Due diligence report for Center City project released, city response expected today
Development Strategies, a development advising firm tasked with producing the due diligence report for the proposed Center City District, found the project to be a “generally thoughtful and sound proposal” and discovered “no reason to question the developers efforts to collaborate with and provide the City of East Lansing a mixed use development of very high quality.”
But despite the overall positive conclusions, findings of the report reveal unfinished and unresolved details regarding the developer's financial backings. Those findings did not seem to cause alarm to Development Strategies.
The city tasked the firm with thoroughly reviewing five items associated with the project including verifying the developer's equity position, validating the proposed sources and uses of funds, testing pro forma for reasonableness of assumptions,” reviewing housing market studies and the terms of the proposed Target lease slated for the Grand River Avenue building.
Development Strategies was diligent in pointing out in unresolved issues or areas of concern in three of the five items but iterated at the end of each section, that the issues were nearly negligible.
The report concluded chief developer Harbor Real Estate Advisors had adequate resources to cover over $20 million as equity, confirming with “major banks holding their assets.”
However, it cited other partners associated with the project, though it withheld naming them, who had “yet-to-be valued” equity and may need to be independently valued.
Development Strategies found the sources and uses of funds to be “in flux” due to the incompletion of the development agreement exhibits, which are still in the works.
The developers provided potential project funding to the firm, though terms with vendors have yet to be finalized. The firm however contacted lenders involved finding they verified the reputation and capacity of the development team to meet "historic as well as prospective" debt obligations.
The firm validated the developers’ real estate tax assumptions and further found the preliminary value of the project was “significantly higher that the net project costs … indicating reasonable profit for the developer.”
The project is seeking to build two rental apartments, one 92-unit building aimed at people 55 years and older and one aimed at students and young professionals.
In its review of the much-debated housing studies by Danter Company, the firm highlighted potential complications for both the age-restricted housing study and the student-oriented housing study but again remained optimistic in summary.
While heavily redacted copies of the studies have been made public, it has led to concern over what exactly was found.
“While we question the effectiveness of the market studies above, we are confident that there is adequate market support for the Center City District," the report stated.
With Center City looking for top-of-the-market rates for the 55-plus building, the firm found "comparatively few local households able to afford these rents".
Furthermore, the firm concluded that now or in the near future there may be too much student-oriented housing.
Even while citing certain complications in the studies, the firm remained optimistic about the project’s viability, finding “very reasonable expectations concerning rent growth, occupancy, and expenses.”
As for the proposed Target, the firm iterated no concerns about the lease or other matters involving the Target store.
The due diligence report is central to the development’s completion, as City Council repeatedly referred to it as a safeguard for the city when questioned by those critical of the project's approval.
The development agreement between the city and the developers of Center City laid out that the city has two business days to respond to the report. This would suggest a response is due sometime today, as the report was delivered late Friday.
If the city reviews the findings and is unsatisfied, it will terminate the development agreement and have three business days to resolve any defects.