To:

Tim Dempsey - Department of Planning & Community Development, East Lansing, MI

From: David Nelson - Partner, Head of Global Investment & Real Estate, DRW Holdings, LLC
RE:

Outline of Development Agreement Terms, West Grand River & Evergreen Mixed-Use

Date:

December 5, 2016 (revised December 20, 2016)

Development

Introduction
The Proposed Development (the Development) shall address community concerns regarding vacant
and blighted buildings on the most prominent properties in East Lansing which have existed in a derelict
state for more than the past ten years. When completed the Development will be a transformational
urban planning and design statement, lead the way in fostering additional economic investment in
downtown East Lansing and introduce desired business and residential diversity and amenities. Since
starting the programming and planning process, the Development has evolved to include multiple
elements that upon completion will be owned and controlled by either the City or the Developer (see
attached Site Plan). The Developer is prepared to commit the necessary resources and funds in the
amount of one hundred and forty eight million dollars ($148,000,000) to realize and deliver this
Development. To facilitate the successful and sustainable redevelopment of the assembled properties,
the Developer and City acknowledge that their commitments are mutually beneficial. To properly
integrate into the fabric of East Lansing, road network and infrastructure improvements are required
and included. The Development will revitalize blighted properties, improve aged and inadequate
infrastructure and provide additional structured parking. The Developer will manage the development
of all elements under the terms outlined below and when completed the Development will be a
significant economic driver for downtown East Lansing and a catalyst for future re-development.
Following are the proposed terms for the Development and associated improvements for the
assemblage of properties in downtown East Lansing. The subject properties are under the control
and/or Ownership of the following entities; the City of East Lansing (City), the Downtown Development
Authority (DDA) and entities controlled by DRW Real Estate (Developer). Property ownership is as
follows; Valley Court, Evergreen Avenue, Albert Avenue rights of way and parking lots commonly
identified as the Abbot / Albert Avenue and Evergreen Avenue surface parking lots owned or controlled
by the City, 303 Abbot Road and 314 through 344 Evergreen Avenue owned by the DDA and 100 West
Grand River, 124-140 West Grand River, 341-345 Evergreen Avenue owned by the Developer.
The Developer acquired three vacant and blighted properties in downtown East Lansing, Michigan in
February of 2016. These properties were included in earlier proposed developments that, for various
reasons, did not materialize. Shortly after acquiring these properties, the Developer initiated the
planning and design work to secure necessary City approvals and entitlements. Since that time, the
Developer has committed significant resources including professional fees (architectural, engineering,
legal and environmental), contractor fees (abatement and demolition) and internal staff commitments.
To date expenditures associated with these efforts exceed a half million dollars.

Proposed Development and Development Incentives

Apart from any other issues, the parties recognize that the development costs for the project as outlined
exceed what expected returns may justify. Without securing the necessary re-development incentives
the Development will not move forward in whole or in part. These incentives include the Michigan
Business Tax (MBT) credit, which Building A is eligible for, and Brownfield TIF eligible expenses for the
components of the Development as described below. The Developer has been advised that approval of
the MBT credit for Building A will require Citys approval of Brownfield TIF eligible activities specific to
that building.
Brownfield Plan Summary
The Developer has been advised by the Mayor and City staff that the maximum TIF (eligible activities,
interest and fees) City Council will consider is twenty-five million dollars ($25,000,000). The proposed
Brownfield Plan shall include eligible expenses specific to the buildings (Buildings A & C1) which shall be
constructed, owned and managed by the Developer. These expenses represent 8% of the total
Development costs for these buildings and 45% of the total Brownfield TIF amount. The Brownfield Plan
shall also include eligible activity costs for Public Way Improvements. TIF funds remaining for eligible
activities, while staying within the twenty-five million dollar limit, shall be allocated to eligible activities
associated with Building B (Citys parking garage). The Public Way Improvements and parking garage
expenses represent 55% of the total Brownfield TIF amount.
The table below summarizes the Brownfield Plan based on Estimated Future Taxable Values provided by
the City on November 29, 2016 (attached):
$25,000,000 - Eligible Activities and Interest
Initial TV

