The controversial downtown real estate topic du jour is currently what to do with the so-called “Y Lot”, the vacant former YMCA parcel on William Street adjacent to Blake Transit Center. The situation has been covered ad nauseam by Ryan Stanton at the Ann Arbor News and there’s come great historical context available at the old Chronicle website. I’ll try to sum up where we’re at as succinctly as possible.
They city bought the Y Lot back in 2003, tore down the old YMCA after it moved to Washington Street, and then very nearly pulled off a sale that would have created a new development with apartments and potentially a hotel on the upper floors with retail and a transit center on the ground floor. That deal fell apart in 2007 resulting in a lawsuit the city eventually won, the new Blake Transit Center was rebuilt mid-block, and the lot was again put up for sale in 2013. The city sold the site to Dennis Dahlmann for $5.25 million in 2014 with an agreement that stipulated a mixed-use development with a series of restrictions be built within four years. If no such project was built (as has been the case) the city had the right to buy the property back for $4.2 million. That right kicked in on April 2nd, 2018 so the city council now must decide whether or not to negotiate with Dahlmann or exercise that right.
So what should the city do?
First off, what’s the lot worth? I don’t think there’s any question it’s worth more than $4.2 million. There’s a couple of different appraisals out there, the one hired by Dahlmann says $6.1 million is most likely, the one hired by the city quotes values from $7.7 million to $12.5 million depending on the size of building that can be built. I pulled my own data (Google Sheet) to show pretty clearly that redevelopment properties with D1 zoning have been typically going for $275-$300 per square foot. Without restrictions, the site could easily be worth $9.5 million to $10.5 million.
At first glance, it’s a no brainer for the city to buy it back, decide what they would like to see and sell it to a developer for a significant profit. Dahlmann signed an agreement, didn’t hold up his end of the deal – as many it seems, expected – and now has to face the consequences. Unfortunately it’s not that simple. Dahlmann has sued the city, citing a bad agreement and the city not holding up their side of the deal, notably as it relates to an underground connection to the Library Lane garage that doesn’t actually exist. He’s offered $1.5 million to settle that lawsuit, remove all restrictions and own the land free and clear.
There are a few reasons the city may want to consider a deal with Dahlmann. These are big time “ifs” but I’ll lay it out there. I believe the city is in a good position to win a legal battle with Dahlmann but there’s almost no question they have a little exposure, the agreement was somewhat ambiguous and this could get dragged out for years. The other “if” is does Dahlmann actually intend to build this project if a deal is made? I’m told he cares about this community and his legacy and he has the wherewithal to pull it off, his track record thus far says otherwise. The final question is whether or not that $1.5 million offer has room. Let’s be conservative and say the lot is worth $8 million without restrictions, there’s a case to be made that a settlement figure here should be $3 million or more.
Here’s why I think the city should at least consider a deal. Even if the property is worth $9 million or more, we’re at the long end of the investment cycle here, there’s a chance that value comes down in the next couple of years. It’s likely that the litigation will tie up the site for at least a couple of years so you’re in an uncertain position in say, 2020 or 2021. Furthermore, if Dahlmann will really build the project, you could be looking at $1 million plus in tax revenue coming in by 2021. The alternative is another project that’s likely 2-3 years behind. The profit the city is counting on can be made up in just a couple years if the development happens. Lastly, and this is not a knock on our administration, it’s more just the way government works, but the city is terrible at selling and/or developing real estate. Cases in point, the Library Lot and this very site which is some 15 years into a rocky unproductive process.
So, if council believes Dahlmann will build the project, feels there may be some legal exposure if they don’t negotiate, and can deliver a better settlement number while keeping some restrictions in place (let’s say an affordable component and a 3-4 year timeline), it might be time to make a deal.
If they have no confidence in Dahlmann, feel good about their legal position, and cannot do better than $1.5 million, it’s time to buy it back. With good leadership and a settlement of the lawsuit, the city can make money for other services and potentially deliver a worthy project for downtown.
Lastly, it’s important to note that Mayor Taylor and council member Ackermann came out with a new affordable housing vision for the Y Lot over the weekend. It’s a commendable plan and I’ve long said that one of the only ways to really put a dent in the affordable housing commitment is to use public land with an affordable developer partner, but I fear this particular site is too messy to bring this into the fray in the 11th hour. It also completely changes the economics of the deal as discussed above. I might recommend they consider applying this exact same strategy to another city parcel, the Kline Lot for example, which is less entangled?
There is a special city council meeting to decide the fate of the Y Lot this evening, April 23rd. I think there is a case to be made for either side and I urge all our council members to carefully weigh all options.