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HomeMy WebLinkAboutPUBLIC HEARING - 2019-08-21 - SCHOOLCRAFT LODGE COMM REHAB EXEMPTION CERTIFICATE CITY OF LIVONIA PUBLIC HEARING Minutes of Meeting Held on Wednesday, August 21, 2019 ______________________________________________________________________ A Public Hearing of the Council of the City of Livonia was held at the City Hall Auditorium on Wednesday, August 21, 2019. MEMBERS PRESENT: Laura Toy, President Jim Jolly, Vice President Scott Bahr Brian Meakin Brandon Kritzman Kathleen McIntyre Cathy White MEMBERS ABSENT: None OTHERS PRESENT: Mark Taormina, Director of Economic Development Paul Bernier, City Attorney Sara Kasprowicz, Recording Secretary The Public Hearing was called to order at 7:10 p.m. with President Laura Toy presiding. This has New Data attached to it for this Public Hearing and this is brought to us on th September 9 again to be heard this is Paul F. Bohn, Fausone Bohn, LLP, Attorneys at Law on behalf of Schoolcraft Lodge, Inc. This is requesting approval of Commercial Rehabilitation Exemption Certificate for the expansion and rehabilitation of property located at 31501 Schoolcraft Road, Livonia, MI 48150. The Public Hearing is now open. There were four people in the audience. Toy: Mr. Taormina. Taormina: Thank you. This request seeks approval of a Commercial Rehabilitation Exemption Certificate in connection with the development of a new, 100 room, 5 story, Staybridge Suites hotel at the southwest corner of Merriman and Schoolcraft Roads. Your applicant this evening is Schoolcraft Lodge, th Incorporated, represented by Paul Bohn, of Fausone Bohn. On June 17, City Council approved Commercial Rehabilitation District #4, which encompasses the property at 31501 Schoolcraft Road. This is a 2.37acre site, it was originally approved in 1983 as a Mountain Jacks restaurant and was later sold and converted to a beauty school called L’Espirit Academy. The building is currently vacant. The applicant, Schoolcraft Lodge, is the current owner. The effect of granting the Commercial 2 Rehabilitation Exemption Certificate is to freeze the taxable value of the real property which includes the building and site improvements but not the land. For this property, the current taxable value of the real property, excluding land, is $218,500. The duration of the incentive is the number of years that the taxable value of the real property would remain frozen based on this predevelopment value and can range from one to a maximum of ten years as determined by City Council. If approved, the tax revenue generated from the real property improvements that the City and other taxing authorities receive, except as it applies to the school operating and State education tax would remain fixed for the duration of the incentive. The estimated tax savings to the developer annually would be approximately $96,000. The taxable value uncaps at the expiration of the certificate which an estimated value today of approximately $65,000 per room would result in a true cash value of over $6.5 million and a corresponding taxable value of $3.25 million. With that, Madam President, I’ll answer any questions you may have. I have provided you with some of the numbers related to this project, some of our estimates of the value of the Commercial Rehabilitation Exemption Certificate provides some comparisons of what the numbers would be with the incentive versus those without the incentive, as well as the impact of the City portion of the tax revenue. These numbers were checked by the City Assessor. Thank you. Toy: Thank you so much. Council, questions? Yes, go right ahead, Councilwoman McIntyre. McIntyre: Mark, you may have just said this, I was looking at the numbers. Ten years is the maximum, right. Taormina: Correct. McIntyre: The Statutory maximum. Taormina: Correct. McIntyre: The minimum is one year? Taormina: Correct. McIntyre: Thank you. Toy: Sure. Sure. Vice President Jolly. Jolly: Mr. Taormina, in regards to doing something like this, is this a slippery slope with other developments that might be coming down the path in the City, or no? I mean, I can understand your rationale potentially for this 3 particular site, but it seems like this, more so than the other tax incentives that we’ve offered and granted and approved, potentially could be, you know, a slippery slope where other people would want something similar to this because there is not really any kind of justification for it. Taormina: Well, I can understand your concern completely and I would say that the guidelines that we developed, although not formally established by this body still serve as criteria for tax incentives including the PA-210, so I think going back and looking at some of those guidelines and criteria we should as the same questions. What are some of the extraordinary cost associated with this development that warrant the tax incentive and apply that to what we believe would be reasonable in terms of an incentive back to the developer for those extra credit to reimburse them for maybe use for those extraordinary costs. Jolly: Sorry to put you on the spot. As a person who wrote