Estimated
Future TV

Eligible Activity
Costs

Estimated Interest

Total:
EAs + Interest

Duration
of Plan

BRA
Fees

$1,748,996

$18,557,000

$16,728,773

$8,240,690

$24,987,463

17 Years

$330,000

Note: A more detailed Brownfield Plan Allocation Table is attached

100 Grand River This is the principal building (Building A) of this Development and will be constructed
by the Developer on a development parcel created by properties owned by the Developer, a portion of
the vacated Evergreen Avenue and a portion of the DDAs 303 Abbot Road property. The Evergreen
Avenue and 303 Abbot properties necessary for the development shall be transferred to the Developer
by the City and the DDA respectively. Building A will be 360,000 gross square feet in area and contain
Retail, Hotel, Mixed Market Rental Apartments and accessory parking. The signature planning element
is the public plaza located at the corner of West Grand River and Abbot. This building will be owned by
the Developer and operated by entities retained by the Developer.
Development costs for Building A are estimated at one hundred and fifteen million dollars
($115,000,000). Developer shall be responsible for soft and hard costs associated with Building A. All
entitlements and Brownfield TIF for the Development must be secured and ratified prior to submitting

for the essential MBT credit. The Michigan Strategic Fund expects the Citys commitment to the
proposed development though approving eligible brownfield TIF activities. Brownfield TIF eligible
activities associated with the construction of these buildings shall be included in the Brownfield Plan
Eligible activities include, but are not limited to, soft and hard costs associated with abatement,
demolition, excavation, earth retention, de-watering associated with excavation activities, special
foundations and additional costs necessary for the proposed basement parking. These costs, including
contingency but excluding interest and fees, are estimated at seven million two hundred twenty one
thousand two hundred ninety seven dollars ($7,221,297), representing approximately 6% of total
project cost for Building A.
341 and 342 Evergreen Avenue The low-rise, four-story residential Building C1 shall be constructed by
the Developer on property owned by the Developer at 341-345 Evergreen Avenue. The low-rise, threestory residential Building C2 shall be constructed by the Developer on property currently owned by the
DDA which shall be conveyed to the Developer. Buildings C1 & C2 shall contain either for sale, owner
occupied residential condominiums or other residential use(s) that will add diversity to downtown the
East Lansing residential profile.
Development costs for Buildings C1 & C2 are estimated at sixteen million seven hundred fifty eight
thousand five hundred twenty nine dollars ($16,758,529). Developer shall be responsible for soft and
hard costs associated with Buildings C1 & C2. Brownfield TIF eligible activities associated with the
construction of these buildings shall be included in the Brownfield Plan. Eligible activities, primarily soils
remediation and excavation are estimated at three hundred seventy five thousand one hundred forty
two dollars ($375,142) including contingency, but excluding interest and fees. Costs incurred to date for
environmental remediation, demolition, site preparation, etc., which exceeded two hundred fifty
thousand dollars ($250,000) would have been eligible Brownfield Plan expenses if not incurred prior to
Brownfield Plan approval at the request of the City.
Public Way Improvements Street network, public way and infrastructure improvements shall be
constructed by the Developer on behalf of the City and to standards and criteria established by the City.
The City shall reimburse Developer for all hard and soft costs incurred by Developer for the planning,
design, financing and construction of these improvements.
Development costs for roadway and utility reconfiguration including, but not limited, to the installation
of a new combination sewer system replacing aged infrastructure (1920s vintage) that in part serves the
Oakwood neighborhood, demolition of existing roadways and parking lot, new road beds, curbs/gutters,
sidewalks, street lighting, landscaping, traffic signals/controls, etc. This work is estimated at four million
nine hundred thirty eight thousand one dollars ($4,938,001) including contingency, but excluding
interest and fees. Developer shall be responsible for all hard and soft costs associated with this work. All
eligible activities shall be included in the Brownfield Plan. All costs incurred by the Developer which are
not eligible for reimbursement shall be paid to Developer by the City when this work is completed.
120 Albert Avenue - The parking garage (Building B) shall be constructed on the Evergreen properties
currently owned by the DDA. Building B will be 5 levels, have 425 parking spaces and will address the
additional parking requirements of the Development not satisfied in Building A, compensate for the
surface parking eliminated with the extension of Albert Avenue and provide additional public parking for

