Last Thursday, news of a breach in the earth-retention system of a downtown Ann Arbor construction site had reached all the way to Detroit’s Channel 4 News. Channel 4 sent a crew Friday evening to file a report. It was tagged on the Channel 4 website with the summary: “An Ann Arbor construction project is sinking, literally.” Chalk that up to the hyperbole of television news.

Top: View to the northeast along Fifth Avenue from Valiant Partners' concept for a conference center and hotel, proposed for the top of the Library Lot underground parking garage. Bottom: Breach in the earth retention system for the underground parking garage currently under construction on the Library Lot.

While the roughly 640-space underground parking garage, being built by Ann Arbor’s Downtown Development Authority, is not sinking in any way, a conference center and hotel proposal for the top of the underground structure might be sinking.

At first glance, the 190,000-square-foot project proposed by Valiant Partners Inc. seems like it’s on a path to approval by the city council. In November 2010, an advisory committee – charged with evaluating responses to a city of Ann Arbor request for proposals issued in late 2009 – finally settled on the Valiant proposal as the best of the six the city had received.

That decision came with the aid of Roxbury Group, a consultant hired to help evaluate the proposals and to negotiate an agreement with a developer. At an early March meeting of the advisory committee, a Roxbury representative presented a draft letter of intent, which had been worked out by Valiant and Roxbury, to be signed by the city of Ann Arbor and Valiant. The committee voted unanimously to recommend that the city council consider the letter of intent.

Then, on March 14, the city council held a work session on the proposed conference center. The council heard essentially the same presentation about the letter of intent that Roxbury had made to the advisory committee. The council is scheduled to consider the letter formally at its second meeting in April, which is now scheduled for Tuesday, April 19, to accommodate the first night of Passover. The letter of intent calls for a development agreement to be presented to the city council within four months of signing the letter of intent – which would mean sometime near the end of August 2011.

But I think it’s clear at this point that a development agreement between Valiant and the city of Ann Arbor to develop the Library Lot would not achieve the necessary eight-vote majority for an actual real estate deal. That’s why I think the city council might vote down the letter of intent – even if there are at least six councilmembers who would support going forward with the letter, which is all it would take for the letter’s approval.

I base that conclusion on remarks made by councilmembers at the March 14 work session, and regular politics as reflected in the council’s history – both recent and ancient. But before considering politics, let’s dig into some really ancient history – the kind measured in geological time – to gain some additional insight into why a pile of dirt spilled unintentionally into the underground parking garage construction pit.

Earth-Retention Wall Breach

On Thursday afternoon, March 24, a sinkhole appeared behind the Jerusalem Garden and Earthen Jar restaurants, on the north side of the underground garage construction site. Where did that dirt go? It had poured through a small breach in the earth-retention wall about 30-feet below grade.

Earth-Retention Wall Breach: Jerusalem Garden

When I visited Jerusalem Garden on Friday morning, owner Ali Ramlawi was preparing for regular business after the sinkhole had forced the evacuation of his restaurant the day before.

That morning, he seemed even a little more exasperated than he did in October 2010, when he’d addressed a meeting of the DDA board during the time reserved for public comment. On that occasion he’d ticked through a variety of concerns, including the underground parking garage, which he called the DDA’s “civil engineering project.” Ramlawi was also one of the plaintiffs in a lawsuit filed in August 2009 over the construction of the garage.

On Friday, Ramwali told me how one of his employees had driven over the spot where the sinkhole opened up, just 10 minutes before the earth gave way. He considered it just lucky that nobody got hurt.

Earth-Retention Wall Breach: Geology – It’s Sand, Man

So how exactly does dirt that far down pour through a gap that appears to be just a few feet wide?

