How the Secret Plan Would Work

The previous post described a proposal for a conference center that circulated within the Ann Arbor city government last spring.  It looks to be on a success track for matching the requirements of the recent RFP issued by the city.

Here are a few more details.  The plan calls for a hotel with 150-200 rooms, plus 15-20 “high-level condo/suites”.  These would be in a tall thin tower with a narrow rectangular cross-section to the north of the property.  The conceptual sketch by Enrique Norton of TEN Arquitectos (most of his previous work has been in Mexico) shows a shimmering white slab that seems to float above the rest.  Though there are no detailed plans presented, it appears that it might be just two rooms thick, with an interior hallway – or even thinner.

At ground level, the plan calls for 20,000 sq. ft. of land area “above the underground parking to be developed by the DDA (to) be sold or ground leased to the developer of the private component.”  This would hold 15,000 sq.ft. of restaurant and retail, and 30,000 sq.ft. of office.  All of this makes up what is described as the “private component” of the plan.  As the proposal notes,

“It is essential though that the parking be designed and constructed to specifically accomodate the project to be developed above it both to (i) minimize the level of structural support costs to be borne by DDA as well as to enable significant time savings in the development of both the parking and the overall complex; (ii) increase the sale/lease value of the improved site by more precisely offsetting support and foundation costs that would otherwise be borne by the private component.”

The actual conference center would be what is called the “Public Component”.    It would be developed in the “air rights” starting at 50 feet above ground and apparently would sit above the ground-level holdings of the private component.  It would presumably be made up mostly of meeting rooms and perhaps the ballroom with seating for 1000 people.  The plan called for this piece to extend over Library Lane and connect with the new Library (which has now been put on hold indefinitely by the ADL Board); if that plan had gone through, the meeting rooms would have been supplemented by the Library’s planned auditorium and additional meeting spaces.  The roof of the conference center is an open green space with gardens, to be made available to the public for outdoor events.

So how does this proposal match up with the RFP?  The actual specifications of the RFP are very brief.  Let’s look at them one by one.

1. Beneficial use of the site. Any proposal for this site must demonstrate a clear benefit to the community and be consistent with the recommendations of the Downtown Plan, and A2D2 initiative. Preference will be given to proposals that incorporate a use (or uses) that provides a publicly available service to the community, for instance, building or open space that may be used for public meetings, recreation, or civic/ cultural events.

Clearly this proposal meets those requirements.  The Downtown Plan now contains specific language calling for a conference center.  The proposal has a public plaza and the roof garden, and the ballroom would be a valuable asset in holding public meetings as well.

2. Environmental benefits. The development proposal should incorporate to the greatest extent possible environmentally sensitive design and energy efficiency features that follow Leadership in Energy and Environmental Design (LEED) standards. In addition,the project should propose innovative and environmentally friendly runoff water management and seek to improve water quality.

The proposal as sketched out does not refer to these features, but it is merely a matter of engineering and I am sure that a more fully fleshed out version could easily satisfy these requirements.

3. Financial return. The proposal must provide a positive financial return to the City. In the absence of other considerations, the City has a fiduciary responsibility to obtain fair market value upon the sale of City assets. Long-term lease or other property arrangements will be considered, but must meet this financial return criterion.

(You will note that no particular level of financial return is called for.)   The proposers say that the city will benefit from direct and indirect tax revenues, and from an increased “level of business activity”.  This is basically saying that the presence of the conference center itself is a benefit (in that it would bring more people downtown). Indirect tax revenues are not possible unless the meaning is that downtown property values would rise.  In Michigan, cities don’t receive sales tax and cannot impose special taxes on events, etc.  There is a hotel tax, but it goes exclusively to the Convention and Visitors Bureau (CVB) to promote Ann Arbor and its surrounding communities.

But any hope of direct tax revenues or a payment for the sale or lease of the city land vanishes into the financing plan for the conference center.  As the proposers astutely note, it is not possible to build a large enough hotel at that location to pay for the costs of building and managing the conference center.   They estimate that such a self-supporting model would require a hotel of 600-1000 rooms, and the Ann Arbor market will simply not support that.  “Ann Arbor is not the kind of natural “resort” area (like Las Vegas or Miami Beach) that could support this level of hotel investment through general tourist or business traffic to supplement the conference related business.”  So the natural solution is…public support!

The conference center would be owned by a not-for-profit 501(C)(3) organization, with a board composed of “those institutions or public sector entities that would be most involved in or benefited by the center”.  This NFP would then contract with the developer to develop, manage, market and book the conference center (the last two possibly in conjunction with the Ann Arbor CVB).

“The development and reserve for operations of the Conference Center will be financed with triple tax exempt bonds.  These bonds would be sold on a TIF basis, with certain annual revenue streams identified and secured by a trustee for payment of the bonds….the NFP will be the borrower on a non-recourse basis and… an appropriate public or quasi-public entity such as the DDA will be the issuer.”  (Note that any direct payment of property taxes to either the city or the DDA just vanished.)

The NFP would amass sufficient equity to build the conference center with an equity payment from the private developer of $1.5 million (thus feeding any financial return to the city back into the project itself), plus $6.5 million in bonds.  The revenue stream identified to pay the bonds would be as follows: $500,00o per year in real estate taxes; room revenues, $200,000; high-end suites revenue $100,000.  But not to worry: it will rely on “issuance of DDA bonds which are backed by the City and are therefore equivalent to full faith and credit city bonds.”

(Note that this sum seems low for construction of such a large facility.  Of course site preparation, utility upgrades, and the parking structure are already paid for through bonds issued for the parking structure. Also, it may not include the cost of developing the retail and office ground-level “private component”)

I have no doubt that if the Valiant Partners do submit a proposal in response to the RFP, it will be expanded, refined, and polished.  Still, this seems to give a preliminary snapshot of what has been in the works for months.   Will the Council once again encumber the residents of Ann Arbor with another project that benefits only a narrow sector of the city?  The mechanism seems to be running smoothly.


Explore posts in the same categories: Business, civic finance

2 Comments on “How the Secret Plan Would Work”

  1. Karen Sidney Says:

    Let me see if I get this. The city gets no money for the land because the sale proceeds are used for the down payment for the convention center. The city gets no taxes, because those are used to make the bond payments on the convention center. The developer gets a convention center to increase traffic to his hotel. He gets $5.3 million in DDA subsidies for things like extra footings and a service alley and a taxpayer backed money losing parking structure right under his development. If it works out, he makes buckets of money. If it doesn’t, the city’s general fund gets stuck with the bond payments and downtown gets a derelict property. And the mayor and the rest of the Council Party tell us we need to pay higher taxes or face more service cuts.

  2. JK Says:

    Unfortunately, your summary hits the nail on the head. And on top of it, the City will be feeling the repercussions from this for decades to come.


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