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Lake Trust project: Transformative for Lansing or drain on public funds?

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The blocks of downtown Lansing south of the Capital Area District Library look bleak, filled with windswept acres of unused parking lots, rimmed with unused parking meters.

The blight of sorts, along with the I-496 freeway, prevents the strip of historic businesses on Washington Square downtown from connecting to the livelier businesses of REO Town a half mile farther south. It’s not a place to hang out or even enjoy a nice walk.

A new, $33 million redevelopment of the 1970 Lake Trust Credit Union building at the corner of Lenawee Street and Capitol Avenue could start to change all that, but the renovation, along with a new, five-story mixed-use building in the parking lot next door comes at a steep cost to taxpayers: $9.8 million in brownfield reimbursements back to the developers that would otherwise go to city streets, schools and other services.

The property is eligible primarily because of asbestos and lead paint in the Lake Trust building, as well as an old gas station site at the corner of Lenawee and Washington Avenue. Karl Dorshimer of Lansing Economic Area Partnership — LEAP — said the developers would not build it otherwise, a point on which Mayor Andy Schor concurs.

“The Lake Trust block redevelopment, along with the Y-Site, Oliver Towers and Capital City Market projects, will further energize downtown Lansing,” Dorshimer said. “LEAP and the city envision a great 24/7/365 downtown filled with residents, visitors, workers, shoppers, students and a host of others creating a vibrant and great place to be.”

The investors, 501 Block LLC and 502 Block LLC, with assistance from True North Development of Okemos, are counting on more residents moving downtown to help make their overall project a success.

The Washington Avenue side of the block will be developed in the next decade with restaurants and storefronts, but financing for that project depends on more people living in the area, both at the Metro Place development on the site of the former YMCA and people living in the credit union building and their first new building on Capitol.

“We want to preserve the ability to bring as much commercial development and activate the Washington Avenue corridor,” project consultant Eric Helzer told the City Council last month. He added that one thing that made the new housing downtown more attractive was the incoming downtown Meijer store on Michigan Avenue — part of another tax-supported development from the Gillespie Group that will eliminate a food desert from the city’s core.

Dorshimer said the developer is asking the city for a brownfield plan that is long enough to reimburse the “extraordinary brownfield costs” the developer will be paying up front to begin the project. “Without this reimbursement over time, the project would not be undertaken by the developer. The result would be the building and block would remain mostly vacant.”

The tax reimbursements mean the city and other taxing authorities will not receive the full property tax value for 19 to 23 years.

“It’s not a giveaway. It’s not a handout,” Schor said. “It’s something that will make the project financially viable.”

“It’s a very expensive building to renovate. It’s a complete gut job,” Helzer told the City Council. In addition, cleaning up an old gas station for future development also leaves them with a lot of costs. “There are hot spots of contamination.”

Project details

The Lake Trust Credit Union moved its headquarters to Brighton in 2015, leaving a small branch location in the building as the only occupant. The site had been considered for Lansing City Hall, but Schor and other city officials said the site and building ultimately “didn’t fit the need.”

A year ago, the building at 501 S. Capitol sold for $6 million, and a separate vacant office building from 1968 across the parking lot at 520 S. Washington Ave, sold for $1.1 million, which developers bought to tear down. The proposal calls for that building to be razed by the end of the year to lower the base tax value of the property before entering into the brownfield plan.

The Lake Trust building will keep commercial tenants on the first two floors, with 44 apartments on the top four floors, including studios, one-bedrooms and two-bedroom apartments, to be open by August 2021. Construction of the five-story mixed-use building with 116 apartments and 3,500 square feet of retail would begin next summer on the blacktop just south of the Lake Trust building at the corner of Capitol and Hillsdale.

The developers will leave parking in the middle of the block for tenants and customers, allowing the buildings themselves to face the sidewalks and pedestrians.

Last month, LEAP’s Bob Trezise told City Pulse that he didn’t know of any large developments in Lansing that did not come with tax sweeteners, which he defended as a means to ensure developments are built to the city’s stipulations, such as with local labor or with affordable housing units.

But Schor rebutted the notion that the city offers tax incentives to every developer that comes through the door. “There’s all kinds of different projects that don’t have incentives. You just don’t hear about them because they don’t come before Council. You hear about the ones that do.”

The reimbursements come as rebates from new taxes on the increased value of the property. About 95 percent of the new valuation would go either to the developer or the city’s brownfield redevelopment fund, with the remaining 5 percent coming in new tax payments to authorities such as the city, schools and Ingham County.

Selling Lansing short

Brandon Betz, an economist and candidate for Lansing City Council in the First Ward in this week’s General Election, has disagreed with Lansing’s general approach to economic development as a primary reason the city never has the money to maintain its streets or adequately fund other services.

“These arguments are so ridiculous,” Betz argued. “They knew it had asbestos and lead paint, yet they still invested their money. Why should we give them free property for 19 years to do something they were already going to do? Our city is starving for cash.”

Betz said city officials were selling Lansing short. He said 160 market-rate apartments in downtown Lansing are a great investment and one that will more than make up the $9.8 million in tax reimbursements that developers are asking for.

“Did they not realize that the building had asbestos and lead paint before they purchased the entire building for what it cost them?” he asked. “It’s like these developers go into these projects knowing that Lansing is going to give them a tax break without them even having to ask.”

The project was supposed to begin Nov. 14, but the approval process with the Lansing City Council has been held up and it was pulled back from the agenda on Oct. 28. The Council won’t meet again to approve the project until Nov. 18, and Councilman Adam Hussain said he and others were working to ensure the project hires local construction crews to help the city’s middle-class workers.

“The proposal does talk about local labor. We may push for more,” Hussain said. He said the developers knew such a delay was normal. “They understand our process.”

Schor said his economic development staff and LEAP already had considerable negotiations over the property, going back more than a year to reach the deal they have. He said older municipalities like Lansing are at a disadvantage compared to “greenfields” in the sprawling edges of the metro area.

“This is good for the environment,” he said. “I think it’s tremendously important. We do a lot of work trying to attract and keep people downtown after hours.”

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