Comments (1) 12:00 PM posted by admin |
*** BREAKING NEWS ***
The Water Street Project in the City of Ypsilanti has taken a turn for the worst. The preferred developer, Joseph Freed & Associates has decided to end negotiating a developer’s agreement with the City citing the poor economic conditions in the State of Michigan as well as the worst housing market in Detroit in 30 years.
If you drive by the project site on East Michigan Avenue, then you surely realize that not all of the buildings on the site have been demolished and the clean up is incomplete. The City does, however, still have more than $1.25M remaining in grants and loans from the Michigan Department of Environmental Qaulity. $500K of that money will expire in September of 2007 if not properly spent. Making progress in demolition and clean up will enhance the property’s marketability to future developers. Washtenaw County has also awarded the City a $120K sub-grant and a $155K loan for the United States Environmental Protection Agency. The City will also persue additional grants to facilitate moving the project forward.
There are several option the City has in moving forward. Each presents its own risks and uncertainties, but the health and welfare of the City of Ypsilanti depends on making the Water Street Project successful whereas the definition of success becomes something along the lines of breaking even.
The first option is to look for a new developer to take on the entire 38 acre project. Given Freed’s decision to pull out coupled with the unfortunate market forces at play in Michigan, this scenario seems unlikely to succeed at this time. This scenario is complicated by the idea the City would have to return to the list of previously rejected developers and open negotiations again. Some developers have been rejected both when Biltmore Properties were selected as well as when Freed was picked. While it is certainly a possibility that a developer that has been rejected twice would consider developing the plot, it seems that pride would have to factor into the decision this time around.
The second option is the City could seek a developer to develop the commercial property on Michigan Avenue. The residential portion of the project would then be delayed until market forces were more hospitable to such a project. Freed has already indicated they would not likely be interested in this approach. Another fear could be they type of commercial mix may not be in tune with the the overall scope of the project. The density that 1500 residential units brings to the equation can support entirely different types of commercial space that a strip mall might.
Finally, the City has the option of parting the plot off in chunks and selling them through a real estate agent. Considering the City spent more than $13M and five years to assemble the properties, abandoning the concept at this time would eliminate the possibility of ever assembling a site like this again.
Complicating matters in all of this the City has a tremendous financial risk in Water Street. After spending $2.64M earlier this year to refinance the bonds, payments are due beginning with a $378K payment in November of 2009. The payment is $1,002,065 in 2010. Payments escalate to over $1.6M in 2015 before declining to when the bond is finally retired in 2031. All told, beginning with the FYE2010 budget, the City’s financial obligations are $31,800,295 through the year 2031. It should also be noted that two payments of $52,500 to Biltmore are still owed in May of 2008 and May of 2009.
One last possible solution would be to refinance the debt again in 2009. This would incur a massive increase like the refinancing of 2006 did, but it would buy time until the housing market rebounded. It may also be possible to stretch the debt payment over an even longer period of time. It’s not ideal, but it should be possible.
The final possibility for Water Street is a special millage to pay the debt. The City could go to the voters and ask for a “Say Yes On Roads” type of millage to bail out Water Street. A millage of 3.0 mills would generate just over $1M annually. While this wouldn’t pay the entire obligation most years, it would allow the City to make the payments with less of an impact to the General Fund. An approach like this could be an ominous symbol that we have given up and would likely be the wrong message to send to the community at large, but it is an option.
So what does this all mean?
It certainly isn’t a surprise. The City hoped that a developer’s agreement would be signed in November. Then it looked like it would be January, but it would only be a developer’s outline. Freed wanted the ability to back out after Phase I if it wasn’t selling. They had cold feet.
This set-back almost certainly kills the idea of asking voters to weigh in on an income tax this May. How can we as Council go to the community and ask residents for a 33% tax increase now? The organization that would rise up to oppose an income tax (of which I would count myself a part of) would surely use rhetoric like “No Water Street Bail-Out” to further their cause. How could we possibly ask the community for more than $3M annually and tell them we’ll be good stewards of their money now?
I don’t think it’s the end of the world yet. We’ll have to wait until Monday when all of those buy-out offers go to the white-collar work force at one of Michigan’s largest automobile manufactures.
Maybe that’s when the world will officially end.
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