East Lansing’s City Council voted on Tuesday night to clarify the Center City District ground lease deal so the City can finally start getting paid for use of the public land. I explain the details of the deal in a new report up today at ELi .
Readers of Public Response are often interested in the backstories of major stories, so I wanted to make sure you note you have the opportunity to see my correspondence with city officials and the developers in terms of trying to get answers about when we would finally get paid. It includes my following up on a Facebook exchange between the mayor and Matt Kazmierski, editor of Public Response. That correspondence is available through this link:
Alice Dreger
I hope everyone takes the time to read Alice Dreger’s email chain attempting to get simple answers to simple questions regarding lease payments for the land formerly known as Parking Lot #1. Obfuscation to the max. And one has to wonder why?? Incompetence? Arrogance? Something more underhanded?
Again and again, I am grateful to Alice for her persistence and perseverance in following these apparently very complicated issues.
Knowledge is power.
Nancy Cuddeback
Well, I like this article. Especially that Alice gave a link to the lengthy email chain that she and I had regarding her question. I am not sure why Nancy thinks that I was obfuscating though. Just a couple of comments though. When Alice first asked the question of staff, I don’t think that anyone could have answered it. Since work was ongoing, it would not have been possible to predict accurately when the CO was going to be issued for Building 2. So, the “correct” answer assumed that Alice’s analysis was correct and eventually used the building inspector’s estimation as to when he thought he might be able to issue a CO. I admire Tim D’s attempt to get a rent payment from the developer but the Development Agreement did not use a temporary CO as a standard to start rent payments (any future one will though!).
There are a couple of inaccuracies in Alice’s report. The motion made by Ruth was to conditionally approve the Development Agreement. That motion was amended to include amendments to Exhibit D1 (The Ground Lease) that finalized the ground lease and an amendment to Exibit E (The Parking Agreement). The contingency was to wait to sign the agreement until all Exhibits were completed. Most of those incomplete Exhibits were eventually signed by others. Before the motion was voted on, it was clarified: “Altmann: ‘So, with the agreement essentially being not final what we are voting on is to authorize the Mayor to sign the document when it becomes final.'” I had also amended the motion to require that the parking agreement and the other exhibits conform to the Development Agreement. The Ground Lease was complete on the date of the motion. Alice says the terms of the ground lease did not get worked out for “several more months.” That is incorrect, I signed it later because I wasn’t signing anything untill the whole package was ready. There was no further negotiation on the Ground Lease until just recently. Also, the December 2017 addendum did not address the Ground Lease as Alice stated, it did not amend Exhibit D1 in any way.
This most recent Addendum, however, revised the Development Agreement to provide the City with an initial lease payment better than Alice (and me) initially thought would occur. Good work on the part of City staff.
Mark
I can’t resist responding to Meadows’ “learning curve” excuse for the latest revision to the Lotto 1 development agreement.
You can only learn from mistakes by admitting they are mistakes, by systematic review of the causes of these mistakes, and by accountability for these mistakes. Neither COEL nor MEDC have been willing to engage in systematic, public, evaluations of public-private, tax-incentivized redevelopment projects and programs, nor have they been willing to institute reforms that those of us who have undertaken systematic reviews consider absolutely necessary to protect the public interest.
With Lotto 1, don’t forget the version of the development agreement that had the $200,000 lease reduced to $150,000, a “mistake” that was caught by a private citizen, not by staff, not by city attorney, not by the mayor with a law degree. What did you learn from that?
You have promised to refinance the Lotto 1 bond of more than $25 million principal in 2020. The private placement was done without a coverage-ratio spreadsheet. You won’t be able to do an accurate spreadsheet until after the completed taxable value of the project is assessed. Are you prepared to make a good-faith effort to refinance? Do you know how much that will cost, in addition to the previous outlandish payment to the bond attorneys?
You managed to get into an exclusive deal over the Evergreen properties, which has proven problematic. It is a violation of the city charter to do business with anyone who owes the city money, including taxes. At the top of my list of reforms in the aftermath of City Center II was to exclude anyone with a track record of fraud, serial tax delinquencies, foreclosures or bankruptcies, etc. from public-private development projects. That’s called learning from mistakes.
I can’t begin to review all the mistakes in development agreements and brownfield plans from my era, but here are a few:
The back-loaded City Center II brownfield, approved by BRA, attorneys, and Council, would have had a deficit of about $10 million in the first decade, even accepting its own premises of 3.5% inflation and an initial taxable value much higher than what the actual assessment would have been.
After we finally killed City Center to by winning the war with the developer over what would be included in due diligence (including my demand for a coverage ratio and independent assessment), with its Park District sequel, the developer dictated due diligence and the task was turned over to some politically-connected amateurs. The result was the “clean-bill-of-health” fiasco. Have you learned anything about how to do proper due diligence? For example, other cities require a pro forma for public-private development projects.
St. Anne’s Lofts??!! One lesson, besides not letting developers get away with stuff and firing staff who helps them, should be that just because some downtown property owner with friends in city hall wants to become a developer does not mean he should.
Then there are a whole bunch of brownfield projects where developers were supposed to do something with a public purpose to justify a tax break but didn’t with no penalty (or came back and asked for a bigger tax break): the houses left to rot in the failed Campus Village/Chesterfield Hills quid pro quo, the restaurant-incubator that became a bar paying high rent, the apartments for families that became student rentals.
The lessons from these are, at a minimum: write air-tight agreements, where the penalties for reneging on public purpose are loss of tax break; do not get the city into debt dependent on financial success of a project making it financially impossible to hold the developer to public purpose commitments; and just say no when developers ask to make changes at the expense of public purpose.
Of course, when politicians, development authorities, and city and state developtocrats are committed to making big projects happen, just say no never happens, and there is no incentive to write air-tight agreements and enforce them, even if city attorneys had the competence to do so.
Regarding the Center City District ground lease made between the City and developers Harbor Bay and Ballein Development, Mark Meadows referred to this email chain when writing on Public Response, “I am not sure why Nancy [Cuddeback] thinks that I was obfuscating though.”
Public Response readers can look at the chain and judge for themselves. I expect they will concur with Nancy.
Mark Meadows also writes that no one could know when the Certificate of Occupancy for the new parking garage would be issued, and that’s why no one could answer the question, for months, when the lease would start and what the initial payments would be.
Use of the Freedom of Information Act and other avenues of inquiry show that the Master Development Agreement was written in a way that staff and the developers could not come to an agreement about when the ground lease payments to the City for the developers’ use of Lot 1 would start and how much they would be for.
That is exactly why the City Council had to vote this week on a Second Amendment to the Master Development Agreement: because the original agreement was written in a way that was unclear (or unreflective of reality) enough that the parties could not come to an agreement.
Mark Meadows additionally writes on Public Response, “I admire [then-Director of Planning] Tim D’s attempt to get a rent payment from the developer but the Development Agreement did not use a temporary CO as a standard to start rent payments (any future one will though!).”
If the Master Development Agreement for this $125 million public-private partnership had been written in a way that reflected the realities of development of this type – if it had anticipated a temporary CO standing in for a few months, as is common for big redevelopment projects; if it had spelled out what the pro rata lease payments would be based on precisely; if it had anticipated one single CO for the entire Albert Avenue structure and not just for a part – then the Master Development Agreement would not have required revision as it did this week again.
Mark Meadows’ response indicates that he, City staff, and the City Attorney are still learning how to do these deals.
The City and the DDA might consider hiring outside special counsel for these deals, as they do with so many of the lawsuits the City finds itself in, to protect the City’s finances. (I have suggested this many times.)
We are continuing to pay City Attorney Tom Yeadon for a lot of fixing his own work. His incentive to get it right the first time appears nonexistent. Much is to be gained by him by producing vague or torturously-worded contracts and questionable ordinances. (Reminder: Mark Meadows, Erik Altmann, and Ruth Beier recently voted 3-2 to give Mr. Yeadon another 3 years on his contract with a 25% raise in the contract.) He doesn’t get paid extra for keeping us out of trouble.
Here’s more information that Mark Meadows did not supply.
When the Center City Site Plan, SUP, and development agreement terms were formally considered by Council in June 2017, Director of Planning Tim Dempsey told Council details of the engineering and the site plan were still being worked out. Nevertheless, Council elected to vote through the project that day, and staff and the City Attorney did not stop them from doing so. The vote was 5-0, with Susan Woods (not Aaron Stephens) on Council at the time.
Council discussed at length the Master Development Agreement (MDA) at that meeting. At that point, the MDA was still missing most of the “exhibits,” including such important parts as the 49-year ground lease agreement and the commercial condominium documents, although drafts of the ground lease and parking agreements were presented, and Council did discuss and a memo that laid out “key terms” of the deal.
The tapes shows that the motion on approving the MDA, made by Council member Ruth Beier, was this:
“I move approval of the East Lansing Center City Master Development Agreement dated 6-20-2017 in our packet.”