downtown East Lansing. Building B will be constructed by Developer and owned and managed by the
City.
Development costs for Building B (parking garage) are estimated at eleven million three hundred
seventy-four thousand one hundred twenty-five dollars ($11,374,125) exclusive of land costs. Of the
total Brownfield Plan eligible activity amount ($16,728,773 in the above table) that remains after
allocating necessary amounts to Building A, Building C and Public Way Improvements shall be
committed to Building B Eligible Activity costs. This amount is estimated at four million one hundred
ninety four thousand three hundred thirty three dollars ($4,194,333). City shall reimburse Developer for
the remaining balance (costs incurred by Developer less allocated TIF) when Building B is completed and
delivered. Under this scenario, payment from the City to Developer for Building B shall be
approximately seven million one hundred seventy nine thousand seven hundred ninety two dollars
($7,179,792).

Land Assemblage
Developer owns, without debt or lien holder, the properties previously described and to be improved.
In consideration of the positive economic impact and qualitative improvements the Development will
have on downtown and East Lansing, the City and DDA shall convey to the Developer, at no cost, the
respective portions of the Evergreen right of way and 303 Abbot Avenue property necessary to
implement the Development.
Evergreen Avenue between Valley Court and Albert Avenue will remain a City owned right-of-way but
shall not be constructed as a vehicle through-way or used as such.
The property between the Evergreen right-of-way and Building B necessary for the construction of
Building C2 shall be conveyed to the Developer at no cost.
The landscaped City property at the current Evergreen Avenue surface lot location shall remain City
property and be improved as public open space. City shall agree that at no time will this property be
sold or leased for development as a building site without Developer or future owner(s) of Buildings C1 &
C2 having first right of refusal.
The City and DDA shall determine the appropriate process to transfer the DDAs Evergreen properties
for construction of the parking garage. It is assumed that the existing debt on these properties will be
retired through payments made from parking revenue. If necessary, the Developer may assist with
restructuring this debt.
In consideration of the Developers significant financial investment, the associated risk(s) and the
positive impact the proposed development will have on East Lansing, the Developer shall be granted
control of future development of the parking lot located at Albert Avenue and Abbot Road which shall
be expanded to approximately 13,000 square feet with the re-alignment of Albert Avenue. Developer
shall lease this property for ten dollars ($10) per year, for a period not to exceed ten (5) years (Initial
Lease Term) during which time the Developer will bear the economic risk of development and work
with the City to further enhance the area in a manner consistent with the aforementioned plans. During

the Initial Lease Term, City shall continue to manage the parking and retain parking revenue. Assuming
the Developer initiates the redevelopment of this property prior to the end of the Initial Lease Term,
Developer shall have the right to (i) purchase the property from the City for a total amount equal to
fifteen dollars ($15) per net square foot of leasable area constructed, or (ii) enter into a 50 year lease at
an annual rate of $1.50 per net square foot of leasable area per annum. It is anticipated that an eight or
nine story building with approximately 100,000 leasable square feet could be constructed.

Conclusion
This outline is intended to clearly describe the terms under which Developer can proceed and is the
result of Developers analysis of all aspect of the proposed Development and process. Upon agreement,
this information shall be incorporated into the Development Agreement and submitted for City
approval. The Developer is commitment to implement a successful and sustainable development on the
assemblage of properties described and is capable and financially positioned to deliver on its
obligations. Developer also acknowledges and accepts the inherent risks associated with this type of
transformational re-development, but the Development cannot be initiated and delivered without
agreeing on mutually beneficial terms and securing the incentives as outlined.

Attachments:
Site Plan (November 4, 2016)
Brownfield Plan Allocation Table
Future Taxable Value Estimate - provided by East Lansing City Assessor (November 29, 2016)

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W. GRAND RIVER AVENUE

PROPOSED OVERALL SITE PLAN

OVERALL SITE PLAN

2016 Solomon Cordwell Buenz

100 W.GRAND
& EVERGREEN,
EAST LANSING
100-140 W.GRAND RIVER
& 341-345 RIVER
EVERGREEN,
EAST LANSING,
MI
GRAND
RIVER LLC./
100 GRAND RIVER LLC100
/ 341
EVERGREEN
LLC 341 EVERGREEN LLC.

11/04/2016

11/04/2016

32'

64'

A-005

WEST GRAND RIVER & EVERGREEN AVE. DEVELOPMENT

Brownfield Plan Allocation Table
REVISED DECEMBER 19, 2016

Property Address

Total
Development
Costs

Development Description

Contingency &
TIF Eligible
Escalation (15%
Activities (MSF
of Eligible
& DEQ)
Costs)

D = B+C
TIF Eligible
Activities (Incl.
Contingency &
Escalation)

F = D/A

TIF Eligible
TIF Interest (ProBrownfield &
Activities % of
rata based on
ACT 381 Work
Total
Eligible
Plan Preparation
Development
Activities
(Pro-Rata)
Cost
Allocation)

I = D+G+H

TOTAL TIF

Estimated BRA
Fee (Pro-rata,
Paid over time)

100 Grand River - DRW-OWNED

Building A

$114,921,549

$6,281,345

$939,952

$7,221,297

6.28%

$3,557,253

$7,770

$10,786,320

$148,926

120 Albert Avenue - DDA-OWNED

Building B (Not Incl. Land Cost)

$11,374,125

$3,648,550

$545,783

$4,194,333

36.88%

$2,066,153

$4,513

$6,264,999

$86,500

341 & 342 Evergreen Avenue - DRW-OWNED

Buildings C1 & C2

$16,758,529

$327,515

$47,627

$375,142

2.24%

$184,797

$404

$560,343

$7,737

Public Way Improvements - CITY-OWNED

Public Way Improvements

$4,938,001

$4,293,914

$644,087

$4,938,001

100.00%

$2,432,488

$5,313

$7,375,802

$101,837

$147,992,205

$14,551,324

$2,177,449

$16,728,773

11.30%

$8,240,690

$18,000

$24,987,463

$345,000

TOTALS:

100GRANDRIVER,LLCPROJECT
ASSESSEDVALUEESTIMATE
November29,2016

OCCUPANCY
BuildingA:
Retail/Restaurant
Apartments,Studio
Apartments,OneBedroom
Apartments,TwoBedroom
Apartments,ThreeBedroom
Parking
Hotel($50,000PerUnit)
BuildingB:
Parking
BuildingC:
Condominiums,OneBedroom
($200,000PerUnit)
Condominiums,TwoBedroom
($225,000PerUnit)

SQUAREFEET/
BEDROOMS/
UNITS

RENTAL
RATE

POTENTIAL
GROSS
VACANCYAND
INCOME COLLECTIONLOSS

EFFECTIVE
NET
GROSS
OPERATING
INCOME EXPENSES INCOME

CAP
RATE

TRUECASH
VALUE
ESTIMATE

ValuePer
SquareFoot/
Bedroom/Unit

23,000
88
29
43
17
112
153

$23.00
$900.00
$1,000.00
$850.00
$775.00
$50.00

$529,000
$950,400
$348,000
$438,600
$158,100
$67,200

5%
5%
5%
5%
5%
20%

$502,550
$902,880
$330,600
$416,670
$150,195
$53,760

15%
40%
40%
40%
40%
5%

$427,168
$541,728
$198,360
$250,002
$90,117
$51,072

9.00
11.50
11.50
11.50
11.50
14.00

$4,746,311
$4,710,678
$1,724,870
$2,173,930
$783,626
$364,800
$7,650,000

$206
$53,530
$59,478
$50,557
$46,096
$3,257
$50,000

425

$50.00

$255,000

20%

$204,000

5%

$193,800

14.00

$1,384,286

$3,257

33

$6,600,000

$200,000

31

$6,975,000
$37,114,000
$18,557,000
$18,557,000

$225,000

Page1of1

TOTAL(ROUNDED):
ASSESSEDVALUEESTIMATE:
TAXABLEVALUEESTIMATE: