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Sunday, 10 December 2017 12:23

Proposals raise questions about feasibility, city protocol with 201 Market redevelopment

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The Flaherty & Collins proposal for city-owned property at 201 Market Ave. in Grand Rapids includes plans for up to four buildings — including a riverfront hotel — plus riverfront green space, and various housing units. The Flaherty & Collins proposal for city-owned property at 201 Market Ave. in Grand Rapids includes plans for up to four buildings — including a riverfront hotel — plus riverfront green space, and various housing units. Courtesy Rendering

GRAND RAPIDS –– In considering redevelopment plans for public property at 201 Market Avenue, the city weighed drastically different options.

The $268.5 million proposal from Indianapolis-based Flaherty & Collins Properties — which the city ultimately selected for further negotiation and due diligence — detailed two options, both of which include a 358-room hotel and as many as 694 housing units catering to a variety of income levels. The plans also call for retail, parking and public green space with access to the Grand River. 

Until now, only a select group was privy to the details of the company’s proposal for the 15-acre city-owned riverfront parcel, which is outlined in documents MiBiz obtained through a series of Freedom of Information Act requests. 

Taken on the whole, the firm’s plans largely mirrored the requirements the city outlined in its request for proposals for the site. 

By contrast, the $238.8 million proposal from Grand Rapids-based Rockford Construction Co. Inc. ticked many of the same boxes, but offered a new vision for how the site could interact with the city’s riverfront. That includes a 10,000-seat open-air soccer stadium intended primarily for the Grand Rapids Football Club and other entertainment uses, as well as a new pedestrian bridge over the Grand River. Rockford also proposed about 200 mixed-income housing units, parking, and office and retail components for the site. 

While the proposals from Flaherty & Collins, Rockford Construction, and — to a lesser extent — Southfield-based REDICO LLC showcased different options for redeveloping an underutilized section of the city’s riverfront, the RFP process to date also has exposed some deep rifts among city staffers and elected officials. At the heart of the imbroglio, they disagree about the scope of the redevelopment, whether the city followed its long-held policy for disposing of public properties, and whether the taxpayers are getting a good deal. 

First Ward City Commissioner Jon O’Connor, who also served on the selection committee for the 201 Market proposal, believes the city has moved into the stage of negotiating a deal for development on the site without being able to answer several important questions. Namely, it has yet to ascertain a valuation for the land or estimate the cost to relocate the services currently housed at the site.

“It’s really hard for me to negotiate a price for the property when I don’t have the two foundational pieces to make a good decision,” said O’Connor, who represents much of the west side neighborhood of Grand Rapids.

Even Flaherty & Collins, in its proposal, cites how the city’s process compares against similar projects it has worked on in the past. 

“In most instances on past projects we have paid a nominal value for the site and the land was contributed to the project with an appraised value,” the company wrote.

Flaherty & Collins offered the city $6 million for the property, while Rockford Construction offered $18 million, according to the documents. 

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Rockford Construction's proposal includes a 10,000-seat soccer stadium. (Courtesy rendering)

‘CLOSELY ALIGN’

In late October, the city, along with a selection committee and its real estate adviser, Chicago-based Jones Lang LaSalle IP Inc. (JLL), announced that it would move ahead with due diligence on the proposal from Flaherty & Collins, while considering as “active” the proposals from Rockford Construction and REDICO, which submitted an abridged plan that didn’t meet some of the city’s requirements. 

“The Flaherty & Collins (proposal) most closely aligned with what we were asking in the RFP and has the highest probability of closing the (financial) gap in order to do a project,” Kara Wood, economic development director for the city of Grand Rapids, told MiBiz. “(The committee) prioritized that one at the top and we can go through a due diligence period to evaluate whether it’s even a feasible project.”

Should the Flaherty & Collins project be deemed unfeasible, the committee would then evaluate the other proposals, Wood said. 

Ultimately, city officials and their partners felt the Flaherty & Collins proposal offered more opportunities than risks when compared with Rockford Construction’s plan, according to the documents obtained by FOIA requests. 

It’s unclear whether Rockford intended the proposed $25 million stadium as a public or private asset, or some combination thereof, which the city and its advisers considered as one of the potential risks with the proposal, according to the documents. 

Executives at Rockford Construction said in a statement that they have not met with the selection committee since submitting the proposal, but remain engaged in the process through the due diligence period.

“As a result, we remain under a required non-disclosure agreement and cannot publicly comment on our proposal,” Kurt Hassberger, president of Rockford Construction’s development group, said in an emailed statement. “We remain hopeful that our team will have the opportunity to review our proposal, and any suggested alternates, directly with the selection committee.”

 

RIFTS EMERGE

In some ways, the city is using the 201 Market site to test modernizing the city’s economic development tools. 

Many of those tools are based on recommendations from the Rose Center for Public Leadership, a Washington, D.C.-based urban policy group, and align with the goals for inclusive redevelopment, including better prioritizing public incentives and ensuring they align with certain community goals.

