DDA Votes 9-2 to Demolish Publicly-Owned Buildings to Help MSUFCU Project

East Lansing Downtown Development Authority voted 9-2 yesterday to allow demolition of publicly-owned, income-producing buildings at 314 and 328 Evergreen Ave. to try to help save MSUFCU’s plan to build a 7-story office building. The office tower is supposed to be built just south of Dublin Square on what is currently City parking lot #4. 

A year ago, a majority of East Lansing voters gave City Council permission to sell Lot #4 to the credit union for the appraised value of $810,000 to construct an office building. But this concept of using the DDA’s public land on nearby Evergreen Ave. to help the construction was never part of that ballot proposal.

So, how have the DDA’s properties become involved in the credit union’s construction plans? 

The proposed office building, approved by the City, would be built along Abbot Road right up to the lot line shared with Dublin Square. The design calls for a structure that the credit union’s own architect has described as a lot of building for what is a small plot of land. 

To build this project as it has been designed, the credit union would need a construction easement from Paul Vlahakis, Dublin Square’s owner, allowing them to encroach on his property, including by swinging a crane over his property. But since last fall, Vlahakis has been steadily objecting to these construction plans, indicating that the survival of his business is at stake. 

At yesterday’s DDA meeting, the credit union’s attorney, David Pierson, verbally reassured the DDA that parking the credit union’s construction crane on the DDA’s properties at 314 and 328 Evergreen Ave. should solve the problems.

But just before yesterday’s DDA meeting, in spite of the new plan, Vlahakis’ attorneys submitted another letter defending his rights to stop possible interference with his business. They said they would seek an injunction if the credit union tried to proceed.

Vlahakis himself actually showed up at the virtual gathering yesterday – though not in time to access the public comment period provided before the DDA’s vote. He said he hadn’t been able to access the call before the vote.

Speaking to the group after the vote – at the meeting of the Brownfield Redevelopment Authority, which has the same membership as the DDA – Vlahakis told them that nothing with the credit union has in fact been resolved. By then, Pierson had dropped off the call.

Vlahakis said that he is disappointed with the way the whole thing has played out. He said the East Lansing Planning Department staff, City Manager George Lahanas, and the credit union had failed to engage him about the project early in the process and indicated that they then got annoyed with him when he didn’t want them using a crane to lift two-thousand-pound sections of concrete over his restaurant’s patio. 

Vlahakis also said that Pierson has been unfairly characterizing him as being uncooperative. He suggested that the City had never reached out to him “to discuss a zero-lot-line development.” He said that if the credit union wanted the DDA’s properties to use as a construction staging site, they should just write a check for $6 million and buy them.

But that all came after the vote. Having by that point secured what he wanted as the outcome, Lahanas gave no response to Vlahakis’ remarks about the failure to notify and engage him. And, as noted above, by then Pierson was gone.

Before the vote, it looked like a majority of DDA members might vote to defer this decision. 

Before the vote happened, DDA members Jim Croom, Luke Hackney, and Greg Ballein all raised questions about the numbers that had been presented to them by City staff – numbers that supported Lahanas’s contention that a “yes” vote was a no-brainer but that left out the complete financial picture. Hackney called the numbers in favor of the demolition plan “inflated.”

Also before the vote, along with Croom and Ballein, DDA members Peter Dewan, Mike Krueger, and Mayor Aaron Stephens raised concerns about the implications of a “yes” vote for the future of the DDA’s debt-ridden Evergreen Ave. properties, which the City has been talking about redeveloping as soon as possible to try to pay off the debt. Interest on that debt has already used up about $1.7 million in public funds.

But in the end, staff and Pierson convinced a large majority of the DDA members that they should act before the sale agreement between the City and the credit union expires on April 6 – in spite of the fact that the City Council and credit union have simply extended that contract before, several times.

The vote was officially in favor of “various agreements and approvals effectuating the demolition of 314, 328, and 334 Evergreen Avenue and temporary use of the 314 and 328 Evergreen by Granger Construction for purposes related to the construction of the MSUFCU commercial office building on the adjacent City Parking Lot #4.”

Voting in favor were Stephens, Lahanas, Dewan, Croom, Smith, Krueger, Jacqueline Babcock, Kristin Clark, and Reuben Levinsohn. 

Voting against were Hackney and Ballein.

Before voting in favor, Lahanas again called the MSUFCU project a “game-changer,” and Smith said he was afraid of losing the MSUFCU project. Smith said he felt safe in voting through these agreements because the buildings would not be torn down if the credit union is not confident they can proceed.

Both Lahanas and Smith said they saw no point in keeping buildings that rent to students, buildings that are eventually supposed to be demolished anyway to redevelop the Evergreen Ave. properties, on which the DDA owes about $5.3 million. The DDA bought the properties over a decade ago, expecting imminent redevelopment at that time. Since then, one proposal after another – including two from Pierson’s clients DRW/Convexity (one; two), and a later one from Vlahakis – has failed to come to fruition.

Speaking to that history of redevelopment failure on Evergreen Ave. before voting no, Ballein read from a sharply-worded prepared statement.

Ballein called for putting off the vote until the DDA could be more informed. He said he absolutely wants the MSUFCU project to happen. 

