The Politics of Poultry: Some Thoughts On Chickens Roosting
The developer of Ashley Terrace, Joseph Freed & Associates, just defaulted on $18 million dollars owed to its lender. The lender is doing what lenders are wont to do when borrowers get neck deep in missed payments—they’re foreclosing. Joseph Freed & Associates also operates 4 Eleven Lofts, student housing that opened for business in the Fall of 2009. During 2009-2010, 4 Eleven Lofts were leased at 45 percent occupancy, according to a January 2010 piece titled “Ann Arbor rental vacancies up, officials say,” published in the Michigan Daily. In that piece, Stacy Greggorio, general manager of 4 Eleven Lofts, was quoted as saying she expects occupancy to increase…..“As of the end of 2008, we had leased 4 Eleven Lofts to approximately 45 percent for the 2009-10 term, but by the end of 2009 we have already reached 65 percent occupancy for 2010-11.”
In January 2010, U.S. office vacancy rates hit a five-year high of 16.5 percent according to reporting from Bloomberg, and according to a piece posted to AnnArbor.com in January of 2010, local office vacancy rates were 17.62 percent. Meanwhile, the developer who brought us the still unbuilt 690,000 square foot Broadway Village PUD fantasyland whose site plan has been given seven years worth of extensions from the city, told readers of that January 2010 Michigan Daily piece that “he expect[ed] the market to turn around in the near future and that [r]etail, office and residential vacancies downtown or near downtown [were] basically near normal and the healthiest in the state.”
Another local developer offered a more realistic perspective. According to a May 2010 AnnArbor.com post, “Ed Shaffran was among those who cautioned against overbuilding. He said…that the Ashley Terrace foreclosure appears to signal what he warned against: New construction downtown could only be built at a price that would effectively price a typical unit out of the range of most buyers.”
A cluster bomb has exploded and the pieces are strewn far and wide.
In 1990, downtown Ann Arbor experienced a rash of foreclosures on major properties, and it took a decade for the downtown real estate market to rebound. Then, came the misguided and clearly failed notion that downtown density should be created by subsidizing private development with public tax dollars—all in the name of New Urbanism and density. New Urbanism in Ann Arbor has been nothing but an excuse to repeat urban planning mistakes, subject our town to another rash of overbuilding, with the added twist of saddling taxpayers with debt from tax increment financing (TIF) schemes (such as the TIF capture districts created just for the Broadway Village and the Georgetown Commons sites). It was the same cycle that we saw in the 80s—minus the gift of public money to private developers.
The foreclosure of Ashley Terrace is a potential gut punch for the Downtown Development Authority. Why? Because the DDA’s rakes in 28 percent of all of its projected property tax capture at the moment from just four properties, Zaragon Place, 4 Eleven Lofts, Liberty Lofts and, yes, Ashley Terrace. If Ashley Terrace is sold at a loss by the lender, a distinct possibility given the present real estate market, Ann Arbor’s DDA will capture less tax revenue. However, in its most recent budget, the DDA projected tax captures of $3.8 million, an increase from $3.54 million. The DDA’s budget is already stretched thin, what with the $2 million recently extorted by the city to shore up Ann Arbor’s tottering budget, $500,000 payments promised to the Police-Court facility bond payments, and projected payments on $47 million in bonds for the underground parking garage being built next to the downtown library.
On top of that, the Board of the DDA got what could only be described as a some electro-shock therapy when they were told recently that parking revenues for the month of March 2010 were down 45 percent over the same period during the previous fiscal year. As a result, the DDA dropped its parking revenue estimate by 10 percent for the current year. With another scheduled rate increase in July, the DDA’s budget for 2010-11 predicts parking revenues will increase to $16.17 million. In 2008, the DDA brought in $14 million parking revenues.
Various politicos have assured Ann Arbor taxpayers that those bonds for the new parking garage will be made from parking revenues. In fact, there’s even a banner across the front fence of the project that proclaims that the underground garage is “your parking dollars at work.” Should the above mentioned downward spiral in parking and tax revenue continue, the people of Ann Arbor can count on repaying the underground parking garage bonds, plus interest, from our property tax revenues. The bonds for the new parking garage are backed by the full faith and credit of the taxpayers, not parking revenues. If the DDA can’t manage to chip in the promised $500,000 to repay the bonds for the Police-Court building for any reason, taxpayers will be on the hook for that money, as well.
