Representatives of Harbor Bay Real Estate Advisors, co-developers of the Center City District project, continue to press their case to get City Council to remove the 55+ age restriction on Newman Lofts.
They say that 72 percent (66 of the 92 units) remain vacant despite opening last October. They also say that they are spending 45-percent of revenue on marketing efforts. In their attorney’s letter last week to Mayor Aaron Stephens, the developers outlined a case that this is the fault of the pandemic and the City.
But some are now questioning how hard the developers have really tried to rent these apartments – and whether the plan all along was to convert the “luxury” senior housing to general rental housing.
The fact that the Spring 2020 Spartan alumni magazine includes an advertisement not mentioning the 55+ restriction led one Newman Lofts tenant to wonder to ELi what the marketing plan really is.
When the project was undergoing review, the developers agreed to the plan – and the risk.
In an attempt to diversify downtown options, in November 2016, East Lansing’s City Council adopted Ordinance 1384, which required that big new downtown housing developments include a plan for “at least 25% of the housing [to be] owner occupied [for example, condo apartments], restricted to residents 55 and older, restricted to low to moderate income housing or restricted to some other occupancy that would add diversity to the area.”
The idea of this law was to see the construction of something other than just more student housing.
Lead developer Mark Bell of Harbor Bay and his local partners at Ballein Management chose to go with the 55+ option under Ordinance 1384. On Grand River Ave., they would build the big student-attracting apartment building now called The Landmark. On Albert Ave., they would build the 55+ “luxury” rental apartments now known as Newman Lofts.
At the time of approval in June 2017, Council member Ruth Beier said she would not have been voting “yes” without the senior housing component.
A few months before that, at a March 2017 meeting of the Planning Commission, Bell had spoken enthusiastically about the plan. He said the “active adult” senior housing fit with the City’s comprehensive plan for “truly diversified housing,” and he said the senior housing would also create “a hub of interaction” downtown.
Bell cited Harbor Bay’s experiences working in Duluth, Minnesota, on a development that he said rented to a diverse age demographic.
“We’ve seen this trend and feel fairly experienced,” Bell said about renting to older people.
The developers also said that their market studies proved to them that Newman Lofts would work.
During review of the proposal, a number of people in decision-making capacity and in the public questioned whether East Lansing needed more student housing and whether people aged 55+ would really be interested in renting at high prices above the bars on Albert Ave.
In response, Bell cited market analysis prepared for Harbor Bay by the Danter Company, which specializes in real estate research. Bell said the 55-plus age-restricted side was “individually analyzed” in the study and that he was confident it supported the developers’ plan.
“The market report came back and said that both planned uses do have a demand and in their opinion will be absorbed,” Bell told the Planning Commission. He also said any potential lender would also do their due diligence and would not fund the project if they did not think it was viable.
Only a heavily redacted version of the Danter Company market-research report was ever provided to the Planning Commission and public, with Bell saying most of it was proprietary information. About 93 percent of the study of the 55+ housing was blacked out or removed before release.
One bit of the market study that was left visible concluded “that a market exists for a 93-unit high-rise rental housing development at the subject site, assuming the project is developed as detailed in this report. The project will be designated for adults (age 55 and over).”
However, the next line indicated that changes to the site, rent, design, amenities, or opening date “may invalidate these findings.”
The records don’t tell us what the developers told the analysts about what they were planning to charge for the apartments.
Today, the rents at Newman Lofts start at $1,445 for a 744-square-foot, one-bedroom apartment and rise to almost $3,000 for the largest apartment.
The high rents have always been in question – and are even more so now.
After Council had approved the deal in June 2017 but before the complex agreements on the project were actually signed by then-Mayor Mark Meadows in October 2017, at the urging of citizens, the City commissioned a due diligence review on the project by Development Strategies, an independent market research firm.
That firm questioned if the rents would fly with seniors.
Development Strategies’ review from July 2017 stated: “The proposed age-restricted housing also seeks to achieve the highest rents in the market, with comparatively few local households able to afford these rents. Placing age restrictions on the property simply further restricts demand by eliminating a large segment of the rental housing market. While much information about the apartment market is included in this report, very little focuses on how the property can best succeed in focusing on the over 55 market.”
Development Strategies’ review also noted that at this point in the process – after the Council’s approval of the project – the developers still didn’t have a complete “pro forma.” That’s the calculation of all expected costs and revenue that tells a developer whether a project is really financially viable.
Nevertheless, the developers remained publicly confident throughout the process and pressed forward.
Today, they say the project is not working because Newman Lofts isn’t renting. They blame the public health emergency, although tenants have raised concerns to City Council about bar noise and the building’s design.
Among other developers who have built in East Lansing, sympathy for Harbor Bay and Ballein Management is slim if not absent. They seem to be uniform in their opinion that if a developer takes a risk that doesn’t pay off, that’s their own problem.
A number spoke to us but were not willing to be quoted on the record. But Doug Cron of Cron Management was. Cron and his partners developed and own properties all around East Lansing, including the Albert Place condos – one of the first attempts to diversify housing downtown. And his take on the Newman Lofts vacancy issue is simple.
“If the rents are in line with what the market will pay,” Cron said, “the 55-plus units will rent.”
Cron notes that plenty of businesses locally and nationwide are now struggling, and he questioned why Harbor Bay was deserving of (another) special deal from the City of East Lansing – particularly a long-term one like the removal of the age restriction.
Cron’s partner Terrell Oetzel, a professional appraiser, remains deeply frustrated that Harbor Bay and Ballein Management got development rights to what was probably the City’s most lucrative property – parking Lot 1 – at what he sees as a bargain rate in a no-bid process. Other local developers share that sense that Harbor Bay and the Balleins have already been given enough.
“The problem I have always had with the deal is that it did not appear to me that it was put out to bid for other developers to bid on the development,” he told ELi.
The deal to lease City land to the developers for 49 years, says Oetzel, “was put in place to hurry the project along because otherwise the voters would have had to vote on the sale of probably the most valuable parcel of land owned by the citizens of the City of East Lansing and not by the City Council that made the deal.”
When voting to approve the site plan in June 2017, then-Council member Susan Woods asked what would happen if the 55+ apartment units did not rent well. Woods asked again and the only answer given was from City Attorney Tom Yeadon.
He said, in effect, that for the units to get rented to someone under the age of 55, City Council would have to change the ordinance and revise the approvals given to the project.
That legal interpretation hasn’t changed, and Council member Lisa Babcock said on Monday she currently has “no inclination” to change the 55-plus age requirement.
Babcock said that Bell talking in a recent video about honoring commitments while threatening to sue the City to get out of one “seems disingenuous.”
ELi has been told Council is planning to discuss the matter this month at an open meeting.
Disclosures: Harbor Bay has called ELi unethical and has launched various campaigns criticizing our reporting; see our Board of Directors’ response here. Douglas Cron and Terrell Oetzel are financial donors to ELi.