To get a better idea of why that might happen, I talked to Kevin Foye. Foye is a Ph.D who works as a project engineer with CTI & Associates, a civil engineering firm in Wixom, Mich. How earth settles and moves is part of Foye’s specific area of expertise – he recently gave a lecture as part of the University of Michigan’s Department of Civil and Environmental Engineering Geotechnical Engineering Seminar Series, called “Differential Settlement of Landfill Foundations Modeled Using Random Fields.”

As it happens, Foye had taken photos of the construction site a few weeks earlier, and was somewhat familiar with the site. He described how not all soil is the same – it’s some combination of sand, silt and clay. The Library Lot site in Ann Arbor, he continued, is a little different – it’s predominantly sand. So it’s going to be more apt to move through a slot like the one that opened up in the retention wall.

The make-up of the soil at the site as predominantly sand was also reported by then-library board member, and geologist, Carola Stearns in a presentation she gave to the board back in September 2010. She described the site as 55 feet of coarse, well-bedded, well-sorted sand and gravel – the product of glacial activity.

And at the end of the day Friday, I spoke with Pat Podges, the Christman Company’s construction manager on site; he also described how the dirt on the site would just run through your fingers when you pick up a handful.

Earth-Retention Wall Breach: Don’t Tear Down that Wall

On Friday, Podges also confirmed that the earth-retention system used at Ann Arbor’s Library Lot site is the same one the Christman Company had previously used in building an underground parking garage in Grand Rapids, as part of the Michigan Street Improvement project. The Ann Arbor Downtown Development Authority awarded the pre-construction services contract to Christman back in August 2009, partly based on the strength of that experience.

Site of the breach in the earth-retention wall at the site of the Library Lot construction. The view is to the north.

The earth-retention system was also familiar to Foye, who described what he’d seen when he’d visited the site a few weeks ago. Visitors to downtown Ann Arbor last summer will likely remember seeing the tall drill operating on the site and the vertical pieces of steel that were then pounded into the holes – down to the silt layer that the water table sits on. Those vertical pieces of steel were subsequently encased in concrete.

Between each pair of steel-beam reinforced concrete columns, additional inner columns were poured – but not reinforced with steel beams. Podges described how for most of the steel-reinforced pairs, two additional columns were poured between them, but for some pairs, three additional columns were poured. The idea is that the columns between the steel beams interlock with each other, wedging against the steel beams.

This specific earth-retention system, called a “tangent wall” system, is used on the north face of the site, but not everywhere. Podges explained it’s used there because it’s better at preventing water from entering the pit than an alternative wood lagging system, which is used in some other locations. In the wood lagging system, heavy timbers span the vertical steel beams.

Chronicle readers might remember that outgoing DDA chair John Splitt received a memento of appreciation for his service, which was fashioned from a piece of timber left over from the wood lagging system.

A bucket is filled with gravel before getting hoisted over to back-fill the sinkhole.

In addition to the structural elements of the basic earth-retention wall, additional supporting elements include: (1) “whalers” – steel beams that are bolted horizontally across vertical members; and (2) “tie-backs,” which are essentially guy wires installed into the face of the wall.

To install tie-backs, Foye explained that a small-diameter hole is drilled from the face of the wall on the pit side, around 30-50 horizontal feet into the surrounding soil. That hole is filled with high-strength grout. A steel rod is inserted into the hole and bolted to a bearing plate on the face of the wall. That rod is then tensioned with a hydraulic jack to the pressure that’s been calculated to be appropriate for that specific location, then locked off at that specified pressure. Foye said in these kinds of applications, the pressure would be in the tens of thousands of pounds.

When construction of the parking garage is complete, the retention wall elements will remain in place, even though they won’t actually be needed to hold back the earth, Podges told me. The floors of the deck, which are braced against each opposing wall, will provide adequate opposing force. The tensioned tie-backs nearer to the surface will likely be de-tensioned, Podges said, because if someone were excavating years from now and hit one of the rods, it would be best for it not to be under tension.

A construction worker prepares to release the load of gravel into the sinkhole. Note the safety tether attached to his harness. In the background is the Ann Arbor District Library building, to the south of the construction site.

