Ann Arbor 'Library Lot' proposals raise timing questions

That doesn’t mean the deadline - the city hopes to evaluate the proposals over the winter, then come up with a recommendation by March 1.

The timing question is more: When would Ann Arbor actually see the results of any of these proposals on the site? And when will it really make sense to develop downtown again?

From a development perspective, the answer may be many years in the future. The city’s efforts to solicit proposals for the property, and ultimately reap the fair market value it seeks for it, do not mesh with market realities.

And that means by the end of this process in early 2010, the city could have another “winner” in the request for proposals contest that can’t actually deliver results.

A national study by the Urban Land Institute, presented Nov. 11 at the University of Michigan, offered sobering glimpses into the world of investments and development.

It’s just one recent study heard by local industry experts that shows how across the U.S., development activity is plummeting - and that will last through 2012, according to ULI. Demand can't fill existing properties, where vacancy rates are climbing, and foreclosure rates and falling values keep adding price pressure to the mix. 

New construction, even with low land costs, won’t be able to compete with prices we’ll be seeing on existing properties.

And financing is rare to non-existent. “Forget about construction financing - that’s a pipe dream,” according to the report.

In Michigan, we have our own issues to add to that forecast.

Namely that even “favored” investment categories follow the caveat: The ULI is not bullish on anywhere, thanks to “dysfunctional global credit markets and a tottering U.S. economy (that) subdue prospect for cities and suburbs from coast to coast in 2010.”

So in a tepid market at best, Michigan barely rates a blip on the investment interest scale. Ann Arbor could rise above that, thanks to the presence of the University of Michigan and efforts to brand the city as a “brainpower center.”

But the likelihood that it’s enough to fuel a downtown development project contrary to all U.S. development forecasts has to be a concern as the city moves forward.

Even a look at the specific projects raises questions about viability.

Three proposals are calling for a hotel as part of the project. That sector has struggled in the past couple years, and continues to do so. The ULI study says hotel properties will lead commercial real estate into recovery, as occupancy climbs from “unnerving lows.” The best bets for investors will be to buy troubled hotel properties for bargain prices.

As for development in 2010? “Huh?” is the only comment in the ULI report.

Retail uses are cited in five of the six proposals, and that’s another struggling sector. Retail space in the U.S. has been overbuilt, based on existing demand.

In Ann Arbor, construction slowed right before demand dropped off, but we can still see the effects of new retail spaces coming into the downtown mix and not finding tenants.

Examples: Ashley Terrace, 411 Lofts and McKinley Towne Center’s space on East Washington.

What is the answer for the library lot?

We’ll find out more about the specific projects in coming weeks, including how they’d be financially structured. And that will tell us how much the city can gain from a sale to a developer and at what stage in the process the developers will come up with the cash - so even if delays are factored in, the city doesn’t carry all of the risk.

Most landowners in town are waiting out the recession, recognizing that trying to time a project to market recovery carries more risk than they’re willing to take.