Local in Ann Arbor

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.

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.

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.

This entry was posted on December 15, 2010 at 4:01 pm and is filed under Business, civic finance. You can subscribe via RSS 2.0 feed to this post's comments. You can comment below, or link to this permanent URL from your own site.