12/08/2006

Water Street developer bails on project

(December 8, 2006) The City of Ypsilanti's latest developer for the struggling Water Street Project has pulled the plug on the development. In a memo released to City Council on Thursday night and dated December 8, 2006, City Manager Ed Koryzno announced that Joseph Freed and Associates of Palantine, IL has ceased negotiations with the City for Water Street.

Freed is now the second developer to bow out from the Water Street project and this is the third time the City's plans have fallen through since work began in 2000.

In the December 8th memo, Koryzno indicated that it was the bad economy that was the driving factor in convincing Freed to withdraw. However, in a memo given to council on October 12, 2006, There was no mention of the problems and Koryzno still planned to bring the development agreement as well as additional financial plans to Council in November.

In October 2006, Council approved another $20 million more in financing for Water Street that Koryzno said was necessary in order for the project to move forward with Freed. Koryzno had said that a development agreement would likely be ready sometime in November or earlier December.

Mayor Paul Schreiber (Dem) said in November that a development agreement was close to being ready and he expected it to to come before Council in December. Few knew that the agreement with Freed was already in trouble.

City Manager Memos to Council

Insiders at City Hall were less than optimistic that a development agreement was going to happen. In an earlier memo to Council on October 24, Koryzno outlined some of the current stumbling blocks in the development agreement. They included an unwillingness from Freed to pay any cash up front for the property as well as an unwillingness for Freed to promise a certain number of units to be built.

In a November 22, 2006 memo to Council, Koryzno stated for the second time in a month that the lagging Michigan economy was a problem and affecting progress with the development agreement. However, Koryzno still planned to have the agreement to Council in December or at special meeting in January for Council to review. Koryzno wanted to have the development agreement in place before Council finished their 2006-2007 budget visioning sessions in mid-January.

The current financing plan, which now includes over $40 million in taxpayer funding, depended on the project being completed in five (5) years in order to pay back the money already borrowed. The City had already refinanced the city's Water Street bond debt of $13.1 million. The refinance, completed earlier this year, jumped the interest rate by almost 2% more than than the original rate. Worse, because the Water Street project was stalled with no units being built, Council had to roll three years worth of payments into the new debt to give the project time to be built.

In effect, the Council refinanced the credit card, and negotiated a deal whereby there would be no payments for three years, but at a cost. The refinance scheme added $2.1 million in new debt. Add in the payments to developer the city fired in 2004 and the money owed by Ypsilanti City taxpayers was over $16 million.

Water Street History

In December 2004, the City fired the first developer, Biltmore, citing irreconcilable differences. The city then launched a new campaign to solicit bids in 2005 with the Request for Proposals due in July with the city asking developers to pay $5 million for the property and assume the liability on the contamination clean-up.

When it was apparent to city staffers that no developers were planning to respond, the city extended the RFP to August and then called several developers begging them to submit responses. Still, not one developer was planning to submit a bid. In a final move, City Planning officials asked several developers to submit letters of interest. They got three.

The City then announced they had a successful response from their RFP and would be sharing the results with Council. It was about three weeks later that Council and residents found out there were in fact no bids on the project only letters of interest, the City had to start over again.

Things began to fall apart after that. The two staffers most responsible for Water Street, Jennifer Goulet, former head of Planning and then DDA Director, and Megan Gibb, Planning Department manager, both quit. Goulet took a non-profit job in Chelsea, Gibb took a planning job in Portland, Oregon. Brownfield redevelopment coordinator Brett Lenart also quit to take a job with Washtenaw County.

Freed to the Rescue

Former Mayor Chery Farmer (Ind) took an even more active roll trying to secure a developer. She met with numerous Realtors and developers from across the region. Showing off the old Biltmore plans and taking prospective developers on tours of the property. Out of that effort came Freed who said they were interested in the project.

Feed was already working in Ann Arbor and had a project in Royal Oak as well.

Negotiations began in earnest with Freed over the next three months and Freed came to City Hall in July 2006 for a public meeting to unveil the new plans for Water Street. Retail was back on Michigan Avenue and there was a new hope that Water Street would move forward.

Still smarting from the last negotiations with Biltmore, the City set deadlines to complete negotiations with Freed. Lenart was back working on the project as the County loaned him the City to assist in the negotiations with Freed.

With the first deadline set to expire in October 2006, Council approved an extension to permit the city to continue to negotiate with Freed. In the meantime, the debt continued to pile up. In October 2006, City Council authorized the expenditure of an additional $100,000 of general fund money to pay for attorneys and consultants working on the Freed agreement. Koryzno, at the time, said the money was needed to complete the development agreement.

Looking back at the memos the Council received in the past two months, it is apparent that even before the extension was approved with Freed, the development agreement was in trouble. It is likely that the recent flurry of new debt of some $20 million, was an effort by the City and County to put together an incentive package attractive enough to keep Freed at the table. It didn't work.

Mounting Debt

As of December 8th, all of this work has ground to a halt as the City is now left trying to pick up the pieces from the failed negotiations with Freed. Koryzno has said he is forming an advisory committee of local business people experienced in development to suggest options.

In the meantime, despite the city not having a developer, the City plans to spend upwards of another million dollars by September 2007 so as to not lose a $500,000 grant from the state. As one downtown business owner said upon learning about Freed bailing on the project, perhaps when the city finds themselves in a hole, they should first stop digging rather then spending another $1.5 million of taxpayer money on this project.

Counting all the taxpayer money including loans and grants from the City, State and Federal government, the current amount of taxpayer money spent or committed to Water Street is estimated to be over $40 million dollars. By the time all the debts are paid off, the taxpayer costs for Water Street is estimated to be over $90 million.

With just 25 acres of developable land in a 38 acre project area, that comes out to over $1.6 million per buildable acre making Water Street some of the most expensive land in southeast Michigan. With the announcement today, The City of Ypsilanti no longer has a developer nor a viable plan for the Water Street project.

Additional Links:
East Cross Street blog by City Councilman Brian Robb (Dem, Ward 3)

4 Comments:

At December 08, 2006 4:28 PM, Anonymous said...

Now isn't this a fine mess. And of course the major rats who worked to provide this wonderful debt to the citizens, have for the most part, bailed off the sinking ship.

 
At December 08, 2006 8:30 PM, egpenet said...

Hey ... let's build a really really big jail on the site ... big enough so WE can rent out beds to, say, Wayne County, or ... ah ... George Bush ... we could call it Abu Lanti Jail ... I mean REALLY big. Keep Minzey away ... it'll be a private jail ... with nice parts ... fun parts ... really awful parts ... and a torture chamber, where we can take pictures and the kids from DeJaVu can tease the detainees ... and ... gee ... we could make enough money, since it's a private jail, to pay back the $40 million. I know two women I'd like to put into the women's section, but they've already left town and we'd have to have them extradited. Well? Show of hands?

 
At December 09, 2006 9:38 PM, Anonymous said...

Congratulations to our far-sighted City leadership and planning professionals past and present! You have managed to finally elevate Ypsilanti past Ann Arbor in the important catagory of most expensive land for downtown development! As a resident and taxpayer, I am proud as can be about this accomplishment. Does anyone know Megan Gibb's number so we can let her know how much we appreciate her hard work?

 
At December 31, 2006 1:31 PM, mary said...

I am really sad that ypsilanti and other citys and nations have succumbed to the greed that distroys so much for the profits of so few. I moved here recently and I can now see this community will not be able to raising itself up from the depressed city it has been for so long. No business can survive along Michigan Ave? Why are we continually decieve by our leadership, nationally or in our city goverments?

 

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