So where are all the people who were supposed to flock to downtown Ann Arbor, snap up the new condos, pay $1,000 per bedroom in the new student housing projects, and, generally, turn our downtown into a bustling mini-tropolis? Evidently, someone forgot to tell the folks on Council, who’ve spent the past half a dozen years cramming projects such as Ashley Terrace down the throat of the local housing market, that “If you build it, they will come,” was a line from a Hollywood movie.
The U.S. apartment vacancy rate is 7.8 percent. Thus, the stagnant growth of our population, as well as the current 10-12 percent vacancy rate in Ann Arbor should give us all a very good reason to reconsider the New Urban “vision” that brought us student housing paraded through Planning Commission as “work-force housing,” and “affordable” housing that isn’t affordable by any stretch of the imagination to workers grossing $35-$40K per year. According to the Michigan Daily, Mary Jo Callan, director of Washtenaw County’s Office of Community Development, said even as tenancy remained high in affordable housing units, the rental vacancies in Ann Arbor rose to notable heights in 2009. “Rental vacancy was way up, extremely uncharacteristic of a town near several universities,” Callahan said, referencing how those communities are sometimes shielded, in part, from troubles in the state or national economies.
The vacancy rate information Ms. Callahan shared with the Michigan Daily bodes ill, of course, for the remaining three student housing developments on which the DDA is banking to bring in about one-third of its tax capture revenues. The tax capture money is used to provide services, such as association grants, to the business taxpayers within the DDA area.
While my son was participating in a cooking competition at synagogue recently, a resident of the Georgetown Mall area asked me what can be done to resolve the current mess created by the failure of the 2007 proposed Georgetown Commons development. Not unexpectedly, residents of the area are steamed that Council members didn’t learn from their earlier mistakes with the Broadway Village PUD that resulted in the failure of that TIF capture project. Politicos plowed right ahead, rezoned the area, and turned the convenient, neighborhood retail/office Georgetown Mall area into six acres of blight.
First, we need to stop site TIFs and taxpayer subsidies of private development.
Ann Arbor is a very desirable development destination. The problem is that while Ann Arbor is an extremely desirable and developer-friendly location for multiple types of development, it’s a city led by politicos with a penchant for back-room planning (library lot RFP), sweetheart deals (PUDs), a taste for giving out taxpayer dollars as subsidies under the auspices of programs such as the DDA’s Partnership Program (Near North development), and little overall development vision. As a result, we have political leadership that has forced residents and developers to become adversaries, and suffer through a decade-long inability to bring financially sound, and neighborhood friendly developments to fruition.
What else can we do to right the redevelopment wrongs at Georgetown Mall? We have to significantly improve the city’s vetting process whereby proposed developments are judged fiscally sound by planning staff and the Planning Commission. Developers with established paper trails of financial failures and bankruptcies have been granted site permissions without any additional required guarantees from their lenders.
In addition, site plan extensions are going to have to be granted more frugally. Squatting on prize parcels for years in Ann Arbor, such as the Lower Town parcel, needs to be halted. There are cities in which developers have six months to break ground, or risk losing their site plan permissions altogether. I’m ready for a more common sense approach to development, such as that of Ed Shaffran, and his desire to see over-development discouraged.
Finally, I want to point you to what I consider another important aspect of any solution to development messes such as the Georgetown Commons: imagination and vision. On January 27, 2010, food writer Constance Crump penned a blog entry for Concentrate Media in which she posited that we need to “dream big” when contemplating the next incarnation of the Georgetown Mall parcel. I agree. This doesn’t necessarily mean big in the sense of tall or dense, but rather to look at what the Fourth Ward Georgetown Mall neighborhood would not just welcome, but embrace. In my vision, Ann Arbor will encourage future development of which we can be extraordinarily pleased and proud—single and mixed use development that will complement the personality and character of our 186-year-old downtown and surrounding neighborhoods.
Right now, there’s a Georgetown Mall citizen’s committee formed to address some of the serious problems, such as rising neighborhood crime, that have resulted from the 2007 Georgetown Mall redevelopment fiasco. However, without studying, analyzing and understanding what went wrong, the establishment of this citizens committee is little more than busy work for dedicated neighborhood activists who deserve much, much better treatment than to be pandered to during an election year.
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