Posted on Thu, Sep 3, 2009 : 7:43 a.m.
Developers skeptical that Ann Arbor library lot proposal request will yield finished project
By Paula Gardner
Ann Arbor officials are seeking proposals to build on the 1.2-acre city-owned property known as the “library lot” on South Fifth Avenue, where work on a $59 million underground parking garage will begin in October.Â
The economy is a driver of that, since finding a marketable use for the property will be challenging. But so is the track record of city RFPs.
The vision, according to city plans, will be a dense project that adds vitality to the blocks between Main Street and the University of Michigan campus.Â
But the reality, say local developers, could be another failed attempt to lure private development to public property near downtown.
With the library lot RFP, insiders say that developers who in the past may have responded with a legitimate proposal - at a cost of $20,000 or more - will stay on the sidelines.
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The economy is a driver of that, since finding a marketable use for the property will be challenging. But so is the track record of city RFPs.
 “(Many developers) view the risk as being a substantial waste of time and resources because you can never get to the end,” said Rob Aldrich, president of MAVDevelopment in Ann Arbor.
“From my perspective, the city has a lousy track record with these (requests for proposal)s. Name a successful one in the last 10 years.”Â
Examples of “Requests for Proposals” -or RFPs - to develop city properties over recent years include:Â
• 415 W. Washington, where three developers submitted proposals to develop 2.2 acres in 2008, but a decision has been postponed.Â
• First/Washington - An RFP was issued in 2000 and Joseph Freed & Associates were chosen as developers, but the deal collapsed in 2002.
 • First/Washington - A second RFP was issued in December 2005, with Village Green chosen as the developer. Negotiations concluded, but financing issues have postponed construction, according to city officials.Â
• The former YMCA site: an RFP was issued in December 2004, and the city reached an agreement with HDC LLC to build William Street Station, which was to include affordable housing and a new bus station at 350 S. Fifth. The city halted the project in 2007 after two years of negotiations.Â
In addition, the city and Downtown Development Authority spent years working on a “three-site plan” to develop other downtown property, including the former Kline’s lot and property at First and William. That hasn’t resulted in development opportunities, and the latter site was proposed to remain “open space.”Â
“I want someone to show me one RFP that was successful,” said downtown developer Ed Shaffran, echoing Aldrich’s concerns.Â
City officials say the lack of actual building following an RFP process doesn’t point to failure of the city.
As an example, they cite the Village Green apartment project, called Ann Arbor City Apartments.Â
The company and city officials have negotiated the complexities involved with the site, including the public parking components - financed by the DDA - and the rental housing, a portion of which will be dedicated for low-income residents.
 “That’s an approved project that’s simply awaiting financing,” said City Manager Roger Fraser. That means the delay is stemming from the private aspect of the development, not a delay on the public side, he emphasized.
 The financing evolves from the real estate downturn and credit market implosion, Fraser said, and that’s a national issue - not particular to Ann Arbor and its development potential.
 “We expect that it will be built,” Fraser said. “It just needs to get past the financing bubble.”
 But many developers - some who would only speak privately - say that the city may not be in the best position to weigh the feasibility of projects, and that can add time delays.
 The RFPs have kept some control in the city’s hands, and that control can add elements to a project that push a good idea for the city into an unbuildable plan that won’t be profitable for the private investment.Â
When deciding how to develop a city site, Ann Arbor officials typically hold public meetings to get input on the proposals and that input may or may not reflect market realities.Â
“You can’t do a deal when you’re trying to please all sides,” Aldrich said. “That, frankly, is the problem.”Â
Another concern is the open-ended aspects of the RFP, which leave many details for negotiation late in the process.Â
“If we’re going to put up an RFP, let’s put down exactly what the city will do,” Shaffran said. “Say: We’ll give you A, B and C - with no negotiations behind the scenes.”Â
The site itself also raises concerns for a developer seeking to invest in a downtown project.
David Kwan, who has participated in several previous RFP rounds, noted that the mid-block location of the 1.2 acres next to the library limits the visibility and potential for any project that ends up on the property.Â
Swapping the Ann Arbor District Library’s property for the former YMCA property would yield a larger parcel with corner frontage, Kwan said. “That would increase the value tremendously,” he added.Â
Kwan joins Fraser in noting that it’s better for the city to choose a developer at the same time the parking deck is built. But he questions the need for forging ahead with that parking today, particularly in light of the difficulty the city likely faces in attracting a viable project to sit on top of it.
 “In this market, nobody’s excited about developing anything right now,” Kwan said.Â
However, Fraser said the city has been approached by several potential developers, in addition to the one group that spoke publicly about its plans to submit a proposal calling for a hotel and conference center.Â
“We realize the economy is still difficult, but we’ve also been approached by a number of folks that have been interested in developing something for that top side,” Fraser said.
 Whether those developers submit plans - and attend the mandatory pre-proposal meeting on Sept. 25 - remains to be seen.
 “I think we’ll certainly be challenged to find many bidders for this property because of the economy, but we have nothing to lose,” said City Councilmember Leigh Greden, D-3rd Ward. “The worst case scenario is we’re unhappy with the quality or quantity of bids, so the city starts over.”
 Fraser said he expects at least three to four developers to participate, drawn by the relative stability of the Ann Arbor economy and the strength of downtown.
 “I do think this is a prime piece of property,” Fraser said.
Paula Gardner is business director for Ann Arbor.com, where she covers real estate and development. Contact her at (734) 623-2586 or by email.
Comments
a2grateful
Thu, Sep 3, 2009 : 4:42 p.m.
Response to questions by Stephen Lange Ranzini... 1) Do we actually have an insufficient supply of office space and other "infrastructure" downtown (e.g. rail access, conference center and hotel rooms) to attract the right kind of jobs?... - - - My personal estimate is that infrastructure in the current environment is at surplus levels, as evidenced by high vacancies.... 2) Should we spend that money building tall buildings (or low rise buildings) or underground parking, a conference center, rail stations - in other words build additional "infrastructure" in the hope that we can attract businesses to Ann Arbor to use and occupy this new space or by backing firms that will add jobs?... - - - That's the Field-of-Dreams scenario: If you build it, they will come. Building and wishing they will come is likely an easy and painful recipe for failure.......... Why did Google come to Ann Arbor? Why did Pfizer leave? Who decides what our area needs? Those from the private sector that are informed and capable, or those in the public sector that are simply guessing while using someone else's money?... Where are the regional and state initiatives in attracting business? Do either exist?... Unfortunately, there seems to be far more questions than answers.... Jobs are related to business environment, business taxes, and labor issues.... What is Michigan doing to enable entrepreneurs? How is Michigan helping existing business survive? What is Michigan doing to incent new business startups and relocation?... How fair and predictable is the business tax?... These questions must be answered in the context of other competing states.... Additionally, Michigan competes with right-to-work states. Michigan has strong unions and loses hundreds-of-thousands of manufacturing jobs. Are unions still good for Michigan?... The turnaround begins when Michigan has a plan to nurture business that creates jobs.... The dismal statistics will change only when such a plan is identified, and not before.... These issues may be more complex than our current leaders can comprehend and manage.
Laura Bien
Thu, Sep 3, 2009 : 1:51 p.m.
a2grateful: "No offense to these small communities. However, they began as dots along a railroad line." I don't mean to be off-topic, but just in the interest of accuracy, Ypsilanti began in 1823 not as a dot on a RR line (which didn't then exist in Ypsi) but as a settlement just a bit outside of the present downtown. The Michigan Central RR line reached Ypsi on Feb. 5, 1838, and reached AA a year and a half later, on Oct. 17, 1839. (thanks--back on topic)
Stephen Lange Ranzini
Thu, Sep 3, 2009 : 12:28 p.m.
