Zingerman’s Project Seeks Brownfield Status

The major renovation and expansion in the works for Zingerman’s Deli cleared its most recent major hurdle in May, gaining site plan approval from the Ann Arbor planning commission. While the site plan now moves on to city council, the business is taking action on another front as well: Applying for support from the local and state brownfield program.

On June 21, Zingerman’s hosted a public meeting to answer questions about their plans for the brownfield application. Matt Naud, the city’s environmental coordinator, was on hand as well, and distinguished between this project and those that are typically associated with the term “brownfield.” In the case of Zingerman’s Deli, “it’s economic development,” he said, “It’s not about environmental cleanup.”

Specifically, brownfield status would allow Zingerman’s to be eligible for tax increment financing (TIF), a mechanism that would let the business recoup certain qualified expenses related to the project – possibly as much as $817,000 over 15 years.

It’s a different approach than the brownfield application most recently approved by city council for the Near North affordable housing project on North Main. In that case, the site’s need for environmental cleanup qualifies it for a brownfield status. Zingerman’s application also differs from Near North’s in that Near North isn’t seeking reimbursement through TIF. Both projects plan to apply for Michigan Business Tax credits.

Though Zingerman’s mailed out 1,014 postcards to surrounding residences and businesses to announce the meeting, only three members of the public attended, plus The Chronicle. One of those attending was Ray Detter, head of the Downtown Citizens Advisory Council. He offered at least a partial explanation for the low turnout: The city’s Historic District Commission was holding a reception at the same time for its annual preservation award recipients – lots of people were at the Hands On Museum for that event, he said. One of the winners – Quinn Evans Architects – is also the architect for the Zingerman’s expansion.

There’s perhaps an even more crucial HDC connection to the project: Assuming Zingerman’s secures site plan approval from city council, they would still need to seek a “notice to proceed” from the commission. If denied, the project can’t move forward as planned.

At a city of Ann Arbor brownfield plan review committee on Monday, the “what if” question was raised by Marcia Higgins, one of three councilmembers who serves on that committee. They were meeting to review the project’s brownfield plan and make a recommendation to council, which is expected to consider both the site plan and brownfield plan at their July 19 meeting. While affirming Zingerman’s commitment to that location, Rick Strutz, a managing partner in the deli, said that as a business decision, at the end of the day if the project doesn’t get HDC approval, they’d likely have to move.

How the Brownfield Program Works

The Michigan legislature passed the Brownfield Redevelopment Financing Act – Act 381 – in 1996. The law allows local municipalities to set up brownfield redevelopment authorities and to use various financing mechanisms to promote the cleanup and redevelopment of contaminated properties. It was later amended to include sites that are designated as “blighted” or “functionally obsolete” – Zingerman’s is seeking the “functionally obsolete” designation. The latter two categories are designed to promote economic development.

Brownfield status allows projects to get reimbursed for certain qualified expenses via tax increment financing (TIF). Redevelopment of a site increases its taxable value – the difference between its original taxable value and the new value is the “increment.” In the case of Zingerman’s Deli, the business paid $49,100 in real property taxes in 2009. A preliminary estimate by the owners is that their taxes would increase to $107,000 when the project is complete.

After tax revenues are collected, the owners of approved projects apply to get repaid out of the funds available from the “increment.” The TIF is authorized for only a certain period – after that, all tax revenue is kept by the taxing authorities.

The act also allows owners of brownfield properties to apply for Michigan Business Tax credits, which are granted by the Michigan Economic Growth Authority, or MEGA. Those credits – awarded to spur job growth and economic development – can amount to up to 20% of costs related to demolition, lead and asbestos abatement, infrastructure and other qualified expenses.

Locally, the Washtenaw County board of commissioners set up the Washtenaw County Brownfield Redevelopment Authority in 1999. Within the county, 23 municipalities have joined the authority, including the city of Ann Arbor. Because these municipalities operate under the county brownfield authority, the county board of commissioners must approve the plan before it’s submitted to the state. But first, the county requires that the local municipality sign off on the project. [.pdf file of brownfield application used for projects in the city of Ann Arbor]

The county has never rejected a brownfield plan.

As part of the process, the county charges an application fee based on the total project investment – $3,000 for projects of up to $5 million, and as much as $5,000 for projects over $10 million. The county can also take up to 10% of the total tax increment annually, for the duration of the project, for administrative expenses.