It’s apparent, from looking at photos as well as at the site itself, that the element that failed was part of one of the inner columns in the tangent wall system. And it failed at a point just below a horizontal reinforcement (a “whaler”) that was bolted onto the face of the retention system. That whaler spans six of the steel-beam reinforced columns. Foye said that based on photos he’d seen, it appeared that for some reason, there was a loss of the interlock between the inner columns – it would take further investigation to figure out what was different on Thursday from all the days before, during the time the pit has been open.

Podges said that the analysis of why the breach occurred is being done by Soil and Materials Engineers Inc., the company that designed the retention system. But they’ve determined that the problem was isolated. They’ve checked all the motion monitors that are attached to various points of the earth-retention wall, as well as the surrounding buildings – and everything is still in the same place, Podges said. Visual inspection of the perimeter has revealed no obvious other problems.

By Friday morning, a Christman crew had begun filling in the sinkhole with coarse gravel. The night before, a concrete cap had been poured over bags of gravel that had been dropped in to plug the breach from the sinkhole side. Additional repairs will need to be undertaken to the pit side of the wall – they appeared to be partly underway on Saturday morning, when I passed by the construction area. A team of workers on a platform had been lowered by crane to the breach point.

According to a briefing email sent out early Sunday morning by Susan Pollay, executive director of the DDA, among other measures, ground-penetrating radar will also be used to check for any other voids that might have developed.

What Is the City Council Thinking?

The closest thing we have to ground-penetrating radar to detect any voids in the heads of city councilmembers is simply to pay attention to what they say, when they do their work in public view. And based on that kind of radar, I don’t detect any voids on the conference center issue – but it does look to me like there could be sufficiently solid opposition to doing a real estate deal, that the council could vote down the letter of intent before even getting to that point.

City Council: Work Session – Background

At the city council’s March 14 work session about the conference center proposal, the Roxbury Group’s David Di Rita walked the council through the draft letter of intent. He’d done the same thing for the RFP review committee at its March 8, 2011 meeting. Here’s how the 190,000-square-foot project breaks down, as described in the draft letter of intent:

(i) Core elements:

• 150 hotels units – 87,000 sq. ft.
• Conference center – 26,000 sq. ft.
• Restaurant/Retail – 6,000 sq. ft.
• Public space/Plaza

(ii) Additional elements

• Office space – up to 48,000 sq. ft.
• Residential condos – up to 22,000 sq. ft.

That square footage breakdown is slightly different from Valiant’s original proposal, which included 12 condo units compared to the six in its revised proposal. More significantly, the size of the conference center in Valiant’s revised proposal is 6,000 square feet smaller than the 32,000-square-foot facility in the original proposal.

At the March 14 city council work session about the proposed Valiant conference center: (left to right) Sandi Smith (Ward 1), Stephen Kunselman (Ward 3), Mike Anglin (Ward 5) and Tony Derezinski (Ward 2).

The reduction in condo units and the size of the conference center is offset by the possible addition of up to 48,000 square feet of office space. [See page 27 of the .pdf for Roxbury Group's report, submitted in November 2010, for a breakdown of the contrast between Valiant's original and revised proposals.]

DDA board member Newcombe Clark has expressed some skepticism to The Chronicle that prevailing rental rates for office space in downtown Ann Arbor would be adequate to support new construction of office space. [Clark has worked in real estate, most recently with Jones Lang LaSalle, but is no longer with that firm.]

But it’s the revised configuration of the square footage that has allowed Valiant to eliminate from its proposal a request that the city of Ann Arbor issue bonds to fund the project’s construction. The use of public bonds as a financing tool has been described as a deal-breaker, even by the chair of the RFP review committee, Stephen Rapundalo, who represents Ward 2 on the city council. And Rapundalo is widely perceived as one of the strongest supporters of a conference center at the Library Lot location.

