On November 4th, East Lansing residents will be asked to vote to give East Lansing City Council the right to sell parking lots #4, #8 and #15 for redevelopment to private developers
Parking lot # 4, located on the northwest corner of Albert Avenue and Abbot Road (south of Dublin Square)
Parking lot # 8, located east of Valley Court Park between Evergreen Avenue and Valley Court (By Crunchy’s and Peoples Church)
Parking lot # 15, located across from City Hall between Abbot Road and Evergreen Avenue (North of Dublin accross from City Hall)
Will voting to sell parking lots clean up blight?
No. None of the properties in the DTN site plan are blighted. The site plan would replace parking lots, a modern privately owned student rental, four historic houses bought by the city for City Center II (long used as student rentals and no more blighted than many other student rental houses), and a contemporary building by noted architect, Bert Seyfarth. When DTN failed to purchase the privately owned City Center II properties, it lost the ability to redevelop the blighted properties about which everyone is concerned.
Is developing the parking lots necessary to enable redevelopment of the blighted City Center II properties?
No. The properties along Grand River can be redeveloped within that space, perhaps with a little road reconfiguration, as a smaller scale project. The original City Center II concept was much smaller. A classy hotel and conference center, along the lines of the Charles Hotel in Cambridge, would be quite feasible (FRIB has indicated a desire for a conference center downtown). The planning department has, in fact, endorsed a recent self-contained proposal from the City Center II developer (relabeled Park District Investment Group), although there is inadequate parking and it is unlikely to get financed, due to the developer’s credit-risk profile. The parking lots are only necessary for a mega project.
What is the best way to get action on the blighted private properties?
The properties were allowed to become blighted by the City Center II developer (and city officials), and the biggest obstacle to redevelopment is the existing $32 million mortgage (in default). The owner does not want to sell and the high risk lender who made bad loans does not want to foreclose as long as they think they can do better than a sale at fair market value (a fraction of the mortgage). Experts on commercial mortgages generally agree if nothing had been done after the rejection of City Center II to encourage holding out for a better deal, the lender would have by now seized the properties and sold them, written off the losses, and tried to recover some from the personal guarantor. This is still the most likely outcome, but delayed by 2-3 years by the Park District process. Condemning the buildings is another option.
Why do city officials want a mega Park District development?
About a decade ago, the very ambitious former city manager and his allies decided they wanted to transform East Lansing into “the next great city in the midwest” with an aggressive use of public funding for private development. The result was the Museum Place/City Center II mega development that was never financially viable for the city. Even after the real estate bubble burst and the Great Recession ensued and the over-leveraged developer saw about a dozen foreclosures on projects in Michigan and Florida, city officials persisted. The reasons why such a development is supposed to be a good thing, and what the development should entail, has continued to change. By now the motive seems to be that the city officials and politicians who have been pushing such a development for such a long time are so vested in it, they won’t let go and accept a smaller project to clean up the blight.
Are there any restrictions attached to voter approval of a sale?
No. There are no guarantees as to developer, type of development, or time frame. When voters approved sale of the old DPW building in 2002, we were promised its sale and redevelopment would pay for the new DPW building without bonds. Ten years and $9.34 million in bonds for the new DPW building later, the old DPW building was sold for $350,000. After Lansing voters recently approved sale of the Red Cedar Golf Course, the “nice guy” who was going to bring in a world class Boston developer was dumped and much of the cost for development will be foisted on taxpayers. DTN might back out. The site plan or financial impact on the city might change. Officials claim they do not have immediate plans for Lot 8 by Peoples Church, but want to be able to redevelop later. Voters are being asked to write a blank check and trust government, current or future, to act wisely in the public interest.
Should the latest version of a site plan by DTN, just in time for the vote, with fewer student rental beds, 55-plus residences, and an office building, be taken at face value?
No. Previously plans included many hundreds of new student rental beds and that is where the money is in the current market. Market analysis has persistently said there is no need for downtown office space, and there is empty high-end existing space. The 55-plus building is in a bad location for senior housing, and all those leading the advocacy for a high-class senior housing option near campus are actively campaigning for a no vote. Three floors of parking have been added from previous plan, with no indication as to who will pay for the construction cost (very likely meaning taxpayers, when all is said and done). Unlike previous versions, no finance plan has been submitted, which is the key to knowing whether a plan might work. This looks like a plan changed to win votes.
