee it isn’t fair to evaluate a project based on the fact that it is a financial boondoggle and the developer doesn’t pay his bills and taxes and walks away leaving lenders and investors licking their wounds?
Grow up Ted. You screwed up big time and everybody knows it. I trust you won’t last long in your new job because your new bosses are less easy to snow. Your stupidity has cost us something like $45 million. “Positive externalities?”