those guidelines and the person who is in charge of the Economic Development Director, what are the extraordinary circumstances of this property? From your professional opinion, what warrants this? Taormina: Well I can only speculate as to what they’re going to present to you in terms of what those extraordinary costs are because really the burden really is on the Applicant, but I would say demolition costs are something that are consistent with most redevelopment projects could offer some extraordinary costs as compared to a Greenfield Development. Other developers in the past have made arguments that these storm compliance storm management guidelines is an additional cost that they don’t typically find themselves faced with in projects, redevelopment projects in particular. This site was developed originally without those storm water controls in place but now they have to be added to these. Whether or not that is legitimate, I guess that’s really something for the Council to determine. There are other utility relocation costs associated with this project that I’m sure they’ll mention this evening so those are primarily what I would say would fall in that category of extraordinary above and beyond what we would typically see with a Greenfield Development. Jolly: Ok. One last question. Toy: Yes, please, go right ahead. Jolly: Have they indicated how many years they are seeking this for? Taormina: The application, I’m not sure, I’m going to throw that one to the applicant and whether or not that is something that’s stated in the actual form or not. I’m assuming it’s ten years, I don’t know if that’s formally submitted on this 4 part of the application or not. Yes, it is, number of years exemption requested, 10, and that’s right on the front page of the application. Jolly: Thank you, Sir. Thank you for all the answers. Toy: Thank you, Councilman. Anyone else with some questions before we go to the Petitioner. Hearing and seeing no one. Anyone from the audience? No. Ok. Petitioner, you’re up. Bohn: Thank you. Good evening everyone. I’ll just sort of summarize. Today I have the Applicant with me, William and Robert Nofar, they’re here before you. My name is Paul Bohn. Toy: Your address, Mr. Bohn. For the record. Bohn: Thank you. Let me start by saying. Toy: Your address for the record. Bohn: My address. 41700 West Six Mile Road Suite 103 Northville, MI 48168 as stated on the application. Toy: Thank you so much. Bohn: Let me start revisiting the questions in reverse order so that the question as to whether this is needed, are there extraordinary circumstances. In part from the storm water management issue that will have to be updated, yes, there is a building that has to be demolished. Greenfield sites don’t have that impediment and it is a cost impediment to redevelopment, so if you want urban infill that’s one of the things that I would say you should balance. This particular product is somewhere untested in this market, it is a higher end Staybridge Suite, so it is a higher price point than Livonia is used to paying and is to the folks that visit Livonia, so in order to get the absorption that we hope for, it may take a little longer, however, we’re going to incur the same level of costs upfront. Really what the abatement is meant to do is to defer the time it takes to absorb. And to that, hopefully the developer will recoup over a longer period of time, that investment. Unlike some owners, the Nofar’s own, build and operate their facilities, this is not a big developer who can flip the property in seven years and get their return on investment by pushing those costs down to the next owner. So, when you have an owner operator, you should also go for maybe a little more private place, if you want to look at their other building, which is at Schoolcraft and Inkster, which did revitalize the area which has change the Farmer Jack’s which has been the impetus for changing the surrounding area. There is a strip mall that was torn down and redone and reoccupied. Whether you can attribute that directly to that developer or 5 not, that’s up to you. The project will employ, the current project employs more than a dozen Livonia residents. Both of those are jobs that you don’t have today. So those are kind of some of the extraordinary costs. What is happening currently, in this market, I think you’re more aware of, is a labor shortage of school trades forcing up the cost of those type of developments. If you’ve read Crain’s, you know there’s an oversight plan of approved projects that aren’t going vertical. Other cities are offering incentives of different types and those are always considerations for developers too. Whether those be located in Detroit which has the same issues with labor shortage or the same issues with material costs you balance whether or not the side offers incentives, but this side clearly qualifies for Brownfield and taxing for revenues would be used for a similar purpose. This city is really a policy decision, I understand and I’m a member of the Chamber and I think that this is a fiscal responsible city, this abatement, because it preserves the current revenue that you