So, the motion gave the mayor the authority to sign what was “in our packet.”
There was indeed, as Mark Meadows notes, some discussion, including by Erik Altmann, of what Council might be doing that day in terms of authorizing Mark Meadows to sign off later. But there was no amendment to that motion that had been made by Ruth Beier.
The vote was to approve what existed in the packet at that moment. That did not even include a final site plan. That came later.
The tape is here at http://eastlansing.granicus.com/MediaPlayer.php?view_id=2&clip_id=829&meta_id=51720 and the motion by Beier appears at about 3:40.
Further, as noted in this week’s ELi article, there are questions about what the Council could really legally delegate to Mark Meadows on this, as its powers to delegate away its authority are limited by law.
Just to be clear, about 200 pages of agreements and attachments were formally added to the MDA between the time Council voted on June 20 and when the Mark Meadows alone signed – without consulting back with Council in public – on October 31, 2017.
Notably, on October 10, 2017, a few weeks before Mark Meadows signed off on the MDA with the sub-agreements (on October 31), Council was asked to vote on a series of key agreements that were being added to the Center City District deal in order to satisfy what the major lender was requiring of the developers. These included parking lease agreements and an estoppel agreement designed to protect the lender’s security in the project.
But on October 10, 2017, Council approved those amendments, not the MDA itself, based on the motions made and recorded. At that meeting on October 10, 2017, there was no review of what had been added to the MDA, and there was no motion by Council to authorize Mark Meadows to approve it all on behalf of Council. Council only voted on the new agreements required by the lender.
That Council was seen as having to vote on these lender-required agreements suggests that there was no belief that Mark Meadows alone could approve significant changes to the deal, at least not in the eyes of the lender’s lawyers. That is interesting.
On October 31, 2017, Mark Meadows formally signed the MDA.
In November 2017, for ELi’s readers I examined more closely what was in the MDA and reported that key parts of it were wrong.
The construction parking agreement portion of the MDA was wrong because it required someone who was not a party to the agreement (Christman Company) to pay the City at least $350,000 for parking during construction, to make up for the revenue lost from Lot 1 (which was grossing $750,000 per year when closed for this project).
I also reported problems with the guarantee on the senior housing being built.
That month, November 2017, I also reported that the City had allowed demotion of Lot 1 to happen without the expected performance guarantees from the developer, and I reported throughout this period that the developer was struggling to obtain the performance guarantees required by the MDA.
On December 5, Council voted a resolution to amend the MDA, confirming my reporting. The MDA addendum (“First Addendum to Master Development Agreement”) approved in the resolution fixed the problem with the construction parking payment, fixed the problem with penalties for not building the senior housing, and also gave the developer an alternative way to deal with the performance guarantees (namely via the special bond approach).
The Second Amendment to the Master Development Agreement, voted through this week, also confirmed my reporting that the terms of the lease agreement were written in such a way that it wasn’t clear when the lease would start and what the initial payment would be.
All in all, the Center City deal-making was anirregular and sometimes legally questionable process, one in which Mark Meadows was often alone in making major decisions for the City, without further public consultation with City Council.
Brent Titus, the attorney for Royal Vlahakis has nodded to it lately to suggest that he wants for his client a similar deal – a Master Development Agreement approved fast, with all those pesky details worked out later.
The Center City District deal, like the Royal Vlahakis deal, is a good example of why independent factual reporting is necessary for a functional democracy. It shows why I volunteer research and reporting for my community.
My thanks to everyone who supports the work of the ELi independent news team.
I’m happy to answer any questions.
Alice Dreger
“Obfuscation is the obscuring of the intended meaning of communication by making the message difficult to understand usually with confusing and ambiguous language.” My answer to Alice’s questions were clear: I did not know the percentage of the ground leases to the total square footage and told her I would find out and give that info to her. I also repeatedly referred to a CO, not a TCO in response to her questions. I even pointed out that I did not think the MDA referred to a TCO, only a CO. And the missing piece is that at a council meeting I answered this question by referring to what I was told by the Chief Inspector: that he thought B2 would get its CO at the end of September (now moved to mid October). As to the rest of Alice’s story, I note that she takes credit for bringing forward issues with the MDA that the Council promptly addressed, which would be a good thing, not a bad thing. I would dispute that the MDA was unclear when the payments would start. It clearly stated they would begin when the CO was issued for B2, not a TCO. The MDA also clearly stated that during the first year the payment would equal the percentage of the Albert Street retail was leased. So, as Alice correctly computed, that amount would be $8500 per month and would begin one month after the CO was issued, as was clearly stated in the MDA. The staff’s negotiation with the developer to amend the MDA to provide the City with more $$ at an earlier date was not because the MDA was unclear, it was because the wait for the CO would trigger the payment later than was originally hoped. As to Alice’s argument regarding the grant of authority to sign the MDA, Erik’s point of information, agreed to by the maker of the motion, was sufficient to do so. I signed those documents that were provided to me for signature. I don’t think they would have been provided to me unless I was the authorized signatory. The parking agreement was in the “packet” that was discussed many months earlier. All exhibits to the MDA had to be complete before I was authorized to sign the MDA. When they were, I signed the MDA.
Alice also makes a statement that the site plan approval came later. That is just incorrect. The first item approved that night relating to Center City was the site plan. It was a 5-0 vote on a motion by Council Member Dreheim. That was followed by approval of the brownfield plan, also on a 5-0 vote and then followed by the unanimous vote that authorized the signing of the MDA at a future time. Alice may be confusing a site plan with the construction drawings which are submitted and approved by planning and building staff. She has previously disputedly said that those plans have not been reviewed correctly by the fire marshall.
Mark Meadows
Thanks to Mark Meadows for his response. It supports what I said previously: he and City staff did not know what they should have been easily able to know, two years into the deal, about the Center City lease payments for Lot 1. That’s why the DDA and the BRA had to vote today to amend the Center City Master Development Agreement – to fix the problems with the lease terms.
We keep paying Tom Yeadon as our City Attorney to fix what he didn’t get right the first time. What incentive does Mr. Yeadon have for getting things right when he keeps getting paid to redo his homework or (worse) defend it in court? His financial incentive is the opposite – to get it wrong the first time.
There may be the cost to him of public shame, but that has no effect on his contract, what with Meadows, Erik Altmann, and Ruth Beier recently voting (against their colleagues) to renew for THREE more years with a 25 percent increase.
I’m glad Mark Meadows thinks it’s “not a bad thing” that Council keeps revising Mr. Yeadon’s work based on my reporting of what he’s gotten wrong.
But what I would like is a City Attorney who is better at contracts than me. I have a Ph.D. It seems well past time to get a good J.D. for our City Attorney. I think many of us thought, after the last election, that we’d been seeing higher quality legal service for our money.
Mark Meadows also seems to agree that he is primarily responsible for signing off on the Center City District deal. It will last 49 years.
There was no appraisal done of Lot 1 before it was promised away for 49 years. We will never know what we could have gotten for that property that had been earning $750,000 per year for the City and had been bringing people downtown.
Included in the DDA’s packet today was a letter from local real estate owner/agent David Ledebuhr stating that Menna’s Joint, which had been downtown for 14 years, closed because “adjacent new construction and development activity across the street, road closings, and loss of foot-traffic resulted in their sales plummeting (35%), and they were unable to weather the storm.” Mackerel Sky is also closing in response to the Center City development pressures.
If Council had moved to sell the property, it would have required approval of the voters. Council did an end-run of the voters by going to a ground lease.
The hope on the part of the City is that the money made on the deal will pay for the City services the project consumes. That includes an assumption that the new parking garage will bring in $128,000 more in revenue per year.
Today at the DDA meeting, the new Director of Planning, Tom Fehrenbach, encouraged people to park in the new garage, “because not too many people are parking there yet.”
Fehrenbach said he hopes that Albert Ave. outside of Center City will be open in both directions by the end of the week, but he warned it will close intermittently as work on Center City goes on through the fall.
It would have been interesting to see what would have happened if the voters had had a chance to decide on this deal. If they had voted yes, they would have shared in the responsibility of the outcome.
As it is, voters have a chance to decide on City Council on November 5, and so I am glad to see Mark Meadows, who is running for re-election, answering questions now.
I don’t know if a 5-0 vote on the Center City Project equates with me being “primarily responsible” for “signing off” on the Project but I did sign the MDA when the exhibits were ready. I am happy to say I support the approach taken with regard to Lot 1. I don’t generally like selling City assets because there is a one time boost in revenue and a loss of effective control over future redevelopment of the site.