Remaining in the letter of intent, however, is a requirement that the city of Ann Arbor would own the conference center. Valiant has pitched this as a benefit to the city, but it carries with it potential for liability as well.

City Council: Work Session Views – Legal Ownership

It was the conference center ownership question that drew the specific attention of Sabra Briere (Ward 1) during the work session. She told the Roxbury Group’s David Di Rita that the whole proposal seemed to be predicated on a belief that the city of Ann Arbor wants to own a conference center. Di Rita responded in a way that suggested that the ownership question is not a closed issue and could be subject to further discussion.

Briere’s reply was fairly sharp. She told Di Rita that maybe there is stuff in the letter of intent that doesn’t need to be in there.

The city’s relationship to the conference center, as described in the draft letter of intent, is one of ownership. The city would have an agreement with the developer whereby the developer would manage the center. And just as long as the developer holds that management agreement, the city would not be liable for costs related to operation and maintenance.

The draft letter of intent also describes how the developer could itself use the money being paid to the city for development rights, to develop the conference center. That strategy only makes sense in a scenario where the city owns the center. It reduces to this: At least part of the compensation the city would get for allowing the developer to build the project – instead of a lease payment or property taxes – is ownership of the conference center.

But ownership does not translate directly to a financial benefit to the city, any more than ownership of additional parkland does. Stephen Rapundalo (Ward 2) has frequently pointed out that continued acquisition of additional parkland, without an adequate revenue source for maintenance, has led Ann Arbor to a situation where it can maintain the parkland it has only with great difficulty. And the same principle applies to ownership of a conference center.

So far, Valiant has tried to make its financial offer more attractive to the city by eliminating the need for the city to issue bonds. It’s conceivable that the letter of intent the council considers on April 19 will continue that trend by eliminating the requirement that the city own the center, and that Valiant will find some other way to pay for that part of the deal.

But right now, we’re presented with a tale of a profitable project that even the teller of the tale apparently doesn’t believe. Frankly, I believe that a place where you can host a 1,200-person conference in downtown Ann Arbor without breaking a sweat would be a well-used and welcome facility. You could imagine some kind of center of intellectual inquiry – that’s not necessarily a university – sprouting up in concert with the Ann Arbor District Library’s downtown location. Indeed, Valiant representatives have talked a lot about their desire to partner with the library.

But I don’t think Valiant really trusts their own narrative. If they did, we would not see a proposal for the city to issue bonds, or for the city to own the conference center, or any other creative approach to financing. Instead, we’d see a straight-up offer to lease or purchase development rights for some dollar figure.

What should that dollar figure be? Before the work session began, local developer Peter Allen told The Chronicle that a rule of thumb for land value would be 10-20% of the total value of the planned development. So if you’re planning to build a $54 million project, then $5.4 million would be a low-end ballpark number for the land value.

You might make a case that the city should accept a somewhat lower offer than Allen’s rule of thumb. An outline of that case might go something like this: (1) Look, this conference center of intellectual inquiry that we’re going to build is not going to be as profitable as, say, a project consisting of mostly residential units, and here’s why; (2) A conference center is going to have a greater positive economic impact to the downtown than just residential units would have, and here’s why; (3) You should be willing to accept a slightly lower direct financial return to the city of Ann Arbor’s general fund, in exchange for a greater positive economic impact overall, and here’s what that impact looks like.

If Valiant were inclined to make that kind of offer, however, I think they’d already have done that – between November 2010 and March 2011, when they negotiated the draft letter of intent with the Roxbury Group. But a simple, straightforward lease or purchase of development rights did not emerge from that negotiation.

The letter of intent is to be considered by the council at its April 19 meeting. Among the revisions to be added to the final draft of a letter of intent is language that makes clear that the city of Ann Arbor will not bear any risk. It’s not yet clear what linguistic form those revisions would take.

