And Then There Was One: Convexity Withdraws Its Proposal for the Evergreen Properties

The fact that only two developers had submitted qualifications and proposals for the East Lansing Downtown Development Authority’s “Evergreen Properties” disappointed plenty of those watching. Now, one of those developers has pulled out, presently leaving just one developer’s idea before the DDA.

River Caddis proposed “The CITADEL,” a commercial building for entrepreneurial and office uses, with parking for their building plus an alleyway redesign. The proposal did not include details about how the finances would work, leaving a lot of big questions open.

Convexity had proposed building “Albert Commons,” including a big new apartment building that would have been all market-rate residential units, with in-building private parking, a large extension of the green space of Valley Court Park, and an elimination of that company’s planned affordable housing project nearby. Convexity’s proposal came with a detailed financial plan for paying off the public debt on the properties and for building new public infrastructure.

But now Convexity has pulled out, citing as the problem East Lansing’s tax assessor’s new approach to valuing big housing projects.

In a letter dated March 11, Convexity representative David Nelson told DDA Chair Peter Dewan that while Convexity has valued “its relationship with the East Lansing community and stakeholders . . . it came to our attention that select new multifamily properties in downtown East Lansing are now being assessed at significantly higher values than anticipated.”

Nelson is the Head of Global Investments & Real Estate at DRW Holdings, LLC, the company that has partnered with Convexity in the “Park District” project in East Lansing. That’s the project that has involved the ongoing construction of The Abbot – a big new apartment project at the corner of Abbot Road and Grand River Avenue – and The Graduate hotel next door.

Under the terms of the Park District development agreement with the City and DDA, DRW Convexity is also obligated to build moderate-income-restricted apartments at 341 Evergreen Avenue, near Valley Court Park. In its proposal for the Evergreen Avenue area, Convexity had proposed replacing that building with a major park expansion. Now Convexity will have to build that apartment building.

In his letter, Nelson explained that, just the prior week, “the City Assessor informed us that the valuation methodology he is using for those assessments has changed from what he told us in May of 2018. The 2018 methodology and associated property tax were incorporated in the financial modeling of our proposal.”

The new assessment approach means the finances don’t work for Convexity.

That new approach by East Lansing Tax Assessor David Lee explains why The Hub – the student housing project on Bogue Street built by Core Spaces – is bringing in far greater tax revenue than had been estimated before it was built. Lee has put a taxable value on that building of about $20 million, notably helping out East Lansing’s general fund.

Michigan’s “Proposal A” caps how much long-time owners of older rental properties pay by limiting the growth of property taxable values to either the rate of inflation or five percent, whichever is smaller. Proposal A means many long-time East Lansing landlords are paying taxes well below what would be required if the same properties were paying taxes according to the values determined by Lee’s new method.

Lee’s new method may well discourage big new housing proposals beyond the one Convexity was proposing for the Evergreen properties. People (including long-time landlords) who want less new housing built in East Lansing may be happy with the effect of Lee’s shift. But those who want more options for renters and more taxes coming to the City may not be.

Regardless, only the River Caddis proposal is left for the DDA-owned Evergreen properties, and that presents the DDA and City leaders with a conundrum.

The DDA and the City are under pressure to do something because of the $5.4 million owed on the properties.

The DDA spent over a year trying to come to terms for a deal with developer Paul Vlahakis of Vlahakis Development and his partner Royal Properties, until City Council finally called it quits on that fruitless pursuit.

Talks with Royal Vlahakis delayed issuance by the DDA of a “Request for Qualifications and Proposals” (RFP or RFQP), the call to all developers to pitch proposals. That was only issued finally late last year.

The idea had been to bring in a number of proposals and then score them according to a pre-determined matrix to compare proposals in a theoretically objective way. A meeting had been scheduled for this Thursday, March 19, to start the scoring process on the two that were submitted.

But now there’s only one proposal left. And the meeting has been cancelled, along with all other East Lansing government meetings, due to the City being under a State of Emergency.

And, as it was, the River Caddis proposal was devoid of details about who would occupy “The CITADEL” building that company proposed, and lacking details about how the financing would work, potentially making scoring the proposal challenging. We do know they want tax incentives. Questions about the proposal’s requirement for public subsidies and its viability may become even more pointed given the bear market.

John McGraw of River Caddis told ELi yesterday they are declining comment at this time.

Convexity’s Director of Design Chris Oakley told ELi on March 13, “Our withdrawal from consideration is consistent with our having worked honestly and in good faith over the last four years. The new property tax structure exposes us to too much risk and uncertainty, placing us at a distinct disadvantage over other uses.”

Oakley explained that The CITADEL would not be at the same disadvantage as Convexity’s proposed project, because Lee’s change applied specifically to housing projects.

Oakley said that Convexity would not say “no” to further discussion with the DDA and City, but he did not sound optimistic:

“There may have been a path to resolution, but achieving mutually acceptable terms would be time-consuming and not in the spirit or intent of the [process laid out by the DDA]. We submitted a thoughtful and comprehensive proposal and are disappointed that it will not be realized.”