City Commission Backs The Gallery, Again

February 23, 2008
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GRAND RAPIDS — Just a week after the Downtown Development Authority gave The Gallery on Fulton a development package worth $1.5 million, city commissioners amended a brownfield for the project’s developers that allows them to request an additional $2.3 million in state business tax credits.

But that approval didn’t come unanimously as 1st Ward Commissioner James Jendrasiak “urged” his fellow board members to deny Two West Fulton the brownfield change for the project that is planned on a city-owned parcel at the southwest corner of Division Avenue and Fulton Street.

Jendrasiak’s argument revolved around the fact that The Gallery isn’t the same project Two West submitted in 2005, the year it won the city’s RFP over four other bidders for the 37,000-square-foot lot owned by the city’s Parking Services department.

“If this project had been brought to the commission as is then, it would have been rejected,” he said.

The original project Two West proposed for the site included a bookstore, a jazz club and about 70 condominiums. Jendrasiak said tenants like these would have been a source of tax revenue to the city. Now he said the major tenant is the Urban Institute for Contemporary Arts, a nonprofit organization that has a tax-exempt status.

“I don’t feel this is the best use for this parcel,” he said, while adding that the city wasn’t going to get the tax return from this project that it intended to get when it issued the RFP.

Jendrasiak also took issue with the property sale, which is supposed to close by March 31. The city wanted $2 million for the entire site, but is getting $974,000 for about half of it with the city’s DDA financing the deal for Two West.

“Actually, the DDA is going to purchase the property below market value. Is the DDA going to pay the city market value?” he asked.

Deputy City Manager Eric DeLong said the land was being sold at market value.

“The DDA is paying for the ground the UICA will be sitting on,” said DeLong.

Jendrasiak also said Two West Fulton promised to pay more for the property in July than the $2 million it initially offered in 2005. July was when the developer paid for and was given a second six-month extension on the closing date. DeLong told commissioners a pay-more clause wasn’t part of the second extension.

But the July 17 memo commissioners received before they voted to extend the closing date from July 31 to Jan. 31 reads that Two West would raise its purchase price for the site by whatever the Consumer Price Index figure was at closing time.

Then Jendrasiak reminded commissioners that when the city issued the RFP, it didn’t want to build another parking ramp on the site, which was home to the city-owned City Centre ramp for more than 40 years. Now he said the city has plans to build one at a cost of $9.4 million on the half of the property the city isn’t selling.

“Now we’re doing exactly that, and at $36,000 a space,” said Jendrasiak.

DeLong said public parking was a part of the project back in 2005, as it is now.

“There was a limited amount of public parking spaces then,” Jendrasiak answered.

Parking Services initially planned to buy 82 public spaces for $24,000 each in the ramp Two West was going to build in 2005. Now that the developer isn’t including parking as part of its project, Parking Services plans to build a ramp with 262 spaces at an estimated cost of $36,000 a space.

But Jendrasiak wasn’t able to persuade anyone on the commission to join him in denying the request; commissioners amended the brownfield by a 6-1 vote last week.

“The pros of what this (project) does for our city outweigh the cons,” said Walt Gutowski, also a 1st Ward commissioner.

Commissioners first approved a brownfield for Two West in 2005, and that nearly three-year-old award would have let the firm collect a state tax credit of $1.9 million. Back then, the project the developers planned to build was pegged to cost $20 million. But The Gallery’s cost has been estimated at $34 million, and the city feels Two West, a partnership between Chicago’s RSC Associates and Second Story Properties of Grand Rapids, is entitled to a tax credit of $3.3 million, due to the larger investment it will make in the new project.

City Economic Development Director Kara Wood said the state has already approved a $1 million credit to Two West from the 2005 award, so the developer will ask the state to add $2.3 million in additional credits.

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