DDA May Demolish Publicly-Owned Buildings to Help MSUFCU Construct Offices

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Rendering from MSUFCU

Rendering showing the north side of the proposed MSUFCU building, where the property targeted for construction meets the property of Dublin Square.

With Dublin Square owner Paul Vlahakis still refusing to allow MSUFCU to interfere with his property for construction of what would be a 7-story MSUFCU office building next door, City of East Lansing staff are trying to find a workaround to save the downtown MSUFCU project.

Now, they have a plan: get East Lansing’s Downtown Development Authority to vote to demolish three publicly-owned buildings on Evergreen Avenue — including two that are currently rented to residential tenants and a small business — to allow MSUFCU to park construction equipment, including a crane, on a portion of the DDA’s properties.

This way, the credit union’s construction crews can park on public land rendered vacant, and they won’t have to deal with Vlahakis.

City staff’s plan calls for the credit union and DDA to split the cost of demolishing these buildings and to then let Granger, the credit union’s hired construction company, rent the land at 314 and 328 Evergreen Ave. for about $5,100 per month.

Redevelopment of the DDA’s debt-saddled Evergreen Ave. properties would have to be put off until at least two years from now, as the construction crews work on the credit union’s private redevelopment. Right now, there’s no active redevelopment project on deck for the publicly-owned properties. (The plan for River Caddis Development’s “The CITADEL” project is stalled.)

With not much notice given to the public and incomplete information provided in the agenda packet, the DDA is being asked to vote on this plan this Thursday at noon. Because the DDA owns the properties, City Council will have no say in the matter, although Mayor Aaron Stephens serves on the DDA.

According to a memo provided in the agenda packet, the staff’s idea would save the MSUFCU project and would also net the DDA $1.5M in income over ten years.

But there’s a lot missing in the staff memo, including an explanation of how that supposed $1.5M benefit is calculated. While the memo contains numbers showing supposed relative income and expenses with and without this approach, it doesn’t break down the numbers in any meaningful way, simply providing summary conclusions.

Also missing from the memo is any discussion of how this move would substantially devalue the public assets now owned by the DDA. Says the City memo, “Property taxes for [the three buildings that would be demolished] are anticipated to decrease significantly upon demolition of the properties.” In other words, after demolition, the value of these public properties will decrease significantly. (Property taxes are based on market value.)

Also missing from the staff recommendation memo is any discussion of how the DDA will manage to continue paying off its $5.3M debt on the Evergreen properties once it has allowed demolition of buildings that have been generating income helping to pay that debt.

According to the agreements drafted for DDA approval, the credit union’s contractor would obtain use of the DDA’s properties for as long as they need them, but that would be for a minimum of 19 months starting in July 2021. 

That means that the DDA’s Evergreen Ave. properties could not be developed for at least two more years – again, raising questions about the debt, the payments for which are set to steadily increase over the next few years. There’s no debt payment schedule provided with this plan.

ELi sent questions about this on Monday morning to the City by way of Mayor Stephens. He has indicated he will try to get answers.

Here is what we do know.

The MSUFCU project wasn’t supposed to play out like this.

For this downtown office building project, East Lansing voters supported the sale of parking lot #4 – the lot just south of Dublin Square – to MSUFCU for $810,000 when asked to approve the sale in March 2020.

When the project then went to the Planning Commission for a recommendation, there was little discussion of the construction containment plan (although one commissioner did vote against recommendation, saying this was too much building for this small site). The credit union’s plan simply called for closing off one lane of Abbot Rd. and one lane of Albert Ave. to park construction equipment.

Given the final say, Council unanimously voted to approve the project in Sept. 2020. Then in November, we learned that Vlahakis was raising objections to any interference with his property or business from the construction. 

The proposed MSUFCU building looking northwest, with Dublin Square shown to the right.

Construction has been delayed by the issue since then, with Council repeatedly extending the sale contract in the hopes it will eventually close and MSUFCU will finally build the approved project.

Asked by email yesterday about what the City staff is now proposing, MSUFCU President/CEO April Clobes said that the new plan would remove the roadblock because it would allow the credit union “to construct our project without an agreement with the neighboring property.”

In her response, Clobes provided details, saying that “our neighbor did not wish to provide us with the opportunity for an easement on his property to assist with construction of the foundation and north wall of our building, and for the crane swings over his property.” 

