ANN ARBOR, MI - Ann Arbor City Council members are still divided over whether the city should exercise its right to retain control over a prime piece of downtown real estate.
The council debated Monday night, April 2, whether the city should buy back the vacant, 0.8-acre site known as the Y Lot for $4.2 million after having sold it to Dennis Dahlmann for $5.25 million four years ago for a private redevelopment that never happened.
The former site of a YMCA next to the Blake Transit Center, it now sits empty on the north side of William Street between Fourth and Fifth avenues, across from the downtown library.
After a series of votes Monday night, there's still no final decision on what to do and the matter is postponed until the council's next meeting, which is April 16. It's possible a special meeting could be called before then, but there are no plans for one at this time.
Dahlmann, who owns and manages several commercial properties downtown, never followed through on building the mixed-use building he was supposed to build on the Y Lot after buying it from the city following a competitive bid process, and the city now has the contractual option of regaining possession for $4.2 million.
Based on an assessment, city officials believe the property is worth about $9.8 million now, assuming it could be resold for another development with a floor-area ratio of 700 percent, though they say they aren't necessarily planning to flip it to the highest bidder.
A majority of council members say they want to retain control over the property so the city can ensure whatever happens on the site in the future is what the community wants, possibly including some public open space and affordable housing. But eight votes are needed to buy back the property, and only seven of the 10 council members present Monday night were in favor of exercising that option.
Council Members Anne Bannister, Jack Eaton and Sumi Kailasapathy are in favor of letting Dahlmann keep the property, though Bannister hesitated for about 14 seconds before casting her vote against buying it back Monday night.
The seven in favor of regaining possession of the Y Lot are Mayor Christopher Taylor, Zachary Ackerman, Graydon Krapohl, Julie Grand, Chip Smith, Chuck Warpehoski and Kirk Westphal.
Council Member Jane Lumm was absent Monday night. When the issue comes back to council, she may be the deciding vote.
"This is a vote to decide whether or not we want to have control over one of the most valuable pieces of land in the city of Ann Arbor," said Ackerman, D-3rd Ward. "Local control means that we, as your representatives, and a supermajority of them, would be deciding the fate of this piece of land -- whether or not a portion of it is dedicated to public open space, whether or not we invest in affordable housing as a community at this location.
"A no vote puts that at risk," he said.
Eaton called for a postponement early in the discussion Monday night, but a majority of council members pushed it to a vote.
When it was clear the council was split 7-3, Westphal strategically voted off and then called for a reconsideration and postponement until the next meeting, which the council unanimously supported.
Ackerman spoke out at the end of the meeting, saying Bannister, Eaton and Kailasapathy voted against the interests of the public. He said they voted to give more authority and flexibility to a private developer at the expense of local control over the site.
"This is a bizarre vote and I can't stress that enough," he said. "I'm very confused about why colleagues would vote against what their stated interests have been in the past."
Ackerman said constituents should be asking tough questions and taking a look at money certain council members have received from Dahlmann and his associates, who have collectively contributed thousands of dollars over the years to the political campaigns of some council members, including Eaton, Kailasapathy and Lumm.
Bannister, who was elected to council last year, said she received a $1,000 campaign donation from Dahlmann last year but she returned it and she has accepted no contributions from developers.
Kailasapathy also said she has not taken money from any developers, including Dahlmann, in the last two elections.
But campaign finance reports show Kailasapathy received $1,500 from Dahlmann associates during her last two campaigns, in addition to contributions from at least two other developers, Ed Shaffran of The Shaffran Companies and Mike Martin of First Martin Corp.
Eaton, who has received campaign donations from Dahlmann and his associates in the past, said Dahlmann tried giving him a check last year and he returned it. He said he did not accept any money from any of Dahlmann's associates last year.
Eaton, who is planning to run for mayor against Taylor this year, said he believes his support from Dahlmann stems from their agreement over what the city should have done with the Library Lot. Eaton has advocated for a downtown public park on the lot along Fifth Avenue above the city's underground parking deck.
"He liked what I had to say about public space downtown," Eaton said of why Dahlmann has given him money in the past.
"I mean, we all receive contributions," Eaton said, arguing it's not a conflict of interest. "I believe that my return of his contribution last year made it clear that I wasn't going to accept anything that looked like it was meant to influence me, because it looked like we were headed to this point (with the Y Lot)."
Eaton added, "I think everybody knew that he wasn't going to get a building built in nine months, and that there was probably going to be litigation, so we had a discussion about it and we agreed that it would be inappropriate for him to contribute to my campaign."
Dahlmann filed a lawsuit in Washtenaw County Circuit Court on Feb. 2 in hopes of getting another four years to make a project happen on the Y Lot, blaming the city for hindering his development plans.
Eaton said the city has been on a "wildly expensive adventure in real estate speculation" ever since it bought the former YMCA property for $3.5 million in 2003.