Near North, Other Ann Arbor Brownfield Plans

The Ann Arbor city council has approved one other brownfield plan so far this year – for the Near North affordable housing project on North Main. That development, just north of the downtown district, is eligible for brownfield status because of cleanup needed on the 1.19-acre site along 626-724 N. Main St., south of Summit. [.pdf file of Near North brownfield plan]

Specifically, the plan cited results from soil and groundwater samples taken in April 2009 and February 2010:

Benzo(a)pyrene, arsenic and lead were measured in soil samples at concentrations above the Part 201 Generic Residential Cleanup Criteria and Screening Levels (residential cleanup criteria) for Drinking Water Protection and/or Direct Contact.

Arsenic, barium, chromium, copper, lead, mercury, selenium, silver and zinc were measured in groundwater samples at a concentration above the residential cleanup criteria for Drinking Water and/or GSI.

Unlike Zingerman’s, Near North developers – led by the nonprofit Avalon Housing – will not seek reimbursement through TIF. But Near North does plan to apply for Michigan Business Tax brownfield redevelopment credits, which require that the brownfield status is authorized at the local level. Near North developers have identified $720,000 in eligible expenses to which the tax credits can be applied. The plan must next be approved by the Washtenaw County board of commissioners, and will likely be considered at their Aug. 4 meeting.

Beyond that, no other brownfield plans have been approved in Ann Arbor since 2008, when city council authorized three projects for brownfield status: The site of the former Michigan Inn on Jackson Road, the 601 S. Forest housing development in the South University area, and Maple Shoppes at the northeast corner of Maple and Dexter-Ann Arbor Roads, where the Aldi grocery is now located. To date, only the Maple Shoppes site has been redeveloped.

The largest brownfield plan approved by the city was for the Broadway Village at Lower Town project, which qualified for environmental cleanup. The plan, approved in 2003, requested TIF reimbursement of up to $40.4 million over a period of up to 30 years. Existing structures on the site were demolished, but otherwise the development hasn’t moved forward. On the county’s brownfield project website, its status is listed as “unknown.”

Zingerman’s Deli Expansion

Zingerman’s Deli has been working on plans for its major renovation for about four years – managing parter Rick Strutz reports that when the project team first began meeting every Tuesday morning, they didn’t think they’d still be at it 200 weeks later.

Because it’s located in the Old Fourth Ward historic district, the project needs approval from the city’s historic district commission. Business owners officially approached the HDC in 2008, asking for permission to demolish two buildings on the site – a fire-damaged house at 322 E. Kingsley St., directly behind the main deli building, and a two-story building at 420 Detroit St., known as “the orange house” or the Annex.

That request was denied, and set in motion a different approach to first seek approval for the project from the city planning commission and city council, then to return to the HDC for a “notice to proceed.” [See Chronicle coverage: "Zingerman's: Making It Right for the HDC"]

Project Timeline To Date

At the same time, the city was working through an extensive revision to its zoning ordinances, known as A2D2. Among those revisions was the rezoning of the 322 E. Kingsley parcel from residential to D2, which allows for commercial development. Here’s a timeline of the Zingerman’s project over the past two years, and related city zoning initiatives:

• June 12, 2008: Historic district commission denies request for demolition of 322 E. Kingsley St. and 420 Detroit St. [Rocco Disderide's former residence, aka "the orange house" or the Annex]
• Feb. 19, 2009: Planning commission adopts downtown plan with various revisions but no change to existing R4C zoning of 322 E. Kingsley St.
• April 6, 2009: City council gives initial approval to zoning revisions to downtown requiring alterations to the downtown plan adopted by the planning commission; major alterations include changes in South University area, but also included a rezoning of 322 E. Kingsley St. from R4C to the new D2 classification. The amendment on 322 E. Kingsley St. is introduced by Sandi Smith (Ward 1) and passes with dissent only from Sabra Briere (Ward 1). [link]
• May 19, 2009: Planning commission approves revisions to the downtown plan to accommodate part of the city council’s South University zoning revisions, an East Huron zoning revision, and the 322 E. Kingsley St. revision. [link]
• June 15, 2009: City council adopts downtown plan as revised by the planning commission. [link]
• Nov. 16, 2009: City council gives final approval to downtown zoning revisions, including the D2 designation to 322 E. Kingsley St.
• Jan. 14, 2010: At an HDC work session, Zingerman’s presents plan showing demolition of two houses.
• March 8, 2010: Zingerman’s holds a public participation open house on its proposed expansion.
• March 11, 2010: At an HDC work session, Zingerman’s presents a plan showing demolition of one house only. [link]
• May 18, 2010: Zingerman’s gets unanimous approval for its site plan from the Ann Arbor planning commission. The plan includes renovation of the Annex and demolition of 322 E. Kingsley. [link]
• June 21, 2010: Zingerman’s holds public meeting regarding brownfield application.
• June 28, 2010: Zingerman’s meets with the city’s brownfield plan review committee, which recommends approval. Both the site plan and brownfield plan are expected to be on the council’s July 19, 2010 meeting.