The north wall of the MSUFCU tower, facing the Dublin Square deck, is proposed to be a solid brick wall. This is because it is to be built right up to the property line and Dublin Square might someday be redeveloped with a tall building. But this design makes it hard to build without Vlahakis’ cooperation, and Vlahakis presumably sees little incentive to cooperate with this design.

Photo shows current open space south of Dublin Square and rendering shows what would be there if built as planned.

Speaking to why people should support the new plan, Clobes wrote yesterday, “Our project has long-term benefits for the City of East Lansing which includes property tax, personal income tax, and bringing office workers to the community.”

She added that the Evergreen Ave. properties that the staff wants to demolish to help out MSUFCU “were planned for eventual demolition to make way for future development. Several of the buildings are in need of repairs beyond their current rent or assessed value. With our involvement, we are offsetting the cost of the demolition and the rent for the property. During this time, the DDA is able to market for future development and demolishing the properties could make it more likely that the properties could be redeveloped.”

The City staff also see many reasons to go with their recommended plan.

In the agreement drafted, MSUFCU would allow the City to keep using Lot 4 for public parking until the project gets underway, with that estimated start date of July 2021. 

Based on materials obtained via the Freedom of Information Act, Lot 4 is currently generating about $3,500 per month in gross revenue, which means the City would gross about $14,000 more in parking receipts and could keep offering Lot 4 for public parking until construction of the MSUFCU building starts. 

Of course, if the MSUFCU construction doesn’t happen, the Lot 4 income continues, as does the availability of public parking. (The memo doesn’t mention that.)

The plan specifically calls for demolishing three of the buildings owned by the DDA along Evergreen Ave.:

·      344 Evergreen Ave., an old rental house that is currently vacant because City staff say it needs significant repairs.

·      328 Evergreen Ave., also an old rental house, currently rented and said to be in need of repairs by City staff. Those needs/costs and the income on this house have not been specified in the materials presented.

·      314 Evergreen Ave., a 15,000-square-foot building, constructed in 1998. The DDA paid $2.5M for this property in 2009 for future redevelopment, and it is currently valued at $1.2M by the tax assessor.

Containing apartments for 34 people plus two small offices, the 22-year-old building at 314 brings in the bulk of the DDA’s income on Evergreen Ave. But again, the City memo does not provide specific information on what repair needs and income this building has. So, we can’t figure out the real financial impact of its demolition.

We are able to ascertain from public records that, in Fiscal Year 2020, the DDA earned $350,000 from the leases on all of the Evergreen properties added together, and the DDA expended $186,950 to fix, manage, and pay taxes on the properties. If the three demolitions happen, the DDA would still lease out two small houses at 340 and 344 Evergreen Ave., but the memo from the City doesn’t indicate what that means for changed revenue and expenses. 

The memo does say that the DDA would no longer have to pay for maintenance of the demolished buildings, estimated at $35,000 to $45,000 per year. 

The staff don’t say this in their memo, but part of the goal could be to drive the DDA’s properties’ values down as low as possible.

Staff’s desire is to redevelop the Evergreen properties using tax increment financing (TIF). And how much taxes can be drawn from a new redevelopment for TIF depends on the difference between the starting property value and increased value after redevelopment. The more the value of a property drops before redevelopment, the bigger the tax incentives available later.

Staff also feel the presence of this office building is simply too important to let it fail. City Manager George Lahanas has made clear in meetings that he believes the City should do what it takes to get the MSUFCU project done, because he believes it will transform East Lansing’s downtown. Lahanas is a voting member of the DDA.

Raymond Holt for ELi

Peter Dewan (center), Chair of East Lansing’s DDA and BRA, at a meeting on Nov. 19, 2019.

Asked for comment, DDA Chair Peter Dewan said yesterday by email, “The DDA has been talking for nearly 12 years on redeveloping these parcels [on Evergreen Ave.]. The express purpose of the DDA has been to demolish the properties to make way for future sustainable development that will be a complement to the Oakwood Neighborhood, the downtown, Valley Court Park and surrounding properties. Maintaining these properties is quite expensive and it is not a prudent expenditure of public resources to continue to reinvest in aging structures that ultimately are going to be demolished.”

Responding to a question about whether there’s been adequate public notice, Dewan said, “The DDA’s agenda has been posted nearly a full week prior to the meeting.” He said he expects “the public to weigh in should they wish to offer any comments.”

The public can comment live at Thursday’s meeting at noon using information posted online. Comments for the DDA can also be sent by email to Director of Planning Tom Fehrenbach.

Update: The DDA issued a new version of the memo with more details on March 23. See it here.

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