History of Changed Plans in East Lansing Tax-incentivized Development Projects

The drawing of people lounging on the deck above the Lot 1 parking garage is a rather humorous smoking gun that the developer doesn’t care if the public believes he is sincere about the senior housing component. But that isn’t news: this is the guy who refused to answer how much he would charge for the senior apartments or who would manage the apartments (managing senior apartments takes a different skill set than managing student apartments). And the evidence senior apartments of this size are not financially plausible is overwhelming—even the city’s hired due-diligence gun more or less admitted that.

It is also becoming more and more clear that, after the developer threatened to take his football and go home, the protections that the city was supposed to get are vanishing. The failure of the city attorney (and lawyer-mayor) to strongly require completion of senior apartments in the lease agreement is being called malpractice in some back-chatter I’m hearing.

I doubt even a strong agreement would be enforceable, especially if those non-recourse bonds ever materialize. The city could not refuse to allow the developer to convert to denser student apartments even if it wanted to (the apartments are too big for seniors but just about right for 3-4 bedroom student apartments).

I say, if it wanted to, because the history of tax-incentivized development projects in East Lansing shows over and over again that developers have been allowed to modify or renege on the original plans, usually to the detriment of the public purpose that was the justification for diverting tax revenue to subsidize the project. This seems to have been a mix of weak agreements where non-binding promises were broken, Council (or staff) approving modifications, and in a couple of cases, developers being allowed to get away with blatant breach of contract.

Sometimes there were legitimate financial reasons for seeking changes, and I think some developers have been caught up in the wishful thinking stemming from city hall. Other times they probably reluctantly went along with demands from city hall, perhaps hoping to comply, perhaps intending to back out later: intent is hard to prove.

The key point is that the city does not hold developers to agreements. To take an extreme example, when the developer built the illegal extra floor for St. Anne’s Lofts, the city could have played hardball and said, either the floor comes down or you give up your tax breaks and still build the plaza according to the original (more expensive) plan. Instead, there was a slap on the wrist, at best.

With several of these projects, there was no reason at the outset to expect the developer to renege (although, perhaps there should have been). With the senior apartments there is every reason for skepticism.

Here are some of the relevant projects. I am not discussing here the many other costly things that have gone wrong, just changed plans.

1) City Center (MAC/Grand River corner building, plus former Jacobson’s). The original project called for the developer to build technology office space in the former Jacobson’s above what became Barnes and Noble. When the developer decided this was not financially viable, the city leased the space and issued bonds to build the Technology Innovation Center. There were cost overruns, MSU stepped in and took over some of the space, and eventually the whole thing was transferred to LEAP and MSU.

2) Stonehouse Village (Grand River and Bailey). The brownfield plan spoke of “interest in creating a ‘cool' downtown and to market the development to multiple housing markets including families, couples, young professionals, and others who wish to rent in the downtown and near campus.” In reality, the apartments have been marketed to students and the commercial on the first floor consisted of moving the Taco Bell from across the street (leaving the old Taco Bell boarded up for a decade) and Insomnia Cookies.

3) Campus Village II. Given considerable opposition to another large student rental project near the neighborhood, the developer, in exchange for brownfield tax incentives, agreed to purchase and renovate student rental houses in the Chesterfield Hills neighborhood. Very little was done and, in fact, three houses built on the borders of the neighborhood were left to rot, until there was sufficient public outcry to force the city to take action.

4) West Village. After the first phase of condos were built, the developer went bankrupt. Various plans for the second phase, including a hotel, fell through and the other parcel remained empty for years (sometimes being allowed to grow into an unmowed field). It finally became the large DTN apartment building, which is certainly not what the owners of the condos had been led to expect from the original plan.

5) Albert Place. These were supposed to be all owner occupied condos. But when they didn’t sell, the developer was allowed to turn some into rental units. One consequence was considerably lower tax increment revenue that was needed to pay for the city-owned parking garage associated with the development.

6) The Residences. Originally the first floor commercial space was supposed to be a restaurant-incubator. Instead, this space became HopCat, which pays considerably higher rent than a restaurant-incubator, but this did not lead to reducing the tax incentives.

7) St. Anne’s Lofts. The developer built a fifth floor when only four floors had been approved. Approval was given after the fact. The developer was also supposed to build the Ann St. Plaza according to certain specifications, but failed to do so, and the actual plaza, for which the city ended up fronting the remaining money, is of far less quality than the original design. Whether the controversial cross on the building had been approved as part of the site plan, it had certainly not been sufficiently obvious in the plan for it to have been noticed and discussed by Council.

8) City Center II/Little Bank Building. Among the many issues with City Center II/Park District was the commitment as part of the 2012 pre-development agreement to demolish the city owned 303 Abbot “Little Bank Building,” regardless of whether a development agreement was approved This had been suggested by planning staff as a way of continuing the existing site plan, set to expire, by starting work on the project. Allegedly, the developer removed some resalable materials from the city owned building, but after that iteration of City Center II was rejected/withdrawn, there was no demolition. The city did collect on a small performance bond, but later paid for the costly demolition on its own. No effort was made to sue to developer for breach of contract.

9) Trowbridge Plaza. The original brownfield plan had a 50/50 split of tax increment revenues between the developer and taxing bodies (city, county, schools, etc.). After the original plan for a 5-story apartment was reduced to four stories and soil conditions were deemed more costly to remedy than called for in the brownfield expenses, the developer was granted a modified plan. The same developer also received an increase in brownfield expenses for its project at the old Blue Cross Blue Shield site at Harrison and Lake Lansing.

10) Avondale Square. The development agreement with Mayberry Homes called for building according to a schedule. When sales were moribund, the development agreement was modified (more than once) to allow for a slower schedule.

Eliot Singer