The city also wants developments to encourage walkability and access to mass transit, and use as many local contractors as possible. 

But for O’Connor and other local officials, the city seems to be trying to tackle too many of its legacy challenges at the 201 Market site. Meanwhile, the city hasn’t completed a thorough analysis showing the site is suitable for the large number of affordable housing units it included in its guidelines for redevelopment of 201 Market, he said. 

As such, the city may have set up any redevelopment proposals to be cost-prohibitive, regardless of how admirable those goals are, according to O’Connor.

“I think every site can’t necessarily be a part in solving every problem,” he said. “We need to look to, when we divest of a site, what are the (biggest) problems that site could potentially alleviate while maximizing return on investment so that you can grow income tax, grow property tax, grow job creation. Then you have more resources as a municipality to work in those other places that a site may not be able to address.”

Grand Rapids Mayor Rosalynn Bliss flatly rejects the idea that the site is less than ideal for addressing affordable housing, river access and mobility. She bases her opinion on the numerous community-driven planning processes that have identified 201 Market as a key parcel for those goals. 

“We talked about that space and got a lot of community input through the Green Grand Rapids process, though the GR Forward process,” Bliss told MiBiz. “Those priorities came out through community conversations that we’ve had for several years about that space.”

 

WILL IT WORK?

The proposals from Flaherty & Collins and Rockford Construction echo O’Connor’s concerns that the city could be trying to address too many challenges at one location. The documents MiBiz obtained by FOIA show that a project meeting the city’s goals of equitable development with mixed-income housing and access to the riverfront is not possible without generous public subsidies. 

Flaherty & Collins executives wrote that while they’re confident a project is possible at 201 Market, the overall upfront investment needed to make the site buildable would be far greater than its market value, leading to the need for gap financing. The company, which already has engaged with the Michigan Economic Development Corp. about the project, said it would require about $14 million in incentives. 

A spokesperson for the MEDC declined to comment. 

“I realize that is not what the City may want to hear but that is the reality,” Flaherty & Collins executives wrote in their proposal. “We believe the expectation that a developer is going to develop this site in the way that maximizes its potential and fronts their economic gap is not realistic.” 

The Rockford Construction proposal notes that much of the needed site work will generate no financial return and as such, no “traditional financing method (is) available to obtain the funds to make (infrastructure) improvements.” 

In an interview with MiBiz, Brian Prince, vice president of development at Flaherty & Collins, acknowledged the site’s challenges, notably the amount of infrastructure and public utilities that might have to be moved to make way for a project. But he added the firm frequently encounters such challenges in urban infill sites. 

“This is right in our wheelhouse,” Prince said.

Still, the city and JLL appear to have some concerns about the project’s feasibility, given the site complexities. 

“(The) site relies heavily on relocation of public infrastructure. If infrastructure relocation ends up being not feasible, (the Flaherty & Collins) project may not be feasible,” advisers at JLL wrote in their due diligence recommendation.

 

SEEKING INCENTIVES

Moreover, the impact of a key incentive may be muted to some degree for Flaherty & Collins, or any other potential redevelopment partner. That’s because the city stated in its RFP that it would be first in line for any brownfield tax increment financing to help offset any costs it could incur in relocating services housed at 201 Market to other city-owned sites.

The proposals from Flaherty & Collins and Rockford Construction include the state’s new “transformational” brownfield tax capture incentive, valued at $26.7 million and $28 million, respectively. The incentive allows developers of large-scale projects to capture additional taxes generated by a project. 

“The city is committed to achieving any and all incentives needed to make the project work,” said Wood, the city’s economic development director. 

 

SHIFTING POLICIES

As the economics continue to get worked out in the due diligence phase, other elected officials have joined Commissioner O’Connor in voicing concerns about the process involved in the site redevelopment. 

Fellow First Ward City Commissioner Dave Shaffer told MiBiz that he believes the city deviated from its policy that outlines how it can dispose of publicly-owned property, a framework first established in 2001. 

Specifically, Shaffer questioned why the city already has moved into the negotiation and due diligence phase with Flaherty & Collins without having an appraisal of the site to obtain the fair market value for the land. 

Wood with the City of Grand Rapids dismisses the notion that the city has strayed from its policy framework. She contends that identifying a development partner for the site while working on a parallel track to obtain a fair market value for the land has always been the city’s plan.

Still, Shaffer, who will leave office on Dec. 31 because of term limits, believes city might need to restart the process to ensure taxpayers are getting the best deal possible.

“We should start the process over where we have an agreement and a discussion around the criteria,” he said. 

Rockford rendering 

 Rockford Construction’s bid for the city-owned 201 Market Ave. site included a 10,000-seat stadium along with office and residential uses. SCANNED IMAGE FROM FOIA DOCUMENTS

 

Read 11207 times Last modified on Monday, 11 December 2017 10:54

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