The site plan now calls for tearing down the house at 322 E. Kingsley and building a two-story, 10,340-square-foot addition that would be connected to the 5,107-square-foot deli building via a glass atrium. They’ll add underground tanks for stormwater detention and several environmentally-friendly design elements, including a green roof on the deli’s existing one-story wing. Phoenix Contractors of Ypsilanti is the project’s construction manager and general contractor.

All along, Zingerman’s executives have cited concerns over the project’s expense, particularly the cost of renovating the Annex. The overall project is expected to cost about $6.7 million. Roughly $500,000 is associated with renovating the house, which is relatively small – less than 900 square feet. Renovation will entail moving the Annex off its existing foundation, replacing the foundation, renovating the house, then moving it onto the new foundation and incorporating the structure into the new deli addition.

That expense was one motivation for seeking brownfield status.

Brownfield Plan Review Committee Weighs In

Because Ann Arbor has been identified by the state as a “core community,” the brownfield designation can be applied more broadly – not just for environmental cleanup, but for economic development as well, to reimburse expenses such as public infrastructure improvements and stormwater management. That’s the path that Zingerman’s is pursuing.

They’re making their case based on their track record as well as plans for future growth. Since 1982, the business has grown from four employees to around 200. Because of added capacity from the expansion, they plan to add another 40 deli employees over the next five years, and a total of 65 employees throughout all of Zingerman’s operations, which include their mail order business, bakery and creamery, among others.

One of the first steps in the brownfield process was to ask the city assessor to designate the property at 322 E. Kingsley as “functionally obsolete.” Because that property is part of the entire parcel to be redeveloped, the whole site qualifies for a brownfield under that designation. The city’s assessor, David Petrak, is expected to submit a letter to that effect this week, after it’s vetted by the city attorney’s office.

The process also includes hosting a public meeting – that happened on June 21, at the second floor of Zingerman’s Next Door, which is adjacent to the deli. Three members of the public attended.

The turnout was much higher at the June 28 meeting of the brownfield plan review committee, which is charged with making a recommendation to city council. The committee consists of three city councilmembers – Sandi Smith (Ward 1), Stephen Kunselman (Ward 3) and Marcia Higgins (Ward 4). All of them attended Monday’s meeting, as did several city staff: Matt Naud, environmental coordinator; Tom Crawford, chief financial officer; and Matt Horning, city treasurer. Also at the meeting were Susan Polllay, executive director of the Ann Arbor Downtown Development Authority; and Brett Lenart, a Washtenaw County staff member who handles brownfield issues. Three members of the Zingerman’s team were there as well: Rick Strutz, managing partner of the deli; Gary Bruder, an attorney and owner’s representative; and Jared Belka, a paralegal with Warner Norcross & Judd, a Lansing-based law firm that’s helping with the brownfield plan.

In describing the project, Strutz told the group that their No. 1 priority is to preserve the historic brick structure that houses the deli. “We are beating the crud out of this building,” he said. The addition will allow them to move all cooking out of the old building, to eliminate the moisture and humidity that’s generated in the kitchen.

Bruder and Strutz highlighted several other aspects of the project: meeting ADA standards of accessibility; adding bathrooms and a staff breakroom; building a storage area which will allow them to take fewer deliveries, with an aim of reducing traffic congestion; sharing an area for trash and composting with neighboring Community High School, and working with students on an instructional composting project.

Strutz said the project’s general contractor, Phoenix Contractors of Ypsilanti, calls it a “surgical construction process” because of the tight site within a neighborhood setting, and the need to keep the deli open throughout construction. In response to a query, Bruder noted that it’s not a planned unit development (PUD), which prompted Higgins to say, “Thank god!”

But much of the meeting’s discussion centered on issues related to the historic district.

Challenges of the Historic District

Bruder reiterated that because the Historic District Commission had determined that 322 E. Kingsley and the Annex were “contributing” structures and could not be demolished, the only alternative for Zingerman’s was to request what’s called a “notice to proceed” from the HDC.

