Alexander Alusheff

Lansing State Journal

EAST LANSING - A Chicago developer has withdrawn plans for a new 12-story hotel and luxury apartments on a long-vacant downtown block. The project, which will cost more than $50 million, will have to be revised.

That is, if the developer still thinks it's worth building.

The cause is a requirement buried in an ordinance on building heights that the City Council adopted in February. For any multi-family rentals built in B-3 zones downtown, 50% of the development must be owner-occupied condos or apartments for senior citizens.

"It makes no sense to have them in the same building,” said Dave Nelson, head of real estate for Convexity Properties, which proposed the project. “Those are totally different developers and financing sources. I am not willing to do a for-sale product in that area.”

Convexity's zoning lawyer David Pierson said they weren't aware of the zoning change until they sent in the site plan because the city failed to list the ordinance on its website, as is customary.​

It's the latest snag in more than a decade of failed efforts to transform the blighted properties between The Peoples Church and Abbot Road. In 2002, developer Scott Chappelle began work on a project that would have brought a mix of housing, office and retail space to the site, along with a new home for the Michigan State University Museum. But, in 2008, MSU declined the opportunity. The nationwide recession put the project on hold. By 2012, the city terminated its agreement with Chappelle.

That same year, DTN Management proposed a project for the site known as the Park District. It called for a boutique hotel, parking structure, housing and retail in the same spot, but it couldn't secure financing. That plan died in 2014.

City leaders say the zoning change they approved six months ago was an attempt to ensure that new downtown development would appeal to all residents, not just students.

"There has to be an effort of diversifying the downtown," said City Manager George Lahanas at last week's East Lansing Downtown Development Authority meeting. "We let the market go on its own, and it has just been student apartments. At some point, we have to try something different."

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After Convexity withdrew its plans, an amendment was proposed to reduce the requirement to 25% in order to make it less difficult for developers, said Darcy Schmitt, the city’s planning and zoning administrator. It's still waiting for council approval . The earliest it could be adopted is late October.

Until then, redevelopment plans for the 100 W. Grand River project are in limbo.

The 50% requirement is "a good theory, and I understand their rationale, but I think it could cause problems coming up," said Nelson, whose company is the developer for DRW Holdings, which owns the Park District properties via subsidiary WGR Finance. "It has the potential of limiting growth and the development."

East Lansing has, in fact, tried something like it before.

It didn't work.

The East Village vision

In 2004, East Lansing's leaders envisioned a grandiose $750 million redevelopment project on a 35-acre plot of land on the south side of Grand River Avenue between Bogue Street and Hagadorn Road.

Called East Village, the vision would have required transforming an area that included Cedar Village and the surrounding student-heavy housing complexes into a high-density, mixed-use urban village with a riverfront park, grocery store, offices and restaurants.

To ensure the redevelopment wouldn't just serve students, the city approved zoning in 2006 that required 50% of the dwelling units be marketed and sold as owner-occupied condos until that demographic made up 25% of that specific district.

"The intent was to diversify the area over time, but nothing really happened with it," Schmitt said. "It was a pretty good effort ... but all of a sudden the economy started to fall apart."

By 2009, the project's developer, The Pierce Co., had put East Village on hold. The development never materialized. The zoning code remained in place.

City officials said the idea for the zoning requirement came from the East Village Planning Team. Some former members of the East Village Planning Team say they can't put a finger on how exactly it came to be included in the zoning code. It is not based off similar zoning codes from other cities either, said Lori Mullins, East Lansing community and economic development administrator.

"Everyone doesn't remember because they won't tell you the honest truth," said Matthew Mitroka, who was on the planning team and East Lansing Planning Commission at the time. "The continuing policy of East Lansing is to push the students out of the downtown area."

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Getting a more balanced mix of permanent residents and students in the downtown would be a good thing, Mitroka said, but he questions whether the city is approaching it the right way.

"You can't have a family live in a student building. It changes the financial feasibility of the projects," said Mitroka, who left the commission in 2006 for a job in Washington, D.C. "Their short-sighted plans are probably biting them."

Mayor Pro Tem Ruth Beier said the city's goal isn't to push out the students. Though she believes there is enough student housing, if only student developments keep getting proposed, the market won't be sustainable anymore, she said.

"We don't want to make it impossible for student housing," she said.

But neither is the goal to be developer-friendly. Rather, she said, it's to "find development that can be friendly for all residents."

Mayor Mark Meadows came up with the idea to translate East Village's zoning code to downtown's B-3 districts, including the additional senior housing requirement. He said he believes the requirement will work downtown because downtown is a completely different market than East Village.

"There's a mixture of both developments downtown," he said. "The condos downtown all have been successful. If you're selling a condo on top of a 12-story building overlooking campus, you won't have a hard time selling it" as a opposed to one nowhere near the downtown.

