City Leaders Less Than Thrilled with Redevelopment Deal’s Progress

With an exclusive agreement between River Caddis Development and East Lansing’s Downtown Development Authority (DDA) set to expire next Friday, DDA members aren’t sure where things should go from here with the publicly-owned Evergreen properties. For his part, Mayor Aaron Stephens thinks it’s time for City Council to have a look at the issue – but it’s not even clear if the developers are still interested.

To recap: Over a decade ago, the DDA bought a series of properties along Evergreen Ave. in anticipation of redevelopment with a developer who has since come under indictment. The properties have been mired in debt, now standing at about $5.3M, which is millions more than the land is worth. The DDA is now having to dip into fund balance (savings) to manage the debt payments on the bonds for these properties.

The DDA has been through one failed deal after another on this parcel of land.

When the Royal Properties/Vlahakis Development “Park Place” project fell apart in late 2019 after more than a year of talks, the DDA put out a call for proposals from other developers. They ended up with only one developer willing to attempt a deal: River Caddis Development, who has proposed building an office project called The CITADEL.

But talks with River Caddis have now been dragging on for almost a year without a named anchor tenant or even any clarity on what, exactly, the developer wants in the deal, particularly in terms of tax incentives.

The latest-available description of the project includes no parking for an eight-story office building, with the City apparently being expected to create and pay for a new parking ramp on unidentified land just west of Abbot Road.

The DDA’s Project & Infrastructure Committee met yesterday (Jan. 21) in advance of a meeting of the full DDA next Thursday. No one from River Caddis even showed up at yesterday’s virtual meeting. City staff said the developers had a prior personal engagement that they could not get out of.

The DDA’s specially-hired attorney for this work, Stephen Palms from Miller Canfield, told the committee that when he contacted the developers’ attorney to talk about a possible contract, the developers’ attorney said he was glad to hear it was moving forward but that his client had not been in touch with him for a number of months about the project.

DDA Vice Chair Jim Croom indicated that he did not see the developers’ no-show at yesterday’s meeting as a particularly good sign.

Nevertheless, City staff members have been working with attorney Palms – at a cost of $395/hour – on what City Planning staff wants to see in a possible Purchase and Sale Agreement (PSA) with River Caddis.

The terms proposed include up to 450 days more of exclusivity for the developers – and plenty of opportunity for the developers to back out even at the end of what would be over two years in total.

Director of Planning Tom Fehrenbach said that their attorney had shared with the developers’ attorney what staff thinks should be in the contract, but the developers have not offered any comments in response.

Under the current staff recommendations, the developers would have to put up a $100,000 deposit and $5,000/month to keep the contract alive, plus $50,000 for each 90-day extension beyond the first 180 days. The idea is to give the DDA something in exchange for years of exclusivity.

But the same sort of payments were built into the Royal Vlahakis deal, and the DDA simply voted to give the developers back all their money when that deal fell apart.

Perhaps most surprisingly, yesterday, City staff presented to the DDA committee a revised draft contract that includes the developers paying only $1.2M in cash for the land at the closing of the land sale. The DDA would be given a lien on the property for the rest of what the DDA owes on the bonds – about $4M.

But no one explained how the DDA would pay the $4M gap between the $5.4M owed on the current bonds and the $1.2M cash payment. Answering questions from ELi sent in immediately after the meeting, Fehrenbach replied the next day to say, “The Downtown Development Bonds are not secured by the Evergreen Properties, and therefore would not need to be paid off as part of a transfer of the property.”

He did not say what, besides the full faith and credit of the City, secures the bonds.

The developers had previously proposed they be reimbursed with Brownfield Tax Incentive Financing (TIF) for the $5.4M purchase price of the land, something that they apparently did not realize is not permissible under state law. At yesterday’s meeting, Fehrenbach said the new proposal, to split the DDA’s debt into $1.2M cash up front with the rest put in a lien, was proposed by the developers.

Yesterday, the DDA’s attorney admitted that because a regular commercial lender would have the first mortgage on River Caddis’s redevelopment – a mortgage worth most of the redeveloped property’s value – the DDA’s $4M subordinate lien would likely have no real value, unless the DDA obtained a personal guarantee from the developers to pay back the DDA.

Whether John and Kevin McGraw, owners of River Caddis, would be willing to personally guarantee the lien – and whether they have the assets to guarantee it – is an open question.

East Lansing Finance Director Jill Feldpausch, who is on the P&I Committee but not the full DDA, said she wants to understand more about the risks of such a subordinate lien or promissory note. She expressed concern about “our ability to collect.”

But City Manager George Lahanas remains bullish on this deal. He said he likes what he sees in the proposed agreement, because having office space at this location would be exciting and economically productive.

Lahanas said that he didn’t want to see the Evergreen properties’ debt solved with a big student housing project, and that he’s encouraged by the good effort shown by River Caddis. He blamed the pandemic for the process dragging out and said that anyone who doesn’t understand that delay doesn’t understand the impact the pandemic is having on office-space development.

Mayor Aaron Stephens said that, since the deal would ultimately require City Council’s approval, he thinks it is a good idea to bring it to Council now for their take, to try to avoid wasting more time. With the Royal Vlahakis deal, it was Council that finally said “enough” and told the DDA to move on.

At yesterday’s meeting, Croom agreed with Stephens’ idea, and said he also wanted to know a lot more about what the developer is envisioning in terms of the actual project at this point.

“We don’t know what it is,” said Croom of the site plan. DDA Chair Peter Dewan agreed.

Croom indicated he might be willing at next week’s DDA meeting to vote for a short extension of the exclusive agreement contained in the Memorandum of Understanding from last April – which was extended in July and then again in October – but Croom did not indicate willingness to enter into a more detailed Purchase and Sale Agreement.

Croom asked Palms, the DDA’s attorney, to look into whether they could take the discussions of this matter out of the public view, into a closed session. Croom said this was not because he wanted to obscure transparency, but because he wants to have more “frank discussions” and later let the public know what transpired, to give them an opportunity for input afterwards. He said it was awkward to be “negotiating with ourselves” in public meetings.

Meanwhile, City staff are looking into demolition of the house at 334 Evergreen Ave., on one of the DDA’s contiguous Evergreen properties. That house had been bringing in the most rent of any of the houses on the Evergreen properties, but problems with the roof led the DDA to decide to take that house off the rental market. That has only exacerbated the DDA’s debt problem.

The City’s Community and Economic Development Analyst Heather Pope says she is looking into obtaining MEDC funding for asbestos abatement and demolition of that house, with the idea that MSUFCU might then lease the land to use as a construction staging area for the office building they still hope to build just south of Dublin Square.

Expect the DDA to take discuss the deal with River Caddis at their meeting on Thursday, Jan. 28, starting at noon.

Correction: This article originally identified the attorney from Miller Canfield as Steve Mann. On Jan. 22, the City responded to emails asking for confirmation of that name and indicated the attorney was Stephen Palms, so the article has been corrected. Additionally, the City also responded to questions about the bonds, with Fehrenbach saying the bonds are not secured by the properties, so this has been amended with his response added.

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