East Lansing Bond Default? Not If Mark Bell Pays His Father $2.4M, As Required
While some of the key documents in East Lansing’s $125M Center City District redevelopment deal don’t match up, new analysis by ELi shows they seem to be consistent about one major point:
If there’s not enough money in the bond trust fund to make the multi-million-dollar payment due to the bondholder on December 1, 2020, the developer is supposed to be responsible for making up the shortfall.
As it turns out, the developer in this case is HB BM – a limited liability company formed from the partnership of Harbor Bay Real Estate and Ballein Management. The lead developer is Harbor Bay’s CEO Mark Bell.
The bondholder in this case is Scottsdale Capital Fund – a limited liability company formed by Peter Paul Bell. That’s Mark Bell’s father.
According to three key documents, if there’s a shortfall in the bond payment due to the father’s company on December 1, 2020, the son’s company is supposed to pay it.
This raises the question of why East Lansing’s Brownfield Redevelopment Authority (BRA) is rushing to refinance the public Center City District bond with a bigger bond – essentially leaving East Lansing’s government responsible for the millions of dollars Mark Bell is supposed to pay his father.
The bond was set up to make East Lansing’s largest-ever public-private deal possible.
The bond in question was used mainly to pay for the public infrastructure on the Center City District project, including primarily the new Albert Ave. parking ramp.
The plan had been to find an “independent investor” for the bond. But the only bond investor ultimately presented to the BRA in writing was a company called Scottsdale Capital.
As presented to the BRA, Scottsdale had no apparent relation to Mark Bell and had an address in Richmond, IL.
But a special investigation by ELi at the time of the first bond vote in 2017 found that Scottsdale Capital is owned by Mark Bell’s father, Peter Paul Bell. In fact, in spite of what the letterhead shown to the BRA suggested, both companies are actually legally registered to the same address in Northbrook, IL.

Alice Dreger for ELi
The legal address of both Harbor Bay and Scottsdale Capital is a small office in an industrial park in Northbrook, IL. The only name on the door is another Bell-family company.To make his son’s project happen, Peter Paul Bell used Scottsdale Capital to put up $25.265M for the bond. His payment went into a public trust fund. That fund was then used to pay “costs of issuance” and to pay back the development company HB BM for the construction costs of the public infrastructure.

The plan has always been that future property taxes from the redevelopment’s private parcels (Newman Lofts, The Landmark, and the retail space) would be captured under a Brownfield Tax Increment Financing (TIF) Plan to pay back the bond. The total cap on the property tax payout was set at either around $50M or $56M — a point of dispute.
A memo from East Lansing Planning Director Tom Fehrenbach late last month indicates that the BRA needs to make a $3.74M payment to Scottsdale Capital on Dec. 1. But, according to staff, the TIF-captured real estate taxes paid by the developers on the project have only totaled about $1.3M so far.
That means a shortfall of about $2.4M.

Fehrenbach told members of the BRA on Sept. 24 of this year that “action to refund [refinance] or otherwise restructure the bonds prior to December is necessary to avoid a potential default.”
But three important documents indicate that, if there is a shortfall in the trust when a payment is due, the development entity HB BM is financially responsible – not the BRA.
The first document that shows the developers’ responsibility for shortfalls is the Master Development Agreement, signed by Mark Bell in October 2017. That notes that if there are not enough taxes and reserve funds to pay debt service (payments due) on the bond, the developer will make payments to the bond Trustee to avoid default.
Here’s that section:

The bond’s Trust Indenture – to which the above section of the Master Development Agreement refers – was executed in Dec. 2017 and further codified this promise.
It defined a “Developer Debt Service Guaranty” to mean “the guaranty of the Developer to make certain payments to the Trustee in order to pay debt service on the Bonds in the event the Tax Increment Revenues, together with any other security under this Indenture, are not sufficient to pay debt service on the Bonds, all as described in Section I.8 of the Development Agreement.”
Section 302 (iii) of the Trust Indenture, shown below, then specifies that the payments by the developer under that clause would go into the bond fund, in order to make the payment to the bondholder.

That document didn’t require a signature from Mark Bell. But he put his signature on another related document in advance of this.
This was the “term sheet” letter provided in Sept. 2017 written in the name of Scottsdale Capital to Mark Bell and provided to convince the BRA at that time to issue the original bond and let the project go forward.
Section 9 in that “term sheet” letter, “Security for the Bonds,” specifically named “a commitment by the Developer, if necessary, to make certain payments to the Trustee to pay debt service on the Bonds, in the event the tax increment revenues are insufficient to pay debt service on the Bonds.”

Mark Bell signed that letter, as he did the Master Development Agreement that included the developer’s debt service guaranty.
Is the BRA about to act against the public’s interest?
As it approaches a possible refinancing of the bond, if the BRA acts in a fashion that effectively makes the BRA responsible for the debt payment shortfall – by refinancing the bond at a higher principal amount in order to make up the approximately $2.4M shortfall – the East Lansing government will end up paying $2.4M for which the developer is legally responsible.
Future taxes from the project will be promised to pay that extra $2.4M in principal. And future taxes will also be promised to pay interest, for years to come, on the higher principal amount.
If taken, this move would add to the pattern of the BRA promising taxes to pay for things that may not be legal to pay, given state statutory Brownfield TIF limitations.
It would also add to the pattern of paying for items City Council never approved when they voted through the deal in June 2017 with strict cost-controlling measures.
All in all, this is deeply frustrating to Mark Meadows, who was mayor when this deal was formulated and executed. Meadows has been pointing ELi to key elements of the deal, including the developer debt service guaranty.

