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Hotel Development Looks for Financial Support from DDA

Developers for a hotel complex at 400 N. Main are working with the State of Michigan to secure funding assistance through the Community Revitalization Program, which requires local participation.

Krieger | Klatt rendering
Krieger | Klatt rendering
Members of Royal Oak's Downtown Development Authority (DDA) received an update and a request for support Wednesday from the developers of a $60 million hotel complex at the former Fresard auto dealership site.

The complicated project for the site at 400 N. Main Street  which includes an 8-story hotel, an 8-story apartment building, a pair of office buildings and a 4-level off-street parking deck – is moving forward at a "rapid pace," according to Greg Erne, principal at Versa Development.

The development team  which includes Royal Oak-based CG Emerson Real Estate Group, Southfield-based Versa Development, Hotel Investment Services, Inc. (HIS) of Plymouth,  T.H. Marsh Construction and Krieger | Klatt Architects, both of Royal Oak  and the city have been working together in "a strong spirit of collaboration" to re-develop the obsolete site and create "something special," Erne said. 

The developers have been working with the Michigan Economic Development Corporation (MEDC) to secure funding assistance for the project through the Community Revitalization Program (CRP), which requires strong local participation in order to commit its funding.

"This is really an important part of the project right now," Erne said.

The proposal presented to the Downtown Development Authority is:

  • The developer is allowed to capture the incremental ad valorem real estate taxes for up to 10 years
  • The amount of the capture will be capped at $4 million plus interest and carrying costs 
  • The method for the capture will be a Reimbursement Agreement between the Downtown Development Authority and the Developer
The proposal is structured to be no-risk to the DDA, Erne said.

"We are not here to ask the DDA for a check," he said, adding "We're all in this together but we are not asking you to take on risk."

Erne said he expects the project to break ground in the fall.

Directors will discuss the request at a special work session on March 1 and come back at the March DDA meeting for formal action.

The proposal for the Fresard property, which has been vacant since the auto dealership moved to Ferndale in 2008, first came before directors in May 2012 to measure the DDA's interest in the project and move the discussion along.

"You did come to us over a year ago and present it and ask us if there would be interest and at that time I believe we told you yes," said Director Jay Dunstan.

"We're taking you up on that," Erne said.
Debbie Campbell February 20, 2014 at 11:16 AM
So the Downtown Development Authority (DDA) will gift a bunch of wealthy developers 4 million dollars in tax rebates to build a project that will allow the developers to make Mega More MILLIONS of dollars in Royal Oak—Meanwhile you know what grinds me—Take a look at the sidewalks in the downtown covered with huge patches of ice that guests are forced to navigate in an attempt to shop at the dwindling retail establishments—Instead of “cozy partnerships” with millionaires why doesn’t the DDA clean up the mess that is our CBD and do a little “partnering” with our small business independent retailers.
CDE February 20, 2014 at 01:35 PM
Well said Debbie and I largely agree with you, but it does not have to be a one or the other type of situation--they both can independently happen. This appears to be a good project and will employ many many construction workers. An even more positive note, all the companies affiliated with the project are either based in Royal Oak or metro Detroit (fairly unique situation). I think the project is exciting. By the way, I hope they make millions of dollars--it appears to be entirely Michigan companies on the project.
l.c. February 20, 2014 at 01:58 PM
As exciting it may be,as Debbie pointed out,if the DDA continues to neglect pedestrian safety things could go sour.would taxpayers be on the hook then? seems empty store fronts are becoming more popular in R.O..
Debbie Campbell February 20, 2014 at 06:20 PM
The City Hall mantra is there’s no money to maintain Parks-Roads-Sidewalks—essentially no money to maintain nuthin—*But then we watch 40K being piddled away on logos—banners—slogans—We watch as 10’s of thousands of dollars are piddled away on screwy surveys that could be accomplished using Survey Monkey for FREE --There is No method to the City Hall madness-- -At the City Commission meeting before last, the City Manager stated that the hardest thing he’s had to do is lay people off—Then at the City Manager’s request, the Commission voted to hire two new employees, and bring one laid off employee(with retirement costs) back to work– Worth repeating :The city owes $170 million in retirement costs!!!—with NO WAY to pay it—The city can’t afford to maintain parks or neighborhood roads but at the City Manager’s recommendation the Commission voted to hire ANOTHER 2 employees last Monday— That’s 5 new salary expenses in less than a month—and the purchase of a 28 thousand dollar mini ATV fire truck for Arts-Beats and Eats to boot--But tell me again that the City’s snow removal equipment is old and broken down and should be replaced so residential streets wouldn’t have remained un-plowed for DAYS ON END---Now taxpayers are supposed to EAT a Multi Million Dollar give away to developers!!!
CDE February 20, 2014 at 07:59 PM
Debbie, I am not going to disagree with you on all your rabbit trails, but this property is a catastrophe and your description of taxpayers eating multi million dollars is an extreme exaggeration. Lastly, your perspective of the City's finances are just not the truth as the City has an unfunded pension liability of 66 million, they carry very good credit ratings by all major rating agencies, they had a $3 million General Fund surplus in 2013 that left a total General Fund positive balance of $11 million, and the city has moved a large portion of new employees out of defined benefit (pension) programs into non-actuarial programs. Royal Oak's finances are not perfect, but they are good and your perspective is just not reality. If you do not believe this information, just go look at their 2013 financial statements. Irony in regards to our downtown sidewalks, I was in downtown Birmingham for work today and in downtown Royal Oak today because I live here--their streets were as bad as ours if not worse and they are not strapped for tax revenues (just the way it is with these weather conditions).
Debbie Campbell February 20, 2014 at 09:07 PM
Forgive me CDE--When I quoted the 170 million in retirement costs I was taking the advice of Bill Shaw who I believe to be well studied on this issue—But hey-- If you say the unfunded liability is ONLY 66 MILLION DOLLARS we can go with your number —All I’m saying is, if these developers can’t make their project fly without a 4 million dollar rebate/ handout from the RO taxpayers then it’s the wrong project---Before we gift another dime to millionaire developers--We need to figure out a way to replace broken down equipment in our parks for our kids to play on, when the city is telling us we need to sell park land to be able to afford to do it.
Ed Callahan February 21, 2014 at 05:12 AM
Much like Detroit, our city government ignores the people and neighborhoods. By handing these developers a pile of cash, the city government and DDA are just poking the citizens of Royal Oak in the eye with a stick again. What I would like to see is an article outlining who comprises the DDA and where they live. Like everyone else in the city, I want to see a healthy downtown, but I really think a developer should gamble with their own money.
Pbrzez February 21, 2014 at 08:32 AM
Should have had the Krogers. No cost to the citizens.
Geof Vasquez February 21, 2014 at 08:34 AM
The unfunded pension liability is about $66 million, the unfunded liability for retiree health and other post employment benefits is $113 million. Debbie & Bill are correct.
CDE February 21, 2014 at 11:02 AM
The $113 million is an unfunded number for a line item that is funded on an ongoing basis and traditionally has a large underfunding in both the public and private sector (it is largely for retirees' health care costs). The unfunded pension liability is the larger concern. Many folks use the prior number in a opportunist type-of-way as the prior postings have--this is basically a pay-as-you go liability. For an overall unfunded liability example, the State of Texas has a total unfunded liability of $43.8 billion, but no one in their right mind thinks they are a questionable borrower. The City of Royal Oak is rated AA+ by Standard & Poor's--the same credit rating as the United States of America. Get some perspective folks.
Geof Vasquez February 21, 2014 at 11:34 AM
To the taxpayers, the $113 million unfunded (OPEB/retiree health) liability is no different than the unfunded pension liability, it is financial obligation that rests on their shoulders. City leaders like to throw around that "pay as you go" mumbo jumbo to justify the unsound financial practice of not funding this obligation properly. Royal Oak has moved from the "pay as you go" mentality and is trying to fund it properly. However, over the last several years it has only contributed about 50% of what the actuary recommends. That is not a good sign.
DianeKH March 02, 2014 at 06:31 PM
Debbie - Bill is correct. What you are talking about here is a cherry pie (retirement) and an apple pie (health care). We taxpayers are still responsible for paying for both pies. Our government, at all levels, has been underfunding for years. It is a huge problem.
DianeKH March 02, 2014 at 06:51 PM
Debbie - On August 3, 2013, Bill Shaw posted an article on the Patch, "Citizen's View of the State of the City". You might want to take a look at it. Those that wish to minimize the problem are playing an accounting game.
CDE March 02, 2014 at 07:20 PM
Diane, the numbers are out there black-and-white...no accounting game. On a relative basis, the City of Royal Oak is in financially good shape whether you all want to believe it or not. The public sector is the farthest thing from perfect, but I would recommend you all start doing some research to see what is taking place around this country before you condemn Royal Oak's off-balance sheet liabilities. As I stated prior, Standard & Poor's believes that Royal Oak and the United States (the global risk-free rate) are of the same borrowing quality.
DianeKH March 02, 2014 at 08:25 PM
CDE - There's an important word - relative. What does that mean? Government, at every level is sinking further into debt on a daily basis. Certainly Royal Oak, at the current time, fairs better than many. So relatively speaking, I guess we shouldn't be concerned But, I am concerned. I'm concerned because we are not taking any actions to improve our situation. Without some type of plan, it will continue to get worse, not better. I have looked at the latest financial statements. As near as I can tell, our unfunded liabilities (Pensions and OPED's) are somewhere around 190,000,000. My condemnation is based on the premise that present and past elected officials have and continue to refuse to address the issue. And, I don't have to look farther than 8 mile road to see what is going on around the country. CDE, do you think we should ignore this? Do you believe this to be a non existent problem?
Geof Vasquez March 03, 2014 at 08:54 AM
City officials always made a point (each year) of stating that they contributed to the retirement system what the auditor told them to. However, the auditor is really only making a recommendation as to the MINIMUM amount the city should contribute. Now, over the last 4 or 5 years, the city has contributed about $25,000,000 LESS than the auditor's stated MINIMUM contribution. So the city can't contribute the minimum to the retirement system, it doesn't have money for road repair and many other basic needs, but people want us to believe the city is in great shape?
Bill Shaw March 04, 2014 at 08:43 AM
CDE, I find it very interesting that you really question Debbie, Diane, and Geof, but you never question the City of Royal Oak. For years the unfunded liability has been the pension and the health care costs. Even if you try to separate the two, which I believe, a liability is a liability, your argument really fails. However, your comments seem to indicate that you do "question" which puts you in the very small minority of Royal Oak taxpayers. The majority says "hey, we have an unfunded liability of $170 million, but when can we get a splash park?" I feel that this more than points out the Johnson philosophy "Show them where you want them to go and they will go!" The administration and some of our elected officials need people to buy into this "Game." If you read the financial transmittal letters to the commission, Mr. Johnson is just as worried about the liabilities as Deb, Diane, and Geof. Your assertion that our debt is an "exaggeration" makes me question your research and accounting acumen. To be fair, I've been in this accounting world and have witnessed more "Voodoo" accounting than you can imagine. I need only point to our last financial crisis and the governments "Too big to fail" philosophy. Or, the bail outs. Theirs only one looser...us. Unfortunately, at the end of this fiscal year the City of Royal Oak and the Royal Oak school District will be putting on the books what for decades, they have been able to "play" with for years, mainly, the unfunded liabilities. You will see our state put a $24 (B)illion dollar unfunded liability on the table for state teachers and school workers. The Federal government with $17(T)rillion debt will have to start dealing with a federal unfunded liabilities in social security and Medicare that will put the federal debt to over $100 (T)rillon dollars. CDE, your comparison of Moodys, the Federal Government, and Royal Oak left me breathless. Just let me state that only the Fed. can print money, only the fed. can issue T-Bills, and the Royal Oak pension fund is invested in the stock market, which your accounting guru will tell that is not riskless. I would invite you to attend the monthly Retirement Committee meetings as Geof and Diane have. I think you will find them enlightening and informative!
Geof Vasquez March 04, 2014 at 08:53 AM
To add to Bill's point: if you follow the discussion of unfunded liabilities on a national scale, the experts are saying governmental units are UNDERSTATING unfunded liabilities by using unrealistic rates of returns, favorable life expectancies and other forms of wishful thinking to calculate the unfunded liabilities. There is a move to change these calculation methodologies so that more realistic (meaning HIGHER) unfunded liabilities can be calculated and reported to the public.
Bill Shaw March 04, 2014 at 09:39 AM
Presently, Royal Oaks pension plan, and contributions are based on a guaranteed rate of return of 7 3/4%. Recently the retirement committee had a motion to reduce the ROI to 7 1/2%. While still not even close to the actual ROI it would have been better and more realistic. However, this would have placed a bigger burden on the city's obligation to make a larger contribution. Sooooo, with Mr. Johnson's crack leadership, the motion to lower the ROI was defeated and moved to maintain it at 7 3/4 which is financially ridiculous. With more of a contribution the city would not be in a position for all the new hires coming on board. I always said he was a financial wizard.

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