Alice says Lot 1 was “earning” 750,000 per year. I dont know if that is right or wrong. I do know that the objective was to produce an extra $400,000 over the net revenue being produced on Lot 1. Alice is right, there is an assumption that the new garage, with double the public hourly parking spaces as lot 1 had, will produce an extra $128,000 in parking revenue. Here is how that number is reached: The parking department estimates that the total revenue from hourly parking spaces will be $657,000, which, according to Alice is less than the gross revenue from the 148 Lot 1 spaces. In addition to that amount, though, the Parking system will receive $167,000 from the required Landmark parking rental permits and $112,000 from the Target/Newman Lofts parking leases. The total parking revenue is expected to be $936,000 with a net of $665,000 which is about $128,000 more than Parking Lot 1 netted. When you add that in to the $200,000 lease payments, the increase in the DDA millage, personal property taxes, and the increased Brownfield fee you come up with an annual revenue of about $405,000 more than Lot 1 was producing.
Alice says I admit that I did not know when lease payments would start. I think she is right in the sense that I did not know for sure when a CO was to be issued and she is right that the project is into its second year. But, since she correctly analyzed the MDA, as I also did, one has to conclude that with the exception of the date upon which a CO would be issued and the amount of leases signed as of that unknown date, the methodology of lease payment was very clear. Even a PHD and a JD could figure it out! Alice states that it is her reporting that is causing the MDA to be revised. My earlier comment did not agree with her conclusion regarding the importance of her reporting, I hope my comment was taken as acknowledging that if that was true it would be a good thing. Council always takes into consideration citizen comments and often acts upon them. In the instance of the two MDA amendments, any agreement, in implementation, may require revision to match the reality of construction or the availability of alternative methods. In the second amendment, staff had been attempting to accelerate rent payments for some time (see Tim Dempsey’s memo Alice referred to). The second amendment resulted from that effort.
Alice has been pretty negative about this project from its beginning and she may be right that it was a bad deal. But it looks pretty good right now and judging it today is way way premature.
Alice mentions that there was no appraisal of Lot 1. That would have been appropriate if we were asking the citizens for permission to sell the property. And, the value could probably have been bumped up if the City sold the lot as an operating parking lot. Of course there would have been no guarantee that it would remain as a parking lot, we would not have been able to control the parking rates and we would have had less leverage regarding any future development. Even without calculating the 1.5% automatic annual increase in parking and ground lease payments that are part of the deal, the total revenue received by the City over the 49 years will be $23,471,000.00 and citizens of East Lansing will still own the asset at the end of that period. Deciding to lease the property was not an “end around” citizen input, it was just the best decision to produce steady revenue for City use.
Mark
I suppose what obfuscation is depends on what your definition of is, is.
Seriously, nitpicking about a $200,000 per year lease on the property formerly known as Lot 1 obscures the real points.
First, the lease violated the intent of the city charter in requiring voter approval for the sale of city property, the intent being to prevent backroom deals with city property. Frankly, if you don’t hold Meadows and his associates accountable for playing fast and loose with the city charter, you lose the moral right to object when Trump plays fast and loose with the Constitution and rule of law.
Second, cost/benefit analysis. Near the top of my list of reforms for public-private development (after crooks and deadbeats need not apply) is a requirement that public purpose be commensurate with public cost. Avondale Square was about $200,000 per house, and since the public purpose was to build housing for families with children (to increase school population), the number of houses not occupied by families with children (or intending soon to have children) should really be part of the equation, making the cost/benefit ratio even higher.
In the case of Lot 1, the public purpose is the 92 apartments for seniors who can afford high rents, the basis of the claim the project is transformational.
The cost is: the lost potential revenue from selling Lot 1 (undoubtedly to a pure-play student luxury apartment player) plus the brownfield, minus any actual new revenue from lease, etc.
I was chatting with an old friend from East Lansing days who is connected with big league student apartment developers who told me a New York company had been prepared to offer $20 million for Lot 1. That’s speculative. But $17 million based on what had been paid the year before for a couple of private parcels as part of the project is a solid number.
$17 million at 6% return compounded for 30 years is $97,639,300, if applied to reduction of legacy costs (which assumed an even higher rate of return). 30 years is the best timeline, since that is the length of the brownfield/bond.
The brownfield is about $56 million. So total public cost is about $154 million.
New revenue is being debated (again) but $200,000 with 2% annual inflation adjustment over 30 years is about $8 million, and say another $8 million miscellaneous, to get an even $138 million public cost.
92 senior units then comes to $1.5 million per unit, or $50,000 per year per unit public cost.
Is this cost commensurate with the public purpose of senior units transforming the dynamic of downtown East Lansing?
-Eliot Singer