What’s in the Box II: The New Valiant Offer for the Conference Center

As we recently reviewed, the Roxbury Group was hired by the City of Ann Arbor to examine the proposals submitted in response to RFP 743, for the surface of the Library Lot .  The report, rather than being the examination of financial feasibility that had been promised, instead reads much like a sales proposal from a real estate broker.  After repeating a number of boosterish comments based on interviews with “stakeholders” to establish the need for a conference center,  the report compares the Valiant and Acquest proposals and legitimately concludes that Valiant offers to develop a conference center, while Acquest only suggests that the city should build one on an adjacent lot (the “old Y lot”).   (Note that the original RFP did not specifically call for a conference center, but this has now become the deciding factor.)  The consultant then recommends that Valiant should be chosen by the city, and not only presents a revised proposal from Valiant, but drafts a letter of intent for the city to enact.

The changes in Valiant’s proposal are mostly stated in a table (Attachment B).  In order to understand them fully, it is necessary to refer back to Valiant’s original cost proposal.

Elements of the new proposal

The original proposal had three elements:

1. Residential condominiums (12 units) with sales prices ranging between $750,000 to $1, 250,000. These would be sold to the public.

2. Hotel/retail portion. This would be owned and operated by Valiant or a business partner. (Keith Coe, one of the partners, is a principal in Valley Forge Hotel Management.)

3. Conference center (built within the shell of the hotel/retail portion).  This would be operated by a nonprofit corporation that would be established by the city and other entities for that purpose.

The revised proposal is an effort to reduce the cost and make the offer more financially attractive to the city by ostensibly removing the city’s financial liability.  They accomplish this in part by reducing the perceived benefits that the city would receive. Here is a summary of the changes in the elements of the proposal.

Element

Ownership or Operation

Original

Revised

Hotel
Valiant or partner 150 rooms 150 rooms
Residential Condominiums
Individuals 12 units 6 units
Conference Center
City or nonprofit 32,000 square feet 26,000 square feet
Office
Valiant or partner none 48,000 square feet
Public Open Space
City? Unclear Ground level plaza, roof of conference center Ground level plaza only

Note that the size of the conference center has been reduced. It is not explained what effect that would have on the size of conference that the center could host, or what it would mean to a floor plan.

The public space that was provided in response to the RFP has also been reduced by removing a rooftop garden.

Financial aspects

The financial aspects of the original proposal are convoluted and many of them were not updated in the report by Roxbury.  Here is a summary of the financial proposal and changes.  It does not address the business plan and pro forma that were in the original proposal.

Element

Original

Revised

Primary mortgage
Privately financed mortgage for $28 million.  All other debt and city payments subordinated to it. No change indicated
Bond
30 year Full Faith and Credit (city backed) bond for $8.1 million 30 year revenue bond issued by EDC (Economic Development Corporation) for $6.9 million
Condos
12 units, av. price $750,000; city receives 10% as sold for est. total $900,000 

City tax receipts est. at $75,000 per year

6 units, av. price $1.2 million, city receives 10% as sold for est. total $720,000 

City tax receipts est. at $60,000 per year

Taxes
No property taxes for conference center (assumed) 

Property taxes from Hotel/Retail dedicated to cost of construction bond

 

No property taxes for conference center (assumed) 

No change and reference to a TIF bond indicates dedication of the tax stream to bond

Tax treatment for office portion not discussed

Ground rent (and air rights) payable to city
Self-liquidating Purchase Mortgage, value based on net operating income in 3rd year, estimated at $348,784 per year No change indicated in amount but dedicated to debt service for the EDC bond.  (No payment to city.)
Parking
A substantial revenue and expense item in pro forma No change
Other
“PILOT” of $250,000 No such payment

Note that the total development cost in the project budget (p. 37 of the original proposal) is $54,043,044.76. (Editor’s note: yes, I know it is silly to carry it out to “cents” but I didn’t write the proposal.) That figure includes a $500,000 Development Fee and a $1,000,000 line for “Commissions” (no “cents” in either of these). Both of those fees presumably go to the developers.  But the mortgage and bond together for the original proposal only added up to $36.1 million.  It is not explained where the remainder of the balance is to come from, though there are some hopeful comments about sharing in various government incentives.

So how feasible is this offer?  There are several angles to look at.  Does the project itself make business sense?  Are there some lurking assumptions that are not being addressed?  Does the new proposal succeed in relieving the city of liability?  Does the city (government) budget actually make any financial gains from it?  Does the city (as a municipal body) benefit in general? What are the likely risks and benefits?

Those will have to wait for the next post.

Explore posts in the same categories: Business, civic finance

One Comment on “What’s in the Box II: The New Valiant Offer for the Conference Center”


  1. [...] commissioned by the DDA) used interviews of a number of  “stakeholders”,  which I earlier dismissed as “boosterish”.  They were, however, detailed within the report.  This report merely [...]


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