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The Water Street Project has apparently encountered another major hurdle. The folks at Biltmore Homes have been jettisoned over a disagreement on who was to pay for the clean up of contaminated soil.
As a mildly comic aside, the City’s web site still links to Biltmore, and it’s a dead link at that. Some of you may recall that during the late nineties, this very site was sponsored by Hickory Farms. After a disasterous falling out over the incentives-based agreement we had in place over the site, I immediatedly removed all traces of them from here. How long will it take the City to removed them? Considering the site still refers to a construction start of Fall of 2003, I’d say never.
The Water Street Project has always been one of those White Buffalo-type legends. Now that the City has sunk so much money into it already, it really can’t be modified or cancelled in favor of something that isn’t less than gambling. According to the AA News (a big risk in using that source), the City has sunk $17M on clean up and land acquisition. Of that, $12M or so is actual loans. From what I gather, there is a huge $200K loan payment due in the spring that was to be paid for by the inital sale of land to Biltmore. Okay, the City can refinance the loan, but… Anyway. The City also reports that it has secured an additional $14M in bonds and loans to finance the project bringing the total to $26M. Estimates (although no one will give a real answer) are that the Water Street Project will cost $32M in total ($26M in loans/bonds and $6M in grants). Just from back of the envelope calculations, I don’t see the Water Street project paying back for at least 20 years. More than half of the people who put this project into motion could be dead by the time the City sees the first real property tax money hit the bottom of its coffers as the first twenty years of property tax collections will go to pay off the debt.
Here’s where the fuzzy math gets fun. The City’s plan is now down to 700 some units. Admittedly commercial space will collect more tax money, but for the sake of keeping the math simple, we’ll assume it’s all the same rate (55.11 mils). The City can only use 28.282 mils towards operating as the rest goes to County, library, etc. That means for every $200K condo they sell, they will collect $2828.20 towards the operation of the City. I don’t know what kind of rates the City negotiated on the loans, but to keep the math simple, we’ll use today’s standard commercial rate of 5.2% for a mid-size loan ($8M to $100M ammortized over 25 to 30 years). You can do the calculations to determine what the average sale price of these condos needs to be in order for this to make financial sense. When you consider that some of these homes will be as small as 700 sq. ft, in order for this to work, the City will need to find A LOT of stupid buyers. That’s unfair, but for $142K you can buy a 1,300 sq. ft. condo in Northville, MI (notice how up-to-date their web site is). So what will at 700 sq. ft. condo in Ypsi sell for?
Let’s say the City sells all 700 condos for an average price of $170K. The City would collect $2,403.97 per property per year or $1.68M per year on the whole thing. If interest is zero, that’s 16 payments of $1.68M to get to our mythical $26M. Yikes.
To be fair, I am not an accountant and am making some wacky assumptions. There are some assumptions that are in my favor though. My model assumes that all properties are built and sold at the same time and we know this is a phased project that could last forever (or frighteningly close). My model also assumes a stable interest rate. Floating $26M in bonds at today’s rate is a lot cheaper than floating them at a rate that could be much higher were the nation’s economy to really tank. Surely someone deep in the City’s administrative offices has a spreadsheet that shows how much more expensive this project gets with each percentage point tick upwards. In addition, my model assumes that people won’t mind living on top land that was once contaminated. Imagine that advertising campaign: “Come live on Brownsfield Avenue or in the posh townhouses of PCB Lane.”
Finally, buried in all of this is the idea that the City is on the brink of financial collapse and is trying to cut back services, but this project conveniently ADDS 700 more homes that need to be protected by the Police and Fire Department. The City is having trouble serving everyone as it is, and wants to serve more? Who came up with that idea? Regardless, this proves one thing. We are screwed.
My assumptions are probably wrong, so if anyone from the City wants to correct me, please drop me a line.
The sad thing about all of this is if I were in charge, I’d probably recommend ramming this project through. I don’t see another viable alternative. One candidate for council in the fall suggested a mall should go on the site. That’s nice, but ideas are easy. It’s implementing those ideas. Find that guy who wants to build a mall there and we’ll talk. My original idea was to plant trees on the site that blossomed with $100 bills as flowers, but that’s not very realistic either. I don’t like the idea of light industrial right in the smack of downtown when you consider that my neighbors Marsh Plating love to dump HCL all over the place. My real pet project would be minor league baseball. A stadium much like the one the Toledo Mud Hens have could be build and have commercial / dining space around it much like they have in Toledo. It would solve the problem of living on PCBs. And it would attract people to the City. The problem still is finding that guy who wants to bring minor league baseball back to Ypsilanti. That guy just doesn’t exist.
Maybe I’ll start some kind of box grid / squares board and we can bet on when the project will start. I’m going to say April of 2006.
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