Developer Wants 450 Days More for Evergreen Properties Talks . . . And Wants TIF

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John McGraw of River Caddis Development at the July 23, 2020, meeting of East Lansing's DDA.

East Lansing’s Downtown Development Authority just granted River Caddis Development another 90 days in its exclusive option to buy and redevelop the DDA-owned properties along Evergreen Avenue. If the DDA ultimately decides to sign off on a new sale contract as it has been proposed by the developers, River Caddis will be entitled to an additional 450 days of exclusivity during which the developers could back out for almost any reason, without paying the DDA a dime.

The DDA is expected to discuss the draft purchase and sale agreement at its August meeting. Presumably that discussion will include debate on that 450-day option in Section 23 of the draft contract, 450 days which include 180 days for a “Contingency Period” followed by as many as three automatic 90-day extensions at the developers’ discretion.

The area marked “CITADEL” encompasses the DDA’s Evergreen Ave. properties.

Section 3 of the draft contract is also of note. In that section, the developers want the DDA to commit in writing that an unspecified portion of the purchase price of the DDA’s properties will be paid “out of and upon PURCHASER’s receipt of the proceeds of tax increment financing or other incentive programs.”

In other words, the developers want future property taxes that they will owe the City – or other unspecified tax incentives – to be used to pay for their cost of obtaining public land for private development.

The DDA would have to wait for that eventual tax capture (or other incentives to the developer) to be fully paid for the land. That means the DDA’s debt would be prolonged.

What’s in Section 3 appears to be a strange “ask” for several reasons, most notably because Michigan’s Brownfield Tax Increment Finance (TIF) law doesn’t allow for developers to be reimbursed with TIF for private land acquisition expenses.

It’s also unclear how the DDA could deed over the land to the developers without the debt being fully paid off first.

Mayor Aaron Stephens at the July 23 meeting of the DDA.

Mayor Aaron Stephens, a member of the DDA by virtue of his office, asked City Attorney Tom Yeadon at last Thursday’s meeting if this was a “typical” request in an agreement for purchase of public property.

Yeadon responded, “No, that’s an unusual clause.”

Yeadon noted that the DDA is planning to hire specialist development counsel “to weigh in on all of that,” but Yeadon did say for now that this purchase price reimbursement concept “was certainly an area of concern” about which he had spoken to Planning Director Tom Fehrenbach.

Yeadon said there were other areas of concern in the proposed agreement, as well, but did not specify them at Thursday’s meeting.

The DDA currently owes about $5.4 million on these properties – far more than the properties would bring in an open sale.

Photo showing the houses that now stand on part of the DDA’s properties.

In the hopes of finding a solution to this longstanding debt problem, late last year, the DDA asked developers to propose ideas for this land at the west end of downtown. Only two did, and then one pulled out, leaving only River Caddis.

River Caddis specifically pitched an idea for an 8-story office building called “The CITADEL,” an acronym for “Central Innovation Technology & Arts District of East Lansing.”

Everyone seems to like the basic concept of big office space here, and this seems to be what’s keeping the momentum going.

If the DDA had taken no action at its meeting last Thursday, the first 90-day exclusive agreement with River Caddis would have simply run out. So, in advance of Thursday’s meeting, River Caddis asked for a 90-day extension in the hopes they can work out with the DDA terms of a “Buy and Sell Agreement” for the Evergreen properties.

In the cover letter to the agreement, River Caddis’ President John McGraw told the DDA, “While our City and the economy are still faced with COVID-19 issues and extreme uncertainty, [his team] remains diligent in its efforts to pursue the Project.”

A rendering of The CITADEL from the original proposal for the DDA’s properties. This is looking north across Albert Ave., with Evergreen Ave. to the left and the alley to the right.

The developers have met once so far with the specially-designated stakeholder committee established by the DDA, the Evergreen Properties Project Team. As part of that meeting, the developers made clear that while they had originally proposed including about 250 internal parking spots in their proposed new office building, now they want to build no parking into their structure and instead make the expense of providing parking the City’s problem.

It appears that, in the next round, they’re hoping to push even more of the project expenses onto the public side of the ledger by seeking public fund reimbursement for the cost of buying the properties.

Kevin McGraw’s son, co-developer John McGraw, told the DDA last week that “these projects usually start as one thing and then organically evolve to what it is going to be.” He said that his “vision of this collaborative ecosystem has not changed.”

Yet John McGraw sounded somewhat uncertain about the viability of the project in the discussion.

While he spoke of very positive conversations about the project with unnamed individuals, including potential tenants, in response to a question about the project next door proposed by MSUFCU, John McGraw said the DDA should make decisions with its own needs in mind, “in case the worst happens and our development doesn’t go through.”

At the meeting last week, DDA member Jeff Smith asked if any other developers had recently inquired about the properties. City staff said none had.

Of course, none have been alerted that there could be a deal like the one River Caddis is seeking – getting paid back for (all of?) the land cost from public money and having the City take on the expense of building and operating the parking for whatever private development is built.

DDA Chair Peter Dewan at the July 23 meeting.

Making the motion to give another 90 days to talks, DDA Chair Peter Dewan said he appreciated the “good faith effort on the purchase and sale agreement” drafted by the developers. Dewan said there was a “tremendous amount of synergy” on the idea and that this would “take time to come together.”

The DDA had previously entertained talks with developers Vlahakis Development and Royal Properties for redevelopment of these properties. Those negotiations went on for about a year, with the DDA ultimately agreeing to give those developers back all they had paid the DDA during the talks after Council finally took unanimous action to end the saga.

In this case, River Caddis is not even proposing to pay the DDA anything for exclusivity beyond a fully refundable $50,000 “earnest money deposit.”

On Thursday, the DDA voted unanimously to extend the talks as much as another three months, putting off the next required decision point to late October. That will make it almost exactly one year since Council ended the Royal Vlahakis talks.

Meanwhile, required debt payments on the properties are getting steadily larger, and the biggest of the old houses on the land is in bad enough shape that the DDA isn’t renting it anymore.

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