Bob Martel is correct, the following 8+ story projects in downtown Ann Arbor have all been through bankruptcy (or the developers went under): - One North Main (corner of Huron & Main) - the office building at the corner of Liberty & Fifth; - the former hotel (now senior housing) at the corner of Huron & Fourth); - the office building at the corner of Main and Washington (built in 1929 -oops); - I believe also that the developer who built Sloan Plaza (the condos on E. Huron St.) also went bankrupt as did the developer of the very tall student housing building at William St. & Maynard; - As noted, Ashley Mews (William St. & Main St.) was not a financial success for Syndeco. - Also, it is my information that the Ashley Terrace project (Huron St. & Ashley St.) is a big financial drag on Freed Group. I believe that that is the entire list of buildings built in downtown Ann Arbor of 8 or more stories. If I've missed one or have the facts wrong on any, please let me know (I've been collecting this oral history for some time). Having said that, Ann Arbor Girl is correct that if projects get built and add to the city's income tax base (and DDA's), that's a good thing if they are utilized and maintained. Of course if they aren't used and become eyesores, we risk becoming a "Detroit West". The debate over the merits of tall buildings begs the fundamental question of what is our goal as a city? Is is economic development, or the pursuit of adding big tall beautiful buildings? To date, many of the buildings built are not pretty, but I digress. I get the feeling that many believe that building buildings brings jobs. Economic development is not adding a third gas station to a busy street corner where there are two profitable success gas stations already. All you accomplish doing that is to impoverish two gas station owners and maybe one or two go bankrupt and end up being boarded up (think Woodward Avenue). In a county where we have lost 30,500 jobs since 2000 (see http://www.annarbor.com/business-review/washtenaw-county-needs-to-talk-about-stemming-jobs-losses/), in my opinion what we need are more jobs in Ann Arbor. If we have those jobs, additional developments will be possible. What is our strategy to add jobs? We do have $50mm of tax free bonding authority available at the Ann Arbor EDC (where I am President) and the Washtenaw County EDC (where I am Vice Chair). This low cost funding can be used for economic development. Do we actually have an insufficient supply of office space and other "infrastructure" downtown (e.g. rail access, conference center and hotel rooms) to attract the right kind of jobs? Should we spend that money building tall buildings (or low rise buildings) or underground parking, a conference center, rail stations - in other words build additional "infrastructure" in the hope that we can attract businesses to Ann Arbor to use and occupy this new space or by backing firms that will add jobs? Or, should we do something else? I for one would like your feedback and ideas.
a2grateful
Thu, Sep 3, 2009 : 10:19 a.m.
There is an old joke/folklore in real estate: What are the three most important elements in successful real estate investment? Location, location, location.... Maybe this was true when money flowed like a spigot. However, when it comes to commercial real estate, the spigot is off!... What are the three most important elements in successful real estate investment today? Demand, growth, financing.... Savvy, solvent investors have opportunity to buy existing projects/properties for pennies on the dollar (new construction dollars). Why would anyone build something new, when they can buy almost new for 40% (or less) of cost new?... Savvy, cashless investors are looking under every possible rock to find financing. They are looking for steals. They are looking for hapless, clueless equity holders... like the City of Ann Arbor?... The City of Ann Arbor is the City's largest land owner. They are facing huge budget deficits. They are unable to manage and sustain the current land portfolio, given current economic resources and circumstances.... This is truly poor timing for the City to become a developer and speculator. They are unqualified to review proposed projects, as well as successfully move forward. For example, what will they do if they receive a proposal for a hotel? Do they know occupancy rates in Ann Arbor? What will the effect be on privately held downtown hotels if the City joint ventures a new one. If a sacrificial lamb is needed, which existing property will it be? Campus Inn? Bell Tower? Should the City be focusing on such issues right now? Should the City be placing existing valued business at risk?... Oy vey!
'Long time, too
Thu, Sep 3, 2009 : 10:14 a.m.
As a point of clarification about ann arbor girl's remarks re: history of development of Ashley Mews... my understanding is that it was most certainly *not* U of M that "filled" the first "hole," or initially excavated site. Rather, it was the winning bidder of the new football stadium turf replacement who, at that time, and through its own negotiations, removed dirt from the stadium site and filled the other site. (A brilliant bid component, I might add, imho.)
Paula Gardner
Thu, Sep 3, 2009 : 9:32 a.m.
One note on the Ashley Mews part of the discussion - some in Ann Arbor don't count that when considering development efforts because it was built by Syndeco, the development arm of DTE Energy. So it had the utility's financing behind it, which creates a different dynamic - there's no lender asking for up-front equity on a construction loan, for example. That's also one reason why the empty penthouse condos - there are still four, I believe, after about 8 years - aren't being offered at "fire sale" prices. The carrying costs are just being absorbed by the utility, which had a market cap of over $5 billion earlier this year.
Bob Martel
Thu, Sep 3, 2009 : 9:21 a.m.
@ Ann Arbor Girl, My concern with this project that differs from others such as 301 E Liberty, One North Main or even Tally Hall, is that in this case the City will be the landlord to the developer in the form of a ground lease. Thus, if/when the developer fails, the City as landlord will have some role to play in the bail out and it probably will cost the City money. In the case of Tally Hall, I am not sure if the City ever spent any money on that project, but it was an eyesore in our downtown for many years which reflected negatively on the community. I am thankful that McKinley has acquired that property and hopeful that they can finally make something of it. The proposed WCC expansion in the basement is a good idea in my opinion. As far as Ashley Mews is concerned, I will agree that it is a physically attractive development and an asset to the community, but I think that if you checked with DTE (the developer) you'll find that it was not a financial success but since it had a very deep pocket developer that fact never became much of an issue.
David Wallner
Thu, Sep 3, 2009 : 9:17 a.m.
Wow, "we have nothing to lose" says Leigh Greden. Excuse me, wouldn't a development on the site generate TAX REVENUE? AA must not need the revenue so I can relax about the idea that services might need to be cut or a millage increase might find it's way onto a future ballot. I'll sleep better tonight.
a2grateful
Thu, Sep 3, 2009 : 9:10 a.m.
Ann Arbor Girl: From memory and subject to confirmation: Herb and Estelle Schneider dug the hole (literally and figuratively) on Main for their project with the City. They defaulted and the City took it back. U of M filled the dangerous hole when they lowered the football field at U of M stadium. Many years later Ashley Mews came to be.
ann arbor girl
Thu, Sep 3, 2009 : 8:29 a.m.
Bob - I am a fan of your thoughtful postings on this and other online publications. But a question of clarification - if there haven't been any major downtown developments in 31 years that didn't go through foreclosure (Ashley Mews contradicts this statement by the way) why are you envisioning that the City would bail out a failed project on this site when they didn't bail out any of the others - including Tally Hall/Liberty Square where they were partners of a sort in the project? It would seem that the risk isn't the City's if a project doesn't make it - the risk is held by the developers and their financers. And other than Tally Hall which sat empty for years because of choices made by its owner none of the others "failed" in the sense that they weren't immediately filled (and stayed filled) with tenants and thus contributing life/activity/business in the downtown. And even Tally Hall became a success after it was purchased by McKinley a couple years ago. Where is the down side to the city in getting property on the tax rolls and letting a developer take a financial risk? p.s. a reminder that Ashley Mews was built on land formerly owned by the City - a very similar situation to the question at hand.
Moose
Thu, Sep 3, 2009 : 8:07 a.m.
City hall doesn't listen to the voters, why should local private developers with their own experience with success and failure be any different? Instead the powers that be ignore the advice of the people and the experienced developers. They need a reality check. Folks it's not the staff within city hall that makes development difficult here. It's the pie in the sky politicians and the greedy administration that feed their fanciful dreams.
Bob Martel
Thu, Sep 3, 2009 : 7:53 a.m.
I've lived in the Ann Arbor area for 31 years and in all that time there has not been a single downtown private new construction project of any significance that has not gone through at least one foreclosure or otherwise been a disaster for the investors. Not a single one. What makes anyone think that things will be different now during the worst economic times in seventy years? I am afraid that if something gets started on this site in the next few years it will go belly up and the City will be left to clean up the mess.
susan
Thu, Sep 3, 2009 : 7:25 a.m.
Why do Ann Arborites keep voting in the same lousy mayor and council that can't get anything done?
a2grateful
Thu, Sep 3, 2009 : 7:11 a.m.
"The RFPs have kept some control in the citys hands..."... The "control" is just another way to say NO (shout emphasized) to development. Of course, not all development is good. Some development needs the "no".... Conversely, not all development is bad. Therein lies the problem.... Unfortunately, the City has a dismal record of recognizing the difference.... The master plans are poor, the zoning ordinances are loophole riddled (how do you spell moratorium? L-a-w-s-u-i-t), the attitude is anti development and hostile (if you don't like the answer, sue us: we're ready for the fight), and staff planning decisions are overridden by commission/council frivolous emotion.... So, what is there to be grateful for in Ann Arbor? U of M! Without it, Ann Arbor is just another Jackson, Chelsea, Dexter, or Ypsilanti. No offense to these small communities. However, they began as dots along a railroad line.... Don't see the ramification? Imagine any of the listed communities as the home of U of M, instead of Ann Arbor. Ann Arbor is great because of U of M.... Signed, a2 grateful (UM grateful)... Tally ho! (Tally Hall)