The condo market

Nelson doesn't want to put condos and senior housing on the corner of Grand River Avenue and Abbott Road.

"That corner is best utilized for high-end, luxury apartments," he said.

But he has no problem building condos and senior housing at the former site of the Evergreen Apartments. He intended to do that, in any case, but the condos and senior housing he planned weren't technically part of the same development project, which made it not conform to the 50% zoning requirement.

Last week, the East Lansing DDA voted to allow the Evergreen Apartments property to be included with the Park District property to make it easier for Nelson to meet the requirement.

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But though Meadows said the zoning will be amended to reduce the requirement to 25%, Nelson still has reservations. He and other developers in the area said it's hard to get lenders to back condo projects, because the market still hasn't rebounded from the recession.

"It's not an established market that exists today," said Raji Uppal, vice president and co-owner of DTN Management. "Condos are hard to finance."

DTN has just finished a $9.5 million 300 Grand project on the edge of downtown East Lansing near Crunchy's on Grand River Avenue that's just outside the B-3 zoning district. Uppal said the development is a transitional step in diversifying downtown as all 39 units in the four-story complex have two bedrooms and two bathrooms with rents that cost between $1,700 and $1,800 per month. Uppal said all units are leased with a mix of students, young professionals and families.

But DTN has no present interest in the condo market, he said.

Typically, when building condos, at least 50% of the units have to be sold before a lender will finance a project, said Bill MacLeod, president of Coldwell Banker Hubbell BriarWood in downtown Lansing.

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There has been an uptick in the Greater Lansing condo market in the last six months. MacLeod said there was a 9% increase in condo sales and an 8% increase in the price of sales, according to his company's quarterly housing reports.

Mixing condos and apartments in one building is not impossible either, he said. It was done in Gillespie Group's Stadium District, the four-story mixed-use development across from Cooley Law School Stadium, which has 10 owner-occupied condos on the top floor and apartments on the second and third. All are leased or owned.

"A development like this is not a problem," MacLeod said. But he thinks trying to mix college students with young professionals and families on the same floor would be. "It will be a problem for sales and the neighbors."

Pat Gillespie built the Stadium District in 2007 with 20 condos on the top floor. He only sold 10 before the economy tanked and had to market the other 10 as apartments, he said.

"It definitely adds complexity to the transaction," Gillespie said of mixing condos with apartments.

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However, Gillespie said if a city required him to make a certain amount of condos or senior housing, it would have a big impact on any proposed project.

"What if there was no market for condos at the time or vice versa for apartments?" he asked. "It seems like the city is dictating what the market wants. But their need is different than what a consumer wants."

A development that 'makes sense'

Because the site plan approval process for the project is delayed, so are plans to demolish the blighted Park District buildings by the Dec. 31 deadline the city imposed on DRW Real Estate.

They could be there until next spring. That's because if they demolish the buildings without getting a brownfield plan approval from the city first, the developers will miss out on a $10 million Michigan Business Tax credit.

To get the state tax credit approved by the Michigan Strategic Fund meeting on Dec. 20, the brownfield plan has to be submitted by Nov. 7.

The development faces other challenges as well.

The 12-story building would have a ballroom, a pool and bar on the rooftops, retail space on the first floor and below-ground parking, but only for the hotel guests, not the residents of the proposed 127 apartment units. The city requires that the development also include parking for the residents, which is one of the reasons the DDA voted to expand the scope of the project to include the former site of the Evergreen Apartments. The developer would likely have to build a parking ramp at the Evergreen site along with the condos and senior housing.

The development also calls for removing Evergreen Avenue between Albert Street and Grand River Avenue.

Despite the issues with the ordinance and parking requirements, Nelson said he's committed to working with the city on how to make the project go forward. He said a 25% requirement is more manageable, but he still has concerns.

"I don't fully approve of any ratio," he said.

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Council woman Shanna Draheim said any developments in downtown areas are challenging, but this proposal "has to be developed in a way that makes sense and meets the needs of the community."

The amended ordinance goes before the planning commission on Sept. 14.

As for the East Village zoning ordinance, Meadows has acknowledged it will never do what it was meant to accomplish.

Meadows said a developer indicated interest in building student housing in that area, which would be the first development there in well over a decade. He said the 50% condo requirement in its zoning code will need to be revisited and possibly be revised.

"We need to review the ordinance because nothing has happened with it in a decade," he said. "The likelihood that someday East Village is going to be 50% owner-occupied is 0%."

Alexander Alusheff is a reporter at the Lansing State Journal. Contact him at (517) 388-5973 or aalusheff@lsj.com. Follow him on Twitter @alexalusheff.