The criteria for issuance of such a notice, from the city code, are as follows:

8:416. Notice to proceed.
(1) Work within a historic district shall be permitted through the issuance of a notice to proceed by the commission if any of the following conditions prevail and if the proposed work can be demonstrated by a finding of the commission to be necessary to substantially improve or correct any of the following conditions:
(a) The resource constitutes a hazard to the safety of the public or to the structure’s occupants.
(b) The resource is a deterrent to a major improvement program that will be of substantial benefit to the community and the applicant proposing the work has obtained all necessary planning and zoning approvals, financing, and environmental clearances.
(c) Retaining the resource will cause undue financial hardship to the owner when a governmental action, an act of God, or other events beyond the owner’s control created the hardship, and all feasible alternatives to eliminate the financial hardship, which may include offering the resource for sale at its fair market value or moving the resource to a vacant site within the historic district, have been attempted and exhausted by the owner.
(d) Retaining the resource is not in the interest of the majority of the community.

Before Zingerman’s can make a request for the “notice to proceed,” their site plan must be approved by city council and their financing must be in place, among other things. Bruder said they’d held four working sessions with the HDC – the project as it stands is one that Zingerman’s is comfortable with, he said, and one that they think the HDC will be able to support.

At the June 21 public meeting, Detter had said he couldn’t imagine anyone on the HDC who’d be against the project – only an “extreme historic preservationist” wouldn’t want it to proceed, he said. He also said the Downtown Citizens Advisory Council – which he chairs – supports the project, and he felt it undoubtedly had the enthusiastic support of the entire community. But members of the Zingerman’s team indicated that they didn’t take approval for granted.

During Monday’s meeting of the brownfield plan review committee, Sandi Smith clarified that it was possible for the HDC to turn them down. “We really hope they don’t,” Bruder said, “But they could.”

Bruder pointed out that Zingerman’s is taking a big risk – if the HDC denies their request, their investment of time and money in the project so far will be for nothing.

Smith asked how much additional cost was added to the project due to preserving the Annex. About $500,000, Bruder said – or $550 per square foot. That doesn’t include all of the fees and expenses spent up until this point, he noted, related to working with the HDC and revising the site plan based on the rejection of Zingerman’s original plan, which included tearing down the Annex.

Smith asked whether it was fair to say that they were seeking tax credits because of those additional costs. Bruder responded by saying that the Zingerman’s team had recently met with the DDA’s operations committee, which had asked the question more bluntly: Will the project proceed if Zingerman’s doesn’t get the assistance it’s seeking? The project will go forward, Bruder said, but not necessarily as it’s now envisioned. Contrary to urban legend, he added, Zingerman’s does have finite resources. And if they get TIF reimbursement and state tax credits, it would allow them to do other things to enrich the project.

Strutz noted that at one point they’d talked about putting in a geothermal system, but when they found out they’d have to “put lipstick on the pig” – referring to the renovation of the Annex – that removed some options in other areas, he said.

Smith suggested that keeping the Annex was actually costing taxpayers. Kunselman then asked whether Zingerman’s planned to apply for historic preservation tax credits. They’re pursuing it, Bruder said, but they might not qualify. He noted that because they’re committed to that site, they realize that it adds to their costs.

Kunselman said he recalled the time before Zingerman’s was founded – he went to Community High School, and remembers the site before it became the well-known deli. The historic district helps give Zingerman’s its ambiance, he noted, saying he didn’t want the discussion to become one about how costly a historic district is.

Strutz said that after their staff, the most important thing to the business is its look and feel. They’ve spent a lot of time making sure the Annex won’t look out of place in the new campus, he said, but it’s been challenging.

Higgins asked what would happen to the business if the project weren’t approved. Bruder said they’ve never wanted to come to the city and threaten to move if they weren’t approved – Higgins assured him that she wasn’t getting that impression.

Strutz reported that at one of the working sessions, they’d been told by a member of the HDC that the greenest building was one that was already built, and that Zingerman’s should move to another location if it wanted to expand – the vacant commercial space at Liberty Lofts was suggested, he said.

The Chronicle has attended two working sessions between Zingerman’s and the HDC, and reported the exchange that Strutz referenced. From coverage of the Jan. 14, 2010 meeting:

Commissioners discussed how far the notion of “necessity” in the criteria for a notice to proceed extended – was it “necessary” that Zingerman’s undertake the expansion at that location?

Commissioner Ellen Ramsburgh wondered if the expansion was more than the site could take. She noted that the Zingerman’s Creamery and Bake House had moved to peripheral locations. “Do you need to be there?”

In her remarks, Ramsburgh was echoing sentiments expressed by then-commissioner Michael Bruner back in June 2008, when he had made the suggestion that Zingerman’s think of moving their operations. The specific location he had in mind was the Old West Side structure adjoining the Liberty Lofts development:

“Commissioner Bruner – [...] This may be less than what they need, but there stands today, a project that we reviewed and was approved, a development that includes a 20,000 square foot commercial retail area with parking that is begging to be occupied. [An apparent allusion to the Liberty Lofts greenhouse building.] As preservationists that want to encourage the success of economic projects in the city, perhaps Zingerman’s should consider moving their location as they have with their Creamery, which is at a satellite location, their Bakery which is at a satellite location, their Roadhouse that is a satellite location – this could be relocated as a satellite component at another location, nevertheless retaining this location as it is.”

Ken Clein [a Quinn Evans architect who's handling the Zingerman's project] responded to Ramsburgh at the January 2010 HDC working session by wondering if there were another historic district in another town where Zingerman’s could contemplate locating their operations. Ramsburgh: “That’s a threat!”

On Monday, Strutz said that at the end of the day, as a business decision they probably would have to move if the project isn’t approved. They’re losing business because they lack capacity now – you can see it when people are waiting in lines that wrap around the block, he said. Bruder added that there’s a breaking point, but they haven’t hit it yet.

Kunselman wondered if rejection of the plan would lead to a Glen Ann scenario. [He was referring to Glen Ann Place, a project that won approval from the planning commission and city council but was denied by the HDC. The situation ended in a lawsuit, settled in the summer of 2007 in a way that allowed the project to move ahead. But so far, nothing has yet been built on that vacant lot just north of Ann Street on the west side of Glen Avenue, where two houses previously stood.]

Strutz replied that he didn’t think they had the time to deal with it in that way.

Other Issues: Pro Forma Analysis

Matt Horning, the city’s treasurer, said that in the past they’ve looked at a project’s pro forma income statements with and without the brownfield TIF capture, and he wondered whether councilmembers wanted that kind of anaylsis on this project. Higgins suggested making it part of the committee’s recommendation to council.

With that, the committee voted unanimously to recommend approval of the brownfield plan, pending the pro forma analysis. “It’s moving forward!” Higgins said.

What’s Next?

One pending issue is related to the Ann Arbor Downtown Development Authority. The property straddles the boundary of the DDA, which also gets its funding, in part, from a TIF. The DDA is first in line to get new TIF revenues, which would amount to about $407,000 from that site over a 15-year period.

Rather than asking the DDA to forgo those revenues, Zingerman’s is asking that it identify other things of equivalent value to contribute to the project. They discussed possibilities with the DDA’s operations committee at a meeting last week.

Following Monday’s brownfield committee meeting, DDA executive director Susan Pollay told The Chronicle that the project is attractive to the DDA for several reasons, including the number of new jobs it will create and the amount of tourism dollars it attracts to the downtown, as a destination for visitors. The business has become an iconic identifier for the city, she said – and building a unique identity is one of the DDA’s strategies for creating a vibrant downtown.

On Tuesday, Strutz sent a letter to Pollay outlining some specific requests for the DDA board to consider. They include:

• $100,000 to reimburse Zingerman’s for costs associated with LEED certification.
• $160,000 for costs associated with on-site water detention.
• $50,000 to install ADA-compliant curb ramps at the Detroit and Kingsley intersection.
• $45,000 for sidewalk removal and replacement.
• $10,000 for wayfinding signs pointing to the deli, plus a roof sign on the addition that can be picked up by Google maps.
• Several other items with a cost to-be-determined, including parking spaces for contractors and a staging area, plus replacement or repair of brick pavers, curbs and water/sewer lines on Detroit Street between Kingsley and Catherine.

The letter states that support from the DDA would significantly improve their changes to receive Michigan Business Tax credits. Pollay expects the DDA board will consider and vote on a resolution of support for the Zingerman’s project at their July 7 board meeting.

City council is expected to consider the site plan and brownfield plan at their July 19 meeting. The county board of commissioners will likely vote on the brownfield plan at their Aug. 4 meeting – if approved, the brownfield plan would then be forwarded to the state.

Bruder said they hope to have the project considered by the historic district commission in September.

Assuming all approvals are in place, site work would begin in the late fall of 2010, with work on the addition starting in February of 2011. The goal is to complete the project by March of 2012, in time for the deli’s 30th anniversary celebration. They plan to keep the deli open during construction.

More information about the Zingerman’s project is available on a section of the deli’s website.