Commissioners see good in unsettling deal

March 12, 2012
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While Grand Rapids city commissioners aren’t pleased with the way an unknown, out-of-town developer presented its plan to the city to convert four vacant elementary schools into apartments, they also feel that little harm has been done.

After all, one of the four buildings will be home to an elementary charter school, a use commissioners feel is the best one for the former Oakdale Elementary on the city’s southeast side. And Charter Development Co., a division of National Heritage Academies Inc., will honor a contract the developer made with the city and create a public playground on the school’s property that the city will own.

“A big push that we have in Grand Rapids, of course, is to preserve greenspace. So because we had to make choices, at least we had a foot in the door to preserve greenspace at Lexington, at Eastern and at Oakdale,” said Commissioner Ruth Kelly.

“That’s important because if residents get concerned there is too much housing in the neighborhood, we can prevent a spread of housing on that site for the future and we can also preserve some of that land and own it for the public,” she added.

Commissioner Dave Schaffer echoed those thoughts. “Our action was always to preserve the neighborhood in terms of the potential use, or keeping greenspace, for the residents. Given that a charter school will operate similar to Grand Rapids Public Schools in terms of use of the building, this creates a ‘good neighbor’ and keeps the continuity of a school operating in the neighborhood,” he said.

In fact, the Oakdale site will receive a larger investment from Charter Development than the Berkley, Mich., developer, GR School Lofts LLC., planned for the property. Jeffrey Chamberlain told the city’s Brownfield Redevelopment Authority that Charter Development plans to invest $7 million at Oakdale to create the River City Scholars Academy. In contrast, GR School Lofts, a division of Ojibway Development, said it planned to invest $4.8 million into the rental-housing project it planned for the property.

But Chamberlain also said the site’s playground will be smaller than the one the developer proposed because the charter school needs more parking spaces and driving lanes because students won’t be bused to the academy.

“The park area is intended to be donated to the city, albeit smaller,” said Chamberlain, who added the school’s annual payroll will be $2.25 million, which means income-tax revenue for the city. “The property was not previously on the tax roll and it will be now.”

Chamberlain added that Charter Development will spend $353,500 to develop the park it will give to the city.

“It’s likely the property will be deeded to the city before the improvements are made,” said Kara Wood, city economic development director.

“I think this is a good use for the property,” said Terry Nicholas, chairman of the Brownfield Redevelopment Authority.

Charter Development, however, doesn’t plan to develop the Lexington and Eastern elementary schools. Bruce Michael, spokesman for GR School Lofts, reportedly said his group plans to buy the schools from National Heritage Academies and renovate both buildings.

When Michael approached the City Commission in January and agreed to donate the park properties to the city, and commissioners agreed to grant brownfield designations for Oakdale, Eastern, Lexington and Stocking, Kelly said he told commissioners that GR School Lofts held options on the properties with Grand Rapids Public Schools, and the city verified that was the case. After the developer was awarded the brownfield designations for the schools, it closed with GRPS on the sale of the Oakdale, Lexington and Eastern buildings.

In addition, Patrick Shannon, executive director of the charter school division at Bay Mills Community College in Brimley, told the Business Journal that his school received the application from National Heritage Academies for the River City Scholars Academy Sept. 30, months before Michael came to the city with a proposal to redevelop the Oakdale building.

“In this case, we worked in good faith with the understanding that the developer would eventually close on the properties and, in addition, our incentives in these cases are only tax-increment financing. So if the project doesn’t happen, they don’t collect,” said Kelly.

But the same day GR School Lofts closed with GRPS, the developer sold the three buildings to National Heritage Academies. Michael didn’t indicate to the city that his firm was going to do that, and he likely knew that Oakdale was going to become a charter school instead of an apartment building before he appeared before the City Commission.

“I think one thing that both the school system and the city has to do is a better job of researching developers from the get-go — find out what kind of properties they hold now, have they held on to them or did they flip them, what shape the properties are in when they do develop whatever it is, housing or nursing care facilities,” said Kelly.

“Does this raise concerns? Absolutely. But I don’t want to make assumptions either, because I don’t want to discourage (developers). We may have just dodged a bullet here, but it’s a real wake-up call that we begin to plan better in advance with Grand Rapids Public Schools,” she added.

“But one thing, too, that I think this has alerted us to is how important it is for the city to put into the hands of every developer the Green Grand Rapids plan, first and foremost. So we have to be a little more assertive in that area and make it available to realtors, as well, so they understand this is a priority for the city now.”

Commissioner Walt Gutowski pointed out that if GR School Lofts does buy the Lexington and Eastern buildings from National Heritage Academies and develops both structures as planned, then the city will generally get the deal it expected. “But do I agree with the process? No, not at all,” said Gutowski.

“So, in the future, what we’re going to have to do is we’re going to have to ask the question. Remember, it was (Michael’s) deal with the school, not with us. So in the future we’re going to have to verify the facts. It’s a pretty simple policy change. Before we move something forward, we have to make sure that the owner is, in fact, who the owner is,” he added.

Grand Rapids Public Schools Director of Communications John Helmholdt told the Business Journal that he didn’t know what plans were in the works for the Eastern and Lexington buildings. “At this point, those three are sold and are out of our hands,” he said of Eastern, Lexington and Oakdale, which went for a combined $1.6 million.

“All three are owned by NHA, but there is supposedly an agreement between the developer and NHA for Ojibway to buy back Eastern and Lexington. The Board of Education is exploring all legal options as it relates to the sale of the three properties,” he added.

The school board decided not to sell Stocking Elementary for $535,000 to GR School Lofts, which missed a down payment deadline for the building, and the board hasn’t made a decision on whether to put the school up for sale again.

“That has not been established yet. The board will consider all options, including keeping it as a GRPS facility,” said Helmholdt of Stocking.

City commissioners are expected on Tuesday to set March 27 as the public hearing date to amend the brownfield plan for the new Oakdale project and are likely to approve it after the hearing. A revision is needed because the use for the property has changed and the brownfield authority approved it.

“In regard to the brownfield that we did grant to the property, the charter school will have to reapply for this, given the change of use. In essence, the commission will be looking at this project all over again, and the proposed use and planning approval are no longer valid, given the change,” said Schaffer.

“There will only be local capture on this project,” added Wood.

Later the same week, the brownfield authority is expected to review the work plans, development agreements and reimbursement contracts of the other projects, if there are any.

Gutowski didn’t feel this incident, in which GR School Lofts was apparently less than honest, would sour the commission toward working with developers.

“I think it’s a simple question. A contract hinges on truthfulness — all contracts do, and that obviously survives. So I don’t think that’s a problem,” he said.

Kelly agreed but wants to know what happened. “We need to know, as soon as possible, what went on here. What’s the background? Were there financing problems?” she said. “We’re certainly willing to talk, but we need to have this be transparent. We have to sort this out.”

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