have, does not detract from that current revenue. It asks for a period of basically, allows the property to be increased in value. It’s the bricks and mortars that are evaded. I would also say that when you look at the actual calculations that I think Mr. Taormina has provided you, what is the City component of this abatement versus the value of abatement to the developer. The City has an opportunity to maximize using other mileages as well that don’t detract from City revenue in the future. So, again, I think those are all a basis for why this abatement is being considered and in terms the other question you asked, Council Person, I am unaware of any court case and possibly the Council people, they know differently, that an entitlement by a community in one instance is a precedent for another. Unlike it wouldn’t be, I can’t imagine it could be. So, I don’t think you have that at this address. But it is still a fair question. Jolly: Madam, President. Toy: Certainly, go ahead. Jolly: So, Mr. Bohn, you’re a professional and I appreciate how you spoke to this manner, bottom line is, from my perspective, we have a least one new brand new hotel that has opened up in the last six months, we have another that is due to be under construction that is higher end than this and we have at least a third, that is not this, looking to get underway as well. What added benefit is this one in particular that these others are not? Bohn: I can’t speak to projects that I don’t know the details. Jolly: Its just another hotel. I mean at the end of the day; it’s another hotel and we have no trouble attracting hotels to the community. Again, that’s where I’m looking at this from, there’s not anything added special here, it’s 6 a hotel. We have new hotels going up, we have them where they’re wanting to be put up. So, I just, I mean, there’s a big burden here for us to giving up $96,000 some dollars a year over ten years in tax revenue. The argument from my perspective anyways, it’s not that we just care about City dollars, we live here and we’re guardians of the community, so the other tax revenue as well, I look at that to be just the same as anything else. Just because its not coming to the City’s checking account doesn’t mean its not important or somehow negligible. So there’s. Ok. Bohn: By the way, I didn’t mean to imply that they’re negligible or not important, I was pointing out the fact that you have an opportunity to leverage those things. So, I don’t think any revenue is unimportant, I think it has to be wisely spent, I would also note the same observation made. The City of Detroit has attracted many projects that has gone through site plan approval and are not going vertical right now. I represent some. These gentlemen haven’t start site planning for a reason. They’re not going to get a $100,000 into something they can’t afford to build. Or at the end, come back to you and say, “Wow, we really wanted this higher-end project, that’s what we told you we were going to do, but at the end of the day, this is really all we can construct.” I’d rather be told no. Jolly: I’d rather be told no too, but I mean, if you can’t afford to play the game, listen, I’ve shared my thoughts. I think we don’t have a problem bringing hotels to the community at this point, so I’ll seat the floor, thank you. Toy: Thank you very much, Vice President. Anyone else? Yes. Go ahead Councilwoman. McIntyre: Good evening, thank you for being here tonight. I am less concerned about the slippery slope aspect because I think every project that seeks incentives has to a lot of times, has to stand on their own merits. I would like to understand, and you have done a nice job, of course, Paul, as you always do of delineating the reasons and the factors why you think that it’s appropriate for a Commercial Rehab District, but can you delineate, you or the Nofars, delineate what those actual costs are, because over 10 years, right, we are looking to give up ten times $100,000, right? So, I think that’s a million, last time I checked. Bohn: It is, so I can give you the capital cost and the cost of money as you know when you incur an obligation, there is a cost of securing those funds. McIntyre: I guess what I’m asking for are the factors that would be applicable, that would be motivate us, right, to grant the incentive. Based on the extraordinary costs. As someone that has worked on Brownfield projects, I certainly appreciate that it’s more costly to do a Brownfield, for some of the reasons we talked about, but if you could just help us at all, kind of delineate what those actual costs are. 7 Bohn: So, I only can to compare it to the project that was built very similar. $400,000 storm water that is going to be required on this site that wouldn’t otherwise be required and about $350,000 in demolition costs. Those are the capital costs, those aren’t the costs of that plus the interest carry on that so you could add, I would say, you know 5% over the time it takes to recoup that. The cost of labor and materials over the last 36 months in Detroit has gone up 25% and it’s going up, it’s not going down, it continues to go up so I don’t know how to guesstimate that as a component, but if the soft cost of a project which is typically about a 1/3 is going up at 25% that would be several hundred thousand dollars. Toy: Oh, yeah, go ahead. McIntyre: Thank you, I appreciate, and I know that is a detail that you were weren’t expecting to have to lay out tonight. I’m just trying to mention it. Bohn: About a million and a half in capital plus the cost of money. McIntyre: Ok, what I heard, was well, sorry 400 plus 350 plus the cost of money. Plus 750. Bohn: Plus the increased cost of labor. McIntyre: Ok, the labor, the increased labor and materials, I’m certainly empathetic to everybody doing development, I read Crain’s and I know there’s some big projects on hold. In my mind, these incentives should be used to compensate investors for factors that are unique to this property. Everyone who is building anything is facing the same labor and materials cost and with respect to the Staybridge being a more upscale property, I think Staybridge’s are lovely, I’m delighted at the prospect of having one here. I don’t think, we’ve got a brand new Holiday Inn, right, which is a fairly upscale, so to me, the rationale for granting this incentive because it’s slightly higher and its going to take you longer to recoup your costs, because initially the occupancy might not be as high. That’s not a compelling reason for this incentive. What is a compelling reason to me are those costs that are unique to this site, so thank you. Bohn: Then those, yes, those are the unique costs. McIntyre: Yep, so thank you. Toy: Councilman Bahr. Bahr: I’ll just piggyback on that, I appreciate Kathleen’s comments, I’d even go as far as saying the storm water is just a reality of Wayne County at this point. I mean, virtually any large project we have in this community, we’re 8 dealing with that. I don’t see that as unique to the site. Even the demolition, virtually anywhere East of 275 you are dealing with that and probably beyond that. I guess my other question is too and I’m asking you guys as property experts. Would it be fair to say that the fact that you have to demolish a building is factored into the value of the land when you buy it? I mean isn’t it going to be detrimental to the land if you have a building that’s come down versus a Greenfield, or am I wrong? Bohn: The next purpose for that building would be a different use. You would repurpose the building. Bahr: I’m not assuming the building has to come down, I’m just saying that we’re looking at current land taxable value of $206,000, you’re anticipating that land taxable value being $250,000 which you know that’s ½ of, the taxable value is ½ the value so we’re saying that the value of the land itself is going to increase by almost $100,000. Doesn’t that speak to the fact that having a building on there that has to come down, don’t you make that up somewhat in the purchase price or am I wrong? Bohn: Not necessarily, no. I mean that has more to do whether the seller is motivated to sell, I mean, there other competing uses for this property, I think you’re aware of and they’re not hotel uses. Those people will pay a premium for things that, these guys only build hotels, they’re not a developer, per say. They’re not someone that’s going to buy and acquire a property and then structure the deal to meet an end use. Bahr: When you say p-uses, you mean potential uses, you’re not saying you know other people that are looking to get this property. Bohn: I have no idea if there are or not. I know there were people looking for it when it was in play, but no, I have no specific knowledge of it. Bahr: Why, and I think we talked about this before, but refresh my memory, why this site for your guys? Why are the developers interested in putting this hotel here? Bohn: So Staybridge does a lot of demographic research on what’s needed and what’s needed in a particular area and I think these guys could probably give you greater detail on how that goes but that’s kind of their secret sauce, the site location process is a little bit of a mystery but also a little bit of objective and subjective art. So, in order to even put a flag here, to say that’s going to be a Staybridge, Staybridge has to say that’s the location we accept. So that process leads you to that product at that location. Could you get a lesser hotel or a different hotel or a different use, I imagine so. 9 Bahr: So Staybridge wants this site. Bohn: Yes. Bahr: Are there other sites you are considering if you don’t, in this city or otherwise, if you don’t get this. Bohn: Otherwise, yes. In this city, I don’t know. Are there other properties in the city that you are looking at? Nofar: In the city of Livonia, not right now. No. Bahr: Are there other, do you have other options that Staybridge has given you besides this. Nofar: Staybridge has locations and they’re, you know, per their license agreement, you are allowed a radius and you cannot build because it is too close. This site, this location, off of 96, between 275 and Southfield Freeway, would be good. They like that area, there are not too many hotels there, there’s just us and the Hampton. I don’t count the smaller ones and its not 275 where its tons of hotels out there, but on this strip, there’s not too many and I think, and the franchise thinks, it’s a strong market for us. Bahr: Sure, and I can understand that. Another question, this is for Mark, just jot it down some of the hotels that have either recently come or are coming. Mark, if you can tell me off the top of your head whether we gave tax incentives to these, Holiday Inn Express. You told me earlier we gave a tax incentive to that, correct. Taormina: Yes, Commercial Rehabilitation Exemption Certificate, the same type of abatement that is being requested here. Bahr: Ok, what about the Hampton Inn on 96 just East of Middlebelt? Taormina: No that was undeveloped site at the time, that was vacant land that was split off from a larger construction. Bahr: Ok, Holiday Inn on 6 Mile? I’m testing your memory here. Taormina: No. Bahr: We did not. Ok and then what about, we just recently did this, Docs Sports Grill site. Any tax incentive? Taormina: No. No tax incentives there. 10 Bahr: Ok, there was a building that needed to be demolished there so, ok, I was just trying to get a comparable because one of the things that I’m always concerned about with these things is, just our ability to be consistent. If this is something that we just always do, then I’d have a hard time standing here saying don’t give it to these guys, I think there is a case to be made for just offering these incentives for a redevelopment situation, which I think you alluded to earlier. It is interesting that we haven’t needed to do it for some other sites that had similar types of demolition, so that’s all I have for now. Thanks. Toy: Thanks Scott, Councilman. Anyone else? Hey, really quick, what is, your busier days on that corridor since you have a hotel there already. What are your busier times, is it Monday through Thursday, obviously, it’s probably the weekend, I would guess right? Nofar: Monday through Thursday are our busiest times, during the Summer, we have a lot of weddings, we have a lot of softball teams, a lot of family reunions, kids are out of school, it gets busy on the weekend during the Summer. Primarily, if you are asking me, 12 months, Monday through Thursday because we get a lot of corporate. Toy: The hall that is next to you, which is Burton Manor, I almost said Roma, that’s how old I am but do you think that’s part of your business, I mean, do you think you get any business from them as well. Nofar: That is a percentage of our business, we work well with them along with other companies. Toy: Yeah, because I had heard, and again, this is rumor, so don’t always believe rumors but they had a piece of property they were looking at a hotel at one point. Nofar: I heard that as well. Toy: Did you, ok, so I’m not totally off base. I don’t like to gossip but yeah, so have they approached you maybe on putting another hotel there. Nofar: Not formally, I did here that they were possibly interested in talking with us, but we have no interest. Toy: I’d ask you why but that’s kind of impolite because that’s your business it’s ok. Great ok, thanks for that explanation. That’s interesting because, you know, after you see these hotels go up in our city, some of my colleagues have said that we’ve put in quite a few hotels and I’m just wondering what the attraction is. I know Detroit can’t hold them all sometimes because of 11 the growth and the economy is good and all those wonderful things we are facing right now. Nofar: Certain flags cannot go up next to certain flags based on the radius and so that has a lot of decision making on locations. I don’t know if that would help you a little bit. Toy: No that’s all right. It’s kind of like Hallmark stores, they wouldn’t let you put a Hallmark in certain locations and non-compete clauses and things like that. Ok, thank you so much. Bahr: Just a comment, Madam President, just in response to what you just said, I think we’ve heard it implied but these guys only heard from others. You said you don’t know why this is such a hot market for hotels, I think it’s a direct result on what is happening downtown, we’re the first major market for those that don’t want to pay downtown prices for hotels. So, it’s a huge opportunity for Livonia, it’s a huge opportunity for these guys. I think that’s important to consider, talking about whether incentive is necessary here or not. There is major incentive already economically to go to this site. Toy: If I may, at the end of this particular pamphlet, or brochure, you’re saying if in this event, if this does not happen, you would have to sell the property, is that an accurate statement still? Nofar: I have had a few calls for people asking to purchase the vacant land, the vacant building and I told them that I am not interested. Toy: Oh, ok, so maybe I misinterpreted, it said if you didn’t get this, did I misinterpret that? Nofar: Ok, let me rephrase what I said. We still have a decision to make but as of when they called me, I’m not going to entertain. Bohn: I think we know that we have not started the site planning process, because typically, we are not, we don’t predispose that the Council has to act one way or the other. If you’re asking why the abatement was asked for ten years, if you ask a lawyer how long you can get an abatement and the answer is ten years, then the answer is, I have no shame in asking, right? So, whether you scope it that way based on whether you think it deserves it or not, that’s really why these discussions happen. Toy: We have 198’s like that, they all wanted 12 years. Go ahead Councilman, Councilman Vice President Jolly. Jolly: Madam President, with what we’ve heard so far, I’m not impressed with this, in something that adds critical community, although it would be an 12 added investment, this is not the kind of thing I think that taxpayers should be subsidizing. Especially in the amount of $960,000. I’ll offer a denying resolution. Toy: Ok, you’ve heard a denying. Councilwoman McIntyre. McIntyre: I am comfortable with applying your offer for this kind of incentive for your project. To Mr. Bohn’s point about the ten years, of course your going to as for ten years. When I was at Ford for 198’s I always asked for 12 and 2-years construction, so I understand that. I think that the numbers that we’re hearing, I would be supportive of something less than ten years. I would entertain like a seven-year term, which would cover, I understand, not the cost of money and not quite all of your expenses, but some of those expenses are regardless of any property. If you are taking a vacant piece, storm water management is going to cost you. So I’d like to offer an approving resolution for a seven year incentive. th Toy: You have that, Sara, right? Two. Ok. All right, and this is on September 9 is there any other comments from the Council. McIntyre: I just have one more thing. Toy: Sure. Go right ahead. McIntyre: Another reason, when I look at incentives and what makes sense and what doesn’t, we had a discussion several years ago in this body and I thing with Planning about incentives and understanding what incentives were appropriate and some people want to formulate an application, like a decision tree. I don’t think you can do that with incentives, there’s certainly a rationale, right, standard rationale for different incentives, or quantitative rationale, but there’s an art to it too. That site has been, I know the salon there, the school, that was never an attractive since we lost the restaurant there and that’s one of my reasons, right, if that were an attractive site for development, I understand the hotel business is booming, right, people want to be in Livonia, but that’s one of my rationales too, for you know, to me, that’s part of the art of being willing to offer the incentive for that property. So thank you. Toy: Thank you, Councilwoman. Anyone else wishing to speak to this. Mr. Bohn, anything else you would like to share, or anybody. You heard what th you have, approving/denying, correct, on the 9. Kritzman: Madam, Chair, I’m sorry I should have spoken out just a bit sooner. Do you have any breakout of the anticipated cost for those special conditions that were mentioned as part of the discussion this evening? Site improvement cost, you know I am familiar with how these things come 13 together as well as many of us have been part of these. We all see it from a different perspective, and I think some of the conversation that has taken place up to now is extremely valid. You bought a property that has existing stuff on it. I’ve been involved in those same sorts of things, some things you can anticipate, some things you can’t. I totally get that, I had a site today that found a 50 foot by 10 foot six inch deep concrete slab that happened to be buried under a couple feet of dirt. Turns out the City of Novi had a basketball court there at one point and they forgot to tell us about it. But, there’s things that can’t be anticipated and there’s things from a Brownfield and redevelopment perspective that should be credible, viable, incentive-based items but there’s some that are and I’d love to see a break out of that anticipated cost. th Bohn: We can give more detail on the 9. Anything else? Yes. Toy: Councilwoman McIntyre. McIntyre: I have one final question and that’s if Mr. Nofar, are you involved in the Novi, is that your facility, the Staybridge in Novi? Is that your property? Nofar: No. McIntyre: Ok, that’s the closest Staybridge I think, Ok. Thank you. Toy: That opens up a good point, what other motels do you own? Nofar: We own a couple of Courtyard Mariotts, we have five Holdiay Inn Expresses, we’re doing a Hampton Inn, we have Country Inn Suites. Toy: Are they out by the airport at all or no? Nofar: No. Toy: No, ok, so are they around this area or Grand Rapids or Lansing? Nofar: We have one in Brighton, we’re going to be opening one in Roseville, its 104 rooms, we have one in Lansing, one in Lapeer, Livonia, Ft. Wayne Indiana and two in Columbus Ohio. Toy: Well, good for you, much success to you. Yes sir. Thank you, Mr. Bohn and Nofars, thank you very much. If there’s nothing else before us we are adjourned. As there were no further questions or comments, the Public Hearing was declared closed at 7:44 p.m. SUSAN M. NASH, CITY CLERK