Can site plans or brownfield tax incentive plans be changed after approval?
Yes. Plans for redevelopment projects have frequently been changed, with planning staff, development authorities, and developer-friendly members of Council happy to oblige. A restaurant incubator, as the public purpose for a brownfield plan, becomes a bar with a high priced lease; a fancy restaurant becomes a sports bar; apartments for young professionals, empty nesters, and families, become student rentals; condos for permanent residents get bought by parents for college student children; if the developer doesn’t like the terms of a brownfield plan, it comes back and gets better terms.
Will development resulting from sale of parking lots bring new tax revenue to the city?
No. This would be a brownfield project, and given the extent of infrastructure and parking structure costs, would probably involve 100% diversion of new tax revenue (tax increment) for 30 years. Meanwhile homeowners in the neighborhoods and other existing taxpayers would be expected to pick up the costs of public services for the development, which rise over time due to inflation, as with previous brownfield projects and with the Downtown Development Authority TIF district (downtown business district) that only contributes to public service and public safety costs at 1991 levels.
What impact will proposed redevelopment have on the city’s finances?
Although city officials don’t want to talk about it, the city issued bonds (technically bond anticipation notes) for $5.45 million in 2009, when the economy was collapsing and the developer’s abysmal track record common knowledge, to buy the Evergreen properties for three times market value. Since then, the properties have continued to be leased, which has covered much or all of the debt payment on the interest-free BANs. Permanent refinancing (interest plus principal) with 30 year bonds for ~$5.85 million and doing a better job of leasing would leave a deficit in debt payment of ~$150,000 per year, until there are better circumstances for deciding to keep or sell the properties. Proposed financing plans from DTN have included a ULA loan component, a low interest loan from the state to city, which is amortized (paid back) over 10 years. Even for just $3 million (with sale of properties covering rest of existing city debt), this would require $315,000 per year loan repayment, with no lease revenue to compensate, plus lost parking revenue. This would leave the city with ~$375,000 per year deficit, not including added public service costs. It is unlikely that a developer would agree to a deal better for the city and likely, given precedent of changing terms after the fact, a deal would be even worse. If the city is asked to issue bonds, which seems likely from the latest DTN site plan with added floors of parking, the deficit for the city would be much, much worse.
Can government be trusted to make good decisions in the public interest if voters approve sale?
Definitely no! Those who have followed City Center II, St. Anne Lofts, Avondale Square, Campus Village, and lesser known troubled redevelopment projects are well aware that a government determined to make development happen lacks the checks and balances to protect the public interest. With City Center II, we were repeatedly lied to, while city officials continued to treat the developer as a client/partner. Without a concerted campaign by community activists, city officials would have gambled $30 million (or $23.8 million in last City Center II financing plan) on a developer they knew had a disturbing history of losing other people’s money, including of the state employee/teacher pension plan. With St. Anne Lofts, the planning department helped the developer get away with adding a floor without permission and changed the brownfield plan in his favor. Review of standards to protect neighborhoods have consistently been slanted to help favored developers. Planning staff who have been repeatedly caught lying or misrepresenting have not been held accountable. Public concerns are dismissed without adequate response. Officials have refused to review past development projects and have claimed failed, partly completed, or underperforming projects, some at great financial cost to citizens, as successes. Not a single public-private development project in East Lansing has lived up to promises. Reforms sought by community activists to better protect neighborhoods and city finances have obtained no traction in city hall. East Lansing officials are still pushing an obsolete model for tax incentives for discretionary redevelopment, refusing to participate in discussions of how to do better at local and national levels (in which Ingham County Treasurer and Congressional candidate, Eric Schertzing has played a thoughtful part).
Don’t we need redevelopment?
We need responsible, not irresponsible, redevelopment. City officials failed to institute reforms before placing sale of parking lots on ballot. They failed to include ballot language that would have restricted conditions for development and set a short time frame. They could have placed sale of properties allegedly owned by the DDA, for which taxpayers are responsible for paying for the bonds, on the ballot, instead of using the DDA to skirt the city charter. They could have placed sales as separate votes, so voters could vote yes on sale of Lot 4 but not Lot 8 (near the church). There is no need to be hurried into a bad outcome. After reforms are in place and developer-friendly city officials and politicians are replaced by neighborhood-friendly ones, we can have responsible redevelopment.
Written by: Eliot Singer, community activist