Raymond Holt for ELi
East Lansing City Council member Mark Meadows at the Jan. 7, 2020, meeting.Ultimately, over $4.4M might be paid out of taxes without needing to be. And that’s not counting future interest on those disbursements.
The following is a list of past and possibly future pay-outs to the developers’ side from the Center City District bonds, which Meadows has said taxes should not be used to pay:
- $243,895 “origination fee” paid to Scottsdale Capital from the original bond principal
- $353,250 paid to Dykema Gossett, the developers’ lawyers, from the original bond principal
- $115,000 to Robert W. Baird & Co., paid for Brian Lefler to serve as the financial advisor to the developer, from the original bond principal
- $335,000 in interest income that accrued in the bond fund and was then erroneously paid out of the bond trust account by City staff to reimburse the developers for cost overruns on the public infrastructure; the agreements made clear the developer would be responsible for any cost overruns and would be reimbursed for those, if ever, after the bond was fully paid off in terms of principal and interest. (This money should have been saved to pay for the debt payments. The staff mistake has widened the shortfall by $335,000.)
- possibly another $822,000 to be paid to the developers for other cost overruns (which Lefler told the BRA should be paid now out of the new bond)
- approximately $2.4M for the Dec. 1 payment shortfall, if the BRA adds that to the new bond’s principal amount
- up to $140,000 in fees for “the developer’s team” from the new bond principal, per the memo from Fehrenbach and the resolution passed by the BRA on Sept. 24
- an unknown amount to be paid to a “placement agent” for the new bond – a placement agent that looks likely to be Brian Lefler.
All of that together comes to over $4.4M. Interest will also have to be paid out of taxes on that extra $4.4M in principal.
Creating worthless paper?
At some point, there may not be enough in new taxes generated by Center City to pay for all of this, presenting the possibility of future default and raising the question of who would buy (fund) the refinancing bonds. Besides the developers’ debt-gap guaranty, the only security provided is future captured taxes, and those are capped.
Capped at what? Well, Meadows has said the total payout should be capped at about $50M, according to a vote by City Council in 2017. But the developers say the cap was set at about $56M. The BRA’s bond counsel, Miller Canfield, is so far siding with the developers on the interpretation of this.
Then there’s that other reasonable question raised by Meadows: Why is the BRA promising to use TIF to pay the developers’ side for costs that are not eligible under the Brownfield TIF?
All in all, this deal has so many clashing interpretations, mismatched agreements, and problematic aspects from a regulatory standpoint that experts tell ELi this is an extraordinary situation that presents unusual risks.
A financial advisor for the BRA is at least finally on the scene
When the BRA issued the original bond for this project in 2017, it had no financial advisor. Why not?
Responding to questions from ELi on Friday, City Manager George Lahanas said that the BRA didn’t need one then because there were a “limited number of variables” and “the bond placement was private, with one potential investor and the interest rate was established” by setting it to the state statute limit.
But the fact that there was only “one potential investor” available – the lead developer’s own father – became apparent only just before the BRA’s 2017 vote to bond. Lefler was, after all, paid $115,000 to find investors, plural; presumably he looked for someone besides Mark Bell’s father.

And, contrary to Lahanas’s characterization, experts tell ELi this bond actually had many unusual aspects to it.
First, there’s the highly unusual requirement that a private third party must make up any debt payment shortfalls.
Then there’s the fact that it’s a “put” bond, which allows the bondholder to force the BRA to refinance. (Curiously, City staff tell ELi that Scottsdale Capital hasn’t yet officially asked for refinancing.)
And there’s the fact that no interest payment was required for three years, which means interest is now effectively going to be owed on the interest.
Finally, there’s the problem of this bond having been set up in a way that left a gaping shortfall for the first payment – something experts say they would have expected to be prevented with careful debt scheduling.
What’s coming?
On Sept. 24 of this year, following advice from Fehrenbach, the BRA unanimously voted to empower BRA Chair Peter Dewan and Vice Chair Jim Croom to sign off on a refinancing bond of up to $33.5M in principal, a bond that could include all the payouts the developers want to see.

One key element will be different now compared to 2017: The BRA has hired a professional financial advisor, PFM, to examine the matter and provide advice about what Dewan and Croom should do.
Experts in the area of municipal finance and bonds tell ELi that PFM has a solid reputation. But, they say, the BRA absolutely should have had a financial advisor from the start of this deal, to avoid the situation in which it now finds itself.
The only financial advisor who has been at the table until now has been Brian Lefler of Baird, representing the developers.
PFM has already said the BRA may need to pay Lefler out of the new bond because PFM needs his help to get a refinance in place before default. So, Lefler will likely get paid again, even though he works for the developers.
Miller Canfield, the City’s and BRA’s bond counsel, will also be advising on all this. So far, they’ve been disagreeing with Meadows’ and agreeing with the developers’ interpretations. They, too, will get paid out of the new bond.
City Manager George Lahanas did not answer a question from ELi about whether the City’s new attorneys, Foster Swift, will be looking at this deal with fresh eyes.
Because of the vote taken by the BRA on Sept. 24, none of this is required to come back into public view before a new bond is issued.
Asked whether he might sit down with the BRA to try to defend the public’s interest on this matter, Mark Meadows answered that he would have to be invited by the BRA Chair, Peter Dewan.
“But unless [the BRA] was to reconsider this last vote,” he added, “there is no purpose in going.”
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