The Y Lot – Rock, I Presume? Hard Place, I Presume?

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.

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The Y Lot, approximately 0.8 acres on William between Fourth & Fifth.

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.

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Development proposed by Dahlmann/The Habit Co. in 2016 for the site.

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.

10 thoughts on “The Y Lot – Rock, I Presume? Hard Place, I Presume?

  1. That’s the Kline lot, or the Kline’s lot. The old department store had this parking behind it. https://aadl.org/aastreets/site2/aastreets_klines_40s_300 I actually shopped there when I first moved to Ann Arbor.

    The Kline lot has quite a lot of history in its own right. One Ann Arbor mayor was going to build a parking structure there but when Liz Brater was elected Mayor, she killed that project with the intention of using it for affordable housing instead. (Spoiler – didn’t happen.) This was also the site of a proposed hotel within the last 10 years or so. The DDA also spent a fair amount of time in the early 2000s trying to figure out the best way to develop the lot for a cash return. That also went nowhere. As always, the City has been pinned between using it for local utility (i.e. parking), maximizing a cash yield, or fulfilling a worthy goal.

    I agree with you, this would be the best place to develop affordable housing downtown, but the City couldn’t also expect to make money from it. And would the residents have any parking?

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    • Thanks for the correction on Kline spelling, updated that. Did not know all that history either. Goes back to my point on the city’s track record of selling/developing real estate. It’s bad.

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  2. “…his track record thus far says otherwise…”

    You need to do a little more digging before disparaging Dahlmann Properties’ track record. Dahlmann has provided reasonably priced quality commercial rental space for years – some to the county and city when they were in need during Police/Courts rennovations – and keeps his buildings up to date. His signature hotels (Bell Tower & former Campus Inn) long served as the near sole islands of luxury in this city’s hotel & restaurant market; he renovated the crappy Comfort Inn on Carpenter Road, all his hotel properties kept the CVB afloat for years in room taxes.

    His businesses pay a small fortune in property taxes each year, much of which does not go to the DDA, a benefit in my estimation but quite possibly one of the reasons for all the hostility directed at him. He has allowed some properties to continue to serve as cheap rent spaces for long-time businesses + startups when he could easily have kicked them to the curb and built crappy. expensive D1 condos there instead. (Rosie’s barbershop comes to mind, again, suck it DDA). Others have been preserved, adding significantly to the historic character of our city. In a time of hideous architectural trends the importance of this cannot be understated. He’s not some hack speculator from Chicago who’s going to sell after collecting a developer fee, and if you look at the latest Core Spaces purchase agreement iteration you will see they are ONLY in it for the money when it comes to providing affordable space.

    The less said about the “affordable” housing proposal put forth by Taylor & friends the better. $1600 for a tiny 2 bedroom is affordable? Has it come to this after 10 years of his supposed leadership on council?

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  3. Thanks for sharing your analysis Ryan. I agree the property has entanglements and am aware of the history. Points also taken from Vivienne and others who want hard numbers behind these proposals. I also agree that we need better policies and direction from leaders re: workforce and affordable housing so that we are not dealing with all of these issues site-by-site. I’ve heard not only from you but also others who suggest that the Kline Lot would be well-suited for workforce AH development. I agree. I think that we should build workforce housing there too, if not only because we should not have a small segregated population of lower income folks surrounded by the luxury towers/condos that have begun to populate our downtown for the last 20 odd years or so. However, I don’t think that we should wait until the conversation moves to the Kline lot to start building workforce housing. One need only read Vivienne’s comments above to see there is a history there as well. At some point, we have to take the leap. I believe that we have council reps who will work together, that we can also find willing partners in the community, not only nonprofits, but businesses and other individuals who would pitch-in to make this happen. And contrary to what Jeff says, I think that the proposal Ackerman and Taylor put forward, while not perfect, is a great approach [city maintaining ownership, which allows us to put rent ceilings in place]. The more I talk with people about this, even the ones who don’t trust the current majority to actually build affordable workforce housing at this site, all agree that we need to keep talking, but also start building it now.

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  4. For all the talk of conflicts of interest, it should be noted that many of the people who spoke in favor of buyback/affordable housing efforts for YLot are employees of the very entities that will be awarded the contracts for same. Avalon is a vigorous advocate for city-financed affordable housing because it pays their salaries. It’s rarely mentioned that their conversion of open-market housing (Gott Street for example) to Avalon Housing is NOT a net gain in units, it is a wash or a loss, as existing low income residents of those properties are kicked to the curb to make way for Avalon-approved low income residents.

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    • “many of the people who spoke in favor of buyback/affordable housing efforts for Y Lot are employees of the very entities that will be awarded the contracts for same.”
      By “many” you mean Aubrey Patiño? If you are referring to me, Jeff, I work for Michigan Medicine and have since November 2017. https://www.linkedin.com/in/greg-pratt-83385013/
      Regardless, this does not refute what I wrote above. I don’t see how any of this adds to the discussion about the issues. Try again.

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  5. Also, it is wildly inaccurate to equate Dennis Dahlmann’s windfall profits with the incomes of people working for a nonprofit social service agency. Beyond the pale Jeff. No one is saying that Dahlmann is a bad guy, or the elected A2 officials who accepted thousands in donations from him are bad people. We all know that he cut checks to reward employees with several years of service. That was honorable and also transparent. Let the light shine in Jeff, right? Truth, right? Over $10,000 is significant for A2 council races. You and several in the Mlive comment section are overreacting to the facts and interviews presented by Ryan Stanton, deflecting to accusations of others are not helping support your case for voting no on repurchase.

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