Work Session: Work Session Views – Ownership of Advocacy

Near the conclusion of the March 14 work session, Marcia Higgins (Ward 4), who was chairing the session in mayor John Hieftje’s absence, floated a question about who would take responsibility for making revisions to the letter of intent. Here’s how she put it: “Who owns those revisions now?” City administrator Roger Fraser indicated that he felt revisions fell now into the category of “staff work” – the RFP committee’s work was done, he said.

Higgins question about “ownership” of a specific task – like revising a document – could just as well be asked about the entire conference center proposal. Up to now, the project seems to have been owned by Roger Fraser. He first introduced the council to the existence of Valiant’s proposal at the 2009 budget retreat.

Chronicle file photo from the January 2009 Ann Arbor city council budget retreat. City administrator Roger Fraser, left, talks with Christopher Taylor (Ward 3). They're looking at conceptual drawings for a possible conference center on top of the underground parking garage now being built at the Library Lot between Fifth and Division streets.

On that occasion, he’d announced the existence of a proposal for a conference center, and told councilmembers they could look at the conceptual drawings. But he would not disseminate the proposal publicly – at the request of the proposers.

Later, it was revealed he’d done that against the explicit advice of the council.

With Fraser’s departure at the end of April to become a deputy treasurer for the state of Michigan, it’s not clear who might take ownership of Valiant’s proposal on the city’s side to make sure that an acceptable development agreement is struck, based on a letter of intent. Even if Susan Pollay, the DDA’s executive director, might seem a logical candidate to champion the project through to completion, her remarks at the work session suggest she’s not necessarily publicly embracing that kind of role.

Pollay began the work session by telling the council that she was there as a city staffer. The RFP had been issued through the city’s community services area, and only a few months after the RFP was issued, the community services area administrator, Jayne Miller, left the city to take a different position. Because the project was of interest to her, Pollay said, she’d volunteered to help out as needed. But she stressed that the project is not a DDA project – she’s just assisting.

Before the March 14 work session: Susan Pollay, executive director of the DDA, and David Di Rita of The Roxbury Group, which acted as a consultant for the RFP review committee.

On the council itself, Sandi Smith (Ward 1) might be a logical choice to champion the project through to final approval. In fact, at least as far back as March 2009, Smith has pushed specifically for planning some kind of use on the top of the underground parking structure. On that occasion, she introduced a successful resolution at the DDA’s March 2009 board meeting that articulated the DDA’s readiness to support the planning process for the top of the structure.

But as recently as the March 21, 2011 city council meeting, Smith has demonstrated that she can be a fiscal hard-ass, who might give priority to the city’s near-term bottom line over long-term overall economic impact. At that meeting, she was the sole voice of dissent in voting against an amendment to a state grant application that prioritized support for a skatepark over improvements to the Gallup canoe livery. She had established during deliberations that the canoe livery improvements would necessarily add revenue, whereas the skatepark was a question mark.

With the current murky level of detail available, use of the top of the parking garage as additional surface parking might actually mean more for the city’s bottom line than striking a deal with Valiant. And at the March 14 work session, Smith described the conference center proposal as “one of the largest decisions that I will have had to make in my brief tenure here.”

So I don’t think Smith is likely to pursue the conference center with the single-minded bull-doggedness of purpose that would likely be required for its eventual approval. The project needs someone to champion it who is absolutely dedicated and practically blind to all other options, if it’s to win ultimate approval from the council, and I don’t think Smith is that person.

As chair of the RFP committee, Stephen Rapundalo would also be a logical candidate to take ownership of the project – even if the committee’s work is over. But to be successful, whoever takes ownership of the project will need to enjoy a certain amount of deference from the council as a whole. And based on deliberations at the March 7, 2011 council meeting, his fellow councilmembers aren’t willing to give Rapundalo that deference, even when he clearly has earned it.

On that occasion, the council voted, over his objections as chair of the council’s liquor license review committee, to allow the appointment of a single hearing officer for liquor license non-renewal hearings – Tony Derezinski (Ward 2) – instead of appointