- change ups
GRAM Gets Land Concession
GRAND RAPIDS — Reluctant may not be a strong enough word to aptly describe a decision the Downtown Development Authority made last week.
Perhaps “loathe” is a better choice.
“I feel like we’ve got a gun to our head,” said Mayor George Heartwell, who represents the City Commission on the DDA. “I’m not happier than any of you are at the table, but I don’t see any other option than approving this.”
And neither did the other board members, as they decided to give up control of a key Monroe Center parcel they donated four years ago to the $60 million Grand Rapids Art Museum construction project in exchange for first mortgage status on the property. They were told that work on the project could come to a halt if they didn’t agree to the change.
The DDA lifted a restriction that allowed the land to revert back to the authority if the project isn’t completed. The change was made so the art museum board could qualify for a five-year, $35 million letter of credit backed by LaSalle Bank and three other unidentified local lenders, money the museum board will use for construction of the new building between Rosa Parks Circle and Ottawa Avenue.
“We have a project that is well along and will happen,” said Michael Ellis, president of the museum’s board of trustees, who added that the bank wouldn’t issue the letter unless the DDA agreed to the deed change. “We need financing.”
It’s a very complex deal for which the paperwork hasn’t been finalized. But in a nutshell, the transaction has the DDA giving up the ability to get the property back if the museum project doesn’t get completed and the bank forecloses. If the project is completed and the museum goes dark, then the DDA would get $2.5 million, the appraised value of the parcel when the DDA donated it to the project, but only after the bank sold the land.
“We will likely be carrying some debt on opening day,” said Ellis, who also said the size of the building has been reduced by 15 percent to cut construction costs.
The museum plans to use the letter of credit to finance a tax-exempt bond package that could take up to 30 years to mature. But should the art museum go out of business, say, in 15 years, the $2.5 million the DDA would receive could be much less than the sale price.
“The bonds would mature in 30 years, but not be outstanding for 30 years,” said Carl Oosterhouse, a museum board member and attorney with Varnum, Riddering, Schmidt and Howlett. “If we don’t get the bonding, construction stops.”
Oosterhouse said the letter of credit would give the museum a favorable interest rate for the bonds; revenue from the bond sale would give the project construction dollars until all the pledges from the museum’s capital campaign are received.
Ellis told the DDA he thought roughly $65 million had been pledged to the $75 million fundraising effort, but wasn’t certain how long it will be until all the pledges to the campaign are fulfilled. Sometimes it takes years for that to happen in major fundraisers.
“I think the board remains confident that we can raise the money,” said Oosterhouse, who added that he didn’t think the public fundraising effort that began two weeks ago would erase the $10 million shortfall the capital campaign currently carries.
The $10 million is needed for the museum’s endowment fund.
“If you don’t get the endowment,” said DDA member Casey Wondergem, “the museum will have to close.”