"First we found that the building was decrepit and full of asbestos and had a variety of other problems, and after a long debate over whether we should renovate the building or tear it down, we determined that it should be torn down and sold for development," he said, recalling the city's first attempt to facilitate a private redevelopment of the lot ended up in litigation that lasted for roughly five years.
"So even though we had a victory in court, it took us five years of just sitting on that property, it not being productive, before we moved forward," Eaton said, arguing he thinks trying to regain possession of the Y Lot would prolong the litigation over the site.
"I believe that we should bring this to a close sooner rather than later. I don't want to see years of litigation," he said.
Eaton also argued it was "pure speculation" that the city could make a big profit by taking back the property and flipping it.
He also expressed concerns about temporarily taking $4.2 million from the city's cash reserves to finance the purchase, saying it could drop the city's fund balance below recommended targets.
He said that's a "huge risk" and affects the city's ability to borrow money at low interest rates.
"I don't think it's responsible for us in a fiscal manner to use those reserve account funds for that purpose in hopes that we'll be able to issue some bonds at a later point in time," he said.
On the council's agenda Monday night, but also postponed now, was a resolution to issue up to $4.35 million in bonds to reimburse the general fund for the cost of buying back the Y Lot.
Grand, D-3rd Ward, offered a rebuttal after Eaton spoke, saying he presented a convoluted argument with a lot of inaccuracies.
She asked Tom Crawford, the city's chief financial officer, to clarify whether buying back the Y Lot and temporarily dropping down the city's fund balance would affect the city's bond rating.
"At this time, I do not believe it will," Crawford said, saying if the city issued bonds as proposed then the bond rating wouldn't be affected.
Grand accused Eaton of making statements that "could just put us in jeopardy in terms of ongoing litigation."
"And it's completely irresponsible," she said.
Westphal said it was always contemplated that, by offering the Y Lot to a private developer, the city would either see a building built or buy back the property so it could see to it that a building is built.
Unfortunately, he said, the cynics who believed Dahlmann wasn't going to build anything proved correct.
"I'm fully supportive of taking the property back and putting it to good use," Westphal said, adding properties left in private hands can remain parking lots for decades sometimes and that's unfortunate.
The Y Lot was a public parking lot before the city sold it to Dahlmann and, since the city wouldn't allow it to be operated as a private parking lot, it has remained vacant and inactive the last four years.
"I see only downsides to not controlling this property, both with regard to the community's vision for their downtown as well as pure fiscal responsibility," Westphal said.
Kailasapathy said she doesn't want to speculate on the real estate market right now. And if the city retains control over the property, she believes there would be a push for building the most massive and dense development possible, which she doesn't want to see.
Grand said she believes the issue before council right now is straightforward and it's not speculative.
"I don't understand why ... we wouldn't take control of the property for the price that we have," she said, expressing confidence that it's worth more than double what the city would be paying.
Ackerman said the city has a proven real estate market and it's not speculative to believe the city could get more than $4.2 million by selling the land to another developer.
"We don't need to make a quick buck off of this in the next year," he added. "If we have local control over this asset, we get to determine its future when it is ready, so that may mean waiting for another economic cycle and getting maximum value out of it. Or it could mean a public-private partnership in the near future where we don't see the benefit of all that $9.8 million, but we do see tremendous value in terms of public gathering space, in terms of affordable housing."
"A vote no tonight is closing the door on an opportunity to control this land and control whether or not it becomes a community asset, not just another piece of private property to be developed privately."
Smith said his goal with wanting to buy back the Y Lot is not profit. He said it's to leverage a city asset to achieve community goals such as affordable housing, open space, energy efficiency and beauty.
"Controlling this asset is a critical tool that we have to accomplish those goals," he said.
Krapohl said he thinks it's to the city's advantage to be able to retain control over the property.
"It provides options going forward," he said. "Without it, there are no next arguments about what we want to put there. There are no next discussions on it. There is no more public debate on it."
If it stays in private hands, Krapohl said, it's possible the lot could remain vacant for many years to come.
If the city regains possession, he said, even if the economy goes south and the city holds off on reselling the property, the lot still could be used for public parking again in the meantime.
"Even if the market value on this property drops 50 percent, which is I would venture to say unthinkable in downtown, the taxpayers still make money off the eventual resale of this," Westphal said. "So I'm frankly just really surprised we're having this conversation."
Taylor issued a statement after Monday night's meeting, saying the opposition votes cast were irresponsible. He said the city had a chance to purchase a $9.8 million property for $4.2 million.
"We had a chance for council to control the development of the property, rather than leave it to the whim of the market," he said.
"Unless council members change course, we will have squandered an incredible opportunity to realize value for the taxpayer and decide for ourselves what kind of building will improve this crucial parcel."