UPDATE: The proposed contract with PK Companies is now on the Council’s business agenda for the June 13, 2023, meeting. Find it here.
A deal set up between developers DRW/Convexity and East Lansing’s City Council back in 2018 has set the stage for a big decision for the current council. The matter involves the now-vacant parcel at 341-345 Evergreen Ave., across the street from the Valley Court Park tennis courts. It comes down to this:
Choice #1: The Council can agree to let Chicago-based Convexity sell the property to a different set of developers, PK Companies, with a promise in writing from PK that that company will try to construct an income-restricted affordable apartment building on the lot – a project Convexity was supposed to build.
If PK Companies – local specialists in low-income housing – can’t obtain the federal and state subsidies necessary to make the project viable, PK will sell the property. PK would give the City of East Lansing the right to purchase the property at some yet-to-be-agreed-upon sum, probably somewhere around $1.5 million. If East Lansing doesn’t want to buy at that point, PK will seek other buyers.
Choice #2: The Council can hold Convexity to the original 2018 agreement. That says Convexity must build what it promised and got approval for – a six-story apartment building with 99 units including at least 74 that would be restricted to people earning 80% of the Area Median Income (AMI) or less. If that doesn’t get built by 2025, under the 2018 agreement, Convexity must deed the land over to the city at no cost.
The trick is that the 2018 agreement says the land would be deeded over by Convexity to the city “for use as a public open space, restricted to use of the property as public open space. Public open space means land dedicated or reserved for parks, recreational areas, and scenic areas.” In other words, the city could never develop the land. It would become parkland forever.
Council’s choice is consequently this: (1) Try to get the low-income downtown housing constructed by PK, the specialists who know how to get this kind of housing done, and risk having to buy the land for a significant sum later or have it sold to someone else. Or (2), stick with the 2018 deal with Convexity and get either a hastily-built affordable-housing apartment building or parkland that can never be redeveloped.
Deliberation over the question elicited some frustration at a discussion-only meeting of the Council on Tuesday, May 16.
Before the discussion, city staff told Council of the background on the 2018 DRW/Convexity “Park District” project deal. It involved three planned buildings: The Graduate Hotel, now bult and operating at 133 Evergreen Ave.; The Abbot Apartments, now built and occupied at 233 Abbot Rd.; and “Building C,” still an empty lot at 341-345 Evergreen Ave.
Building C was required in the 2018 deal in order to satisfy the city’s housing-diversification law, Ordinance 1384. That law says that big market-rate housing projects (likely to be rented mostly by students) must include, in their site plan, at least 25% units for (a) low-to-moderate-income renters or (b) people aged 55+ or (c) owner-occupied condos. The Abbot is a big market-rate project rented mostly by students, and Building C was promised to provide the 25% “diversified” housing units.
But, as noted above, Convexity has not constructed Building C. Convexity has named as challenges the rising costs of construction materials and labor and unfamiliarity navigating the affordable-housing financing process. Now, Convexity wants to shift the burden of Building C over to PK Companies and be done with its own agreement with the city.
At the May 16 meeting, with only Mayor Pro Tem Jessy Gregg and Councilmembers Dana Watson and George Brookover present (Mayor Ron Bacon and Councilmember Noel Garcia were absent), Convexity’s local attorney David Pierson asked Council to approve a forthcoming agreement with PK Companies.
The agreement – not yet presented – would allow PK to purchase the property and complete the affordable housing project, releasing Pierson’s client from the deal and the obligation to build the affordable-housing. (To be clear: if the land is instead deeded over as parkland, the 2018 agreement says that would also release Convexity from the requirement to build diversified housing.)
Okemos-based PK has extensive experience with affordable housing projects, including in East Lansing with the Deerpath Apartments at 1290 Deerpath Lane and the senior housing at the Bailey Apartments at 300 Bailey St.
Tim Dempsey, East Lansing’s Interim Director of Planning, Building and Development, explained what Convexity and PK were hoping the city would agree to.
“In this alternative scenario, with PK acquiring and developing the property, [the idea] is that by conveying the property to PK, they [Convexity] want to be released of that obligation and then the city could work with PK to hopefully see that project through,” Dempsey said.
“PK has proposed that the city enter into an option agreement with them,” he explained further. “Should PK not be able to develop the project or get it going within 48 months, the city would have the option to purchase it at $1.5 million, which is the same price that PK would be acquiring it from Convexity. Under that scenario, if it played out, the city would not have a development restriction any longer, so the city could either find another buyer or find some other alternative development scenario to do it.”
Otherwise, the city might get the land for free from Convexity. But in that case, it could never be redeveloped, because it would be permanently designated as parkland.
The council members present each signaled frustration.
All three council members were not thrilled that they were being asked to consider a new agreement that would delay this affordable downtown housing by several more years.
“We have been flirting with low-income housing on this parcel for the entire time that I have been on Council,” Gregg said. “And it was committed by Convexity in a development agreement that predates me being on Council, so we have been talking about low-income housing on this parcel for probably five, six years now, and we’re now hoping that PK can deliver on that and we won’t see it for another two to three years.”
“I understand our local economy makes it very difficult to bring low-income housing in just because our property values are so high,” Gregg continued. “And I guess this is kind of an illustration of just like how difficult that math problem is to get this through.”
“For it to convert to us for $1.5 million,” Gregg noted, “we would have the right then to shop that out to another developer. But I’m guessing, you know, if PK can’t get the tax credits lined up, then it’s going to be equally difficult for another developer to get the tax credit lined up. I’m just thinking, can we preserve the possibility of doing low income on this parcel? Like in how many decades might we see that come to pass?”
“I’m happy to have the discussion tonight,” Brookover said, “but I ain’t going to commit to anything until I see a [written, new] development agreement that’s before us that we’re asked to either reject or pass.”
“Mr. Pierson knows I’ve been in enough litigation,” said Brookover, referring to having known Pierson for many years in the local law scene. “I’m happy to hear what everybody says. I want the project to happen, but I’m not going to buy a pig in a poke when I know that we got a free piece of property coming back to us [if the Council does nothing], which, yep it’s going to be open space. I just want to say that for the record.”
Brookover was not ready to just take what was being offered verbally. He told Dempsey to be a tough negotiator for the city and to get the city the best offer he could.
“Council discussed this land before,” Watson said. “This is wheel-spinning, like, we already said where we were at with the land, and so now if Convexity pays $1.5 million to PK, and then PK, [if] it doesn’t work out, they get $1.5 million from that from us…and that sounds like a scot-free deal.”
Watson was apparently referring to a plan that had been championed a year ago by former Director of Planning, Building and Development Tom Fehrenbach. It was a concept that would have seen the city buy the Building C parcel from Convexity and pursue affordable housing on its own.
Watson, Gregg and Mayor Ron Bacon voted in favor of that idea in April 2022, with Brookover and then Councilmember Lisa Babcock against. That plan, however, failed to proceed when the Michigan Economic Development Corporation (MEDC) did not agree to approving tax incentives for the plan.
“The city wants affordable housing,” Convexity’s attorney Pierson reminded Council, “and Convexity thinks affordable housing would be good here. They do not propose to make a large profit on this. What they propose to do is to transfer it to PK, who, as near as we can tell, everybody agrees knows how to do this. And anybody can say we should have known this a long time ago [i.e., that Convexity couldn’t get the project done]. All I can tell you is we didn’t. But at this point, we understand it and we think that this is a good plan which will get the city affordable housing.”
What does PK have that Convexity doesn’t?
Not just the aforementioned history of constructing affordable housing, but also the experience in applying for the tax credits from the Michigan State Housing Development Authority (MSHDA) that makes affordable housing in a high-income community possible.
In a telephone interview with ELi, Jacob Horner of PK explained how the tax credit process works.
“The application opens every six months,” Horner said. “And the next time it’ll open is in October. It’s a public resource and scarce. There are people competing for these funds from all throughout the state, Flint, Detroit, Traverse City, everywhere. For every five dollars requested in funding, only one dollar is available. It’s a very dicey process and we’ve been very successful in the past. But the landscape constantly changes and they’re rewriting the rules again for October.”
PK would also request from the city a special tax status for the property called “payment in lieu of taxes,” or PILOT, that would allow owners of the property to pay a far lower annual payment instead of the property taxes that would traditionally be collected on a market-rate rental apartment building.
That the building is designed to be amenable to families with children makes it especially interesting to Council. The apartments are designed to have comfortable family living spaces, with layouts different from the typical student-attracting apartments that have small kitchens, small living rooms and a bathroom for every bedroom.
In anticipation that the city would approve the new deal, Pierson told ELi in a phone interview that Convexity had already shared detailed site plans and architectural drawings with PK. Giving those over to PK means saving PK a great deal of time and expense. (PK has previously told ELi they intend to use the site plan the city already approved for Convexity.)
“In the ordinary course of selling property, you don’t do that,” he said. “It’s unusual.”
“The process inherently takes way too long,” Horner said on the phone. “And obviously everyone would like to see this happen right now. But we have to work within the restraints we have, so I think it’s the best option.
“We’ve been in this business for 30 years and are very passionate about helping communities. Affordable housing is a huge need and has been for a long time. We’re a small company in the scheme of things, but it’s something we enjoy being able to do for our communities and neighbors,” Horner said. “We try to provide for the neediest folks in our communities and create a place for them to live, too. It’s important for a community like East Lansing for folks making an hourly wage to have a place to live. Morally, it’s the right thing to do.”
Over the coming weeks, Convexity, PK, Dempsey and City Attorney Tony Chubb will continue to work on a new agreement to take to Council for a vote.
Whether the Council accepts another promise for affordable housing, this time from PK, or decides to stick with the 2018 agreement with Convexity remains to be seen.