City Vote Bypasses DDA
GRAND RAPIDS — When city commissioners approved a development agreement for The Gallery on Fulton project last week, they did something they usually don’t do.
Part of the development agreement they ratified calls for the Downtown Development Authority to finance the property purchase for The Gallery’s developer, Two West Fulton LLC. The unusual nature of their action comes from the fact that DDA members haven’t approved the financing plan yet and won’t cast their votes until Feb. 13, the date of their next board meeting.
Commissioners normally don’t vote on anything that originates from another city agency, whether it’s a development agreement, increases in parking rates or building site plans, until the originating board makes its opinions known.
Third Ward Commissioner Elias Lumpkins, though, told the Business Journal before last week’s vote that DDA officials told city commissioners nearly two weeks ago members would ratify the agreement at their upcoming meeting, and that the concerns some members had at last month’s meeting about financing the purchase had been alleviated.
But DDA member Michelle Van Dyke informed the Business Journal last week that she hasn’t received any new information since the Jan. 10 meeting. It was Van Dyke, president of Fifth Third Bank, who wondered out loud how the DDA was going to secure the loan.
“It looks like we’re securing this with our own money. It doesn’t make sense to me,” she said at the January meeting when the financing idea was first presented to board members.
“I need more information. I need to see the terms of the payment and how we’re going to be repaid,” she also said then.
DDA Executive Director Jay Fowler told board members in January they would have that information at the next meeting, which is next week Wednesday. With commissioners green-lighting the agreement last week Tuesday, however, it’s questionable if DDA action is even necessary.
“This is obviously a very complex project in its financing,” said Mayor George Heartwell at the January DDA meeting. The mayor, who was out of the country last week, didn’t take part in the commission vote. First Ward Commissioner James Jendrasiak cast the lone vote against the agreement, which won support with a 5-1 tally.
The agreement has the DDA buying about half of the 37,000-square-foot parcel at the corner of Fulton Street and Division Avenue for the project, land that Parking Services owns. Two West Fulton will make a down payment of $120,000 at closing, and the DDA will spend $854,000 for the land on the developer’s behalf. The purchase price is $974,000.
The DDA will then sell the property to Two West after the firm completes the project, which has been estimated to cost $34 million. Then Two West will make interest-only payments for five years and begin making principal payments in year six until the loan is paid in full. The loan’s term is likely to be 17 years and the interest rate will be 4.5 percent.
Total interest on the loan will be $406,647. Two West will have an outstanding principal and interest balance totaling $1.26 million. The developers told the DDA last month they couldn’t get their construction loan until they had finalized a development agreement with the city. The agreement also gives Two West until March 31 to close on the purchase — its third closing extension.
Parking Services plans to build a ramp on the property that will have 262 spaces at a cost of $9.4 million.
“We are so fortunate to have the staff, the city and the DDA to get things done,” said Sam Cummings, president of Second Story Properties, which formed Two West Fulton with RSC Associates of Chicago.
“This is not profit-driven, from the development team’s standpoint,” he added last week. “We started this and we’re going to get this done.”
The Gallery on Fulton evolved from an RFP the city issued in late 2004. Two West was selected as the winning bidder in May 2005 and agreed to pay $2 million for the parcel then.
When Jendrasiak pointed out last week that the RFP didn’t contain any financial support from the DDA, Fowler said the board’s development policy didn’t exist back then.
“As this (the RFP) developed, the DDA has developed its own policy,” he said.
Fowler said since the policy has been in place, the DDA has provided financial support to a number of downtown projects including RiverHouse, 38 Commerce, Hopson Flats, Tall House and the JW Marriott.
The DDA, though, approved a $5 million development agreement for the Marriott project in December 2004 — the same month the city issued the RFP.
Before that vote, board members authorized Fowler to start negotiating a term sheet with HP3 LLP, Alticor Inc.’s project manager for the hotel, in September 2004 — three months before the city issued the RFP.
In addition to voting on the financing plan, DDA members will also decide next week whether to reimburse Two West $724,000 for ensuring The Gallery is in compliance with the Americans with Disabilities Act and for street improvements.
The Gallery on Fulton will be the new home of the Urban Institute for Contemporary Arts and will include 2,500 square feet of retail space and 55 apartments. Cummings told commissioners last week that UICA has agreed to buy its 32,000-square-foot space.
The project heads to the city’s Historic Preservation Commission this week for design approval, a design that has been changed a bit from the original.
“There is some deviation but it’s not dramatic,” said Cummings. “We have been very creative in designing a building that looks like two, and we’re hiding the parking.”