The DDA Gives Up on The CITADEL™. What’s Next?

Nearly 15 years after East Lansing’s Downtown Development Authority bought a series of properties along Evergreen Avenue to support a redevelopment project that never happened, the DDA has decided to give up on the most recent proposal, “the CITADEL.”

The principal of the debt taken on by the DDA for the 2009 purchases stands at about $5.1 million, close to what it was at the start, with millions already paid in interest.

Once again, the group consisting of the mayor, the city manager and nine other DDA members appointed by the City Council will try to figure out what to do next. Based on conversation at last Thursday’s DDA meeting, many board members are now assuming the site will become the home of another big downtown housing project.

But will the developer who held an exclusive right to redevelop the property for office space for the last 2.5 years keep the exclusive right to redevelopment? Or will the DDA take bids from all comers? Or might it just sell the land? These were all questions discussed at the Nov. 17 meeting.

One project after another has failed to launch.

Stretching along the east side of Evergreen Avenue just north of Peoples Church downtown, the properties at 314-344 Evergreen Ave. were purchased by the DDA in 2009 to support a large redevelopment project developer Scott Chappelle first started pitching in 2002.

Despite Chappelle’s failure to actually start the redevelopment and many citizens’ warnings to the DDA and Council about Chappelle’s record of trouble, it took until 2015 for the DDA to pull out of the public-private partnership. (Chappelle was recently sentenced to 38 months in federal prison for tax evasion and is now serving his time in Morgantown, West Virginia.)

After Chappelle’s effort came an attempt by the DDA and city to get DRW Convexity to develop the land as part of their Park District redevelopment. But in 2018, the City removed the Evergreen Properties from DRW Convexity’s ultimate plan. DRW Convexity has built only on the land they obtained on Grand River Avenue after foreclosure by Chappelle’s lender. There, DRW Convexity constructed the Abbot Apartments and The Graduate Hotel, just south of the DDA’s properties.

Then in 2018 came the Royal Vlahakis “Park Place” proposal for the DDA’s Evergreen Properties. This concept included a 12-screen multiplex with robotic parking. To make a long story short, that didn’t happen.

In late 2019, the DDA sent out a Request for Proposals for redevelopment of the land and got back only two pitches. One, from Convexity, called for “Albert Commons,” a big housing project. But Convexity pulled out when a change in the tax assessing of big apartment buildings erased the potential profit.

The only proposal left was from River Caddis Development. That was the proposal called “The CITADEL,” an acronym for Central Innovation Technology & Arts District of East Lansing. At its heart, it was meant to be an eight-story office building. The DDA signed up for an exclusive agreement with River Caddis on the basis of that proposal.

That was in April 2020. Here’s what ELi reported then: “But Mayor Ruth Beier, who is a DDA member, made clear: She’s not interested in being told now that the developers want to build a big new office building only to be told later they want instead to build a high-rise rental apartment tower for students.”

That was three mayors and one pandemic ago. Now City Manager George Lahanas says office space is not tenable and it’s time to move on, suggesting housing may be the way to go.

The DDA talked last week about what to do next.

After two and a half years and ongoing doubts expressed about the wisdom of sticking with the deal, the exclusive agreement between the DDA and River Caddis Development currently has automatic six-month extensions built in. The next auto-extension will happen in January 2023 unless the DDA or River Caddis pulls out.

That looming auto-renewal, along with developer Paul Vlahakis’ pitch to the DDA less than a month ago for a big new housing project on the DDA’s land, prompted last week’s discussion of whether to give up on The CITADEL.

By way of background, the DDA took on about $5 million in bond debt to purchase these properties in 2009. The authority kept making interest-only payments for years out of the belief a developer would eventually solve its debt problem. Since he became city manager in 2012, Lahanas has regularly expressed hope the DDA would attract a great economic redevelopment project like office space to the DDA’s properties to pay off the debt.

But last Thursday, Lahanas told the DDA he believes the debt will, in fact, have to be paid off using property taxes coming from other new projects, specifically the MSUFCU downtown project, DRW Convexity’s Abbot Apartments and The Graduate Hotel.

Lahanas noted on Thursday the DDA had not previously been interested in housing for the DDA’s properties. But, he said, “It seems like the passage of time and COVID has changed that and office [space] is something we can’t wait forever for.”

From there, the discussion pivoted quickly to the question of whether the DDA should give River Caddis the exclusive right to pursue a big housing project on the land.

City Attorney Anthony Chubb said that whether the DDA could do that – give River Caddis an exclusive for a housing project – without getting sued by other developers depended on what went into the original exclusive agreement. He plans to look into the issue.

Some DDA members want to see River Caddis rewarded with an exclusive because that developer has sunk time and resources into pursuit of an office dream.

But Mayor Ron Bacon noted the DDA has also been spending money while waiting for River Caddis, namely paying interest on the land-purchase debt while no redevelopment happened. Bacon said he wanted “a clean break.”

While some DDA members suggested it was time for another open call for proposals, DDA member Luke Hackney argued for something more radical: simply selling off the land to the highest bidder.

The debt is not tied to the land – it is secured instead by the City of East Lansing’s full faith and credit – so nothing would stop the DDA from just selling it. A land sale by the DDA doesn’t require the permission of Council or the voters.

Lahanas noted the land has gone from having six buildings on it when purchased to soon having none, because the DDA has steadily voted to knock down the income-generating rental buildings that stood on the land when it was purchased. (The DDA voted in August to get rid of the last two.) The City has also greatly improved infrastructure in the area. All this, he noted, will now make the land more attractive to developers.

DDA member Jeff Smith proposed the DDA pay for a feasibility study on housing and other options. Smith imagined the land could be used for entertainment retail, like indoor rock-climbing, as part of a bigger project. He expressed hope for “a really unique project.”

What happens next? The expectation is that, at the next meeting on Dec. 15, the city attorney will report back on the liability risk of giving River Caddis an exclusive for a residential project, John McGraw of River Caddis will indicate what his interest is at that point and the DDA will debate how to progress.

In the meantime, the DDA voted unanimously on Thursday to recommend Council refinance the bonds related to the properties yet again. The existing bonds are variable-rate and so, with rising interest rates, the costs are eating up more tax dollars than ever anticipated.

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