“But I have to ask, why should the DDA tear properties down that are currently making money to pay our horrible debt we have inherited?”

Ballein continued: “Not sure who did the ‘fuzzy math’ on this one, but this, in its current format is a lose-lose for the DDA. Not only would we have to demolish structures helping us to make our bond payments, we would have to pay $100,000 for the privilege of doing so with no remuneration provided for the lost income from renting these properties.”

The deal actually calls for the credit union to split the cost of demolition with the DDA and to rent the vacated land at 314 and 328 Evergreen Ave. to Granger Construction for $5,600 per month. 

But that land-rental price is a fraction – about one-third – of what those two properties now bring in in rents. Ballein asked why the DDA is paying for demolition at all, given that that is a cost that was expected to be borne by whomever eventually redevelops the Evergreen properties. He was backed in that criticism by former Mayor Victor Loomis, who called to object to the plan.

Those in favor saw many advantages to the plan presented.

One advantage to the DDA of demolition is that the costs of maintaining the rental properties would virtually zero out. The property tax costs to the DDA would also fall significantly, as the properties became devalued through the demolition of the buildings.

Lahanas has also argued that for the property in the worst state of disrepair (334 Evergreen Ave.), it will be easier to market the property vacant than with the old house on it.

However, the calculations presented to the DDA did not take into account the impact of devaluing 314 Evergreen Ave. by about a million dollars, nor of the loss of property taxes to the City. 

The calculations also left out the income received from parking lot #4 – about $3,500 a month, from what we can ascertain. In the end, the numbers presented by Lahanas’s staff, though incomplete and unclear, showed demolition as the best option. 

No specific plan was presented for how the DDA will pay its debt if these buildings are demolished. The DDA will lose net revenue from the properties by virtue of demolition. It will then have to wait two years for that income to begin to be recouped by tax capture from the finished MSUFCU project. 

Staff struggled to answer many financial questions at the meeting. For example, before the demolition vote, staff went over the DDA budget and was not able to answer DDA members’ questions about what “reappropriated equity” means. (It means money taken out of savings.)

Reading from his prepared statement, Ballein said it was his “recommendation that we discuss this in detail, get some real numbers on actual net income to the DDA and defer to a future meeting. It is only prudent.” But he was outvoted.

Tensions ran high before and after the vote.

During public comment before the vote, Loomis, who is a retired commercial banker, noted the numbers presented “do not trace” – meaning that they don’t match up from document to document.

Loomis, who was on Council and the DDA when the Evergreen properties were purchased, warned that to give up the revenue from the 22-year-old apartment building at 314 Evergreen Ave. at this point is a very high-risk endeavor. That building is the chief means by which the DDA has been managing to pay the debt on the properties.

Loomis also said that the recent “payment bailout” on the Center City District bonds combined with this decision could put the City in a dangerous financial position. Loomis also responded to Smith’s and Lahanas’s intimations that critics of the demolition deal seem to think it’s a good idea for the DDA to be in the business of renting houses to students. He said no one thinks the DDA should be in the student-rental business.

“That’s not the issue at all,” he said. “The issue is understanding the financing.” 

What about the “CITADEL” deal with River Caddis Development for the Evergreen properties?

DDA members asked about the implication of this deal with MSUFCU in terms of the exclusive agreement the DDA has given to River Caddis Development to consider redevelopment of the Evergreen Ave. properties. 

They were told by staff that River Caddis is supportive of this plan. That is not surprising, considering the devaluing of 314 Evergreen Ave. in particular would allow River Caddis to seek a larger Tax Increment Financing (TIF) deal for their project. That’s because TIF is based on the incremental difference between a property’s starting value and the redeveloped value. Knocking down a valuable building like the one at 314 Evergreen Ave. makes the property worth much less and so makes a TIF option bigger. (This is a common redevelopment TIF scheme, one used in the past by the City of East Lansing.)

Croom, himself an attorney, asked: Can the DDA still get out of the exclusive agreement with River Caddis when that agreement expires in July, or would this repurposing of two Evergreen properties for MSUFCU’s construction put the DDA in legal jeopardy if it tried to split with River Caddis after July?

The City Attorney said he could try to seek an agreement with River Caddis to protect the DDA’s right to exit. There was no vote to authorize such an agreement at yesterday’s meetings.

The agreements as presented yesterday call for Granger to have rights to rent 314 and 328 Evergreen Ave.’s post-demolition land for at least 19 months. 

But MSUFCU’s attorney Pierson said they probably wouldn’t really need to park the crane there that long. After the meeting, he answered a clarification question from ELi by saying, “the crane will arrive about 3 months from the start of work and then will be onsite for 6 months, assuming no other delays.”

He told the DDA yesterday that the credit union did not want to put the DDA “in the position of losing the development of the DDA properties, for crying out loud.” 

Suggesting that, given the pandemic’s impact on work patterns, River Caddis was unlikely to be looking to rush to build office space on the Evergreen properties as they had proposed for The CITADEL project, Pierson said no one thinks there is “a boom” of interest in building office space right now. 

He did not address the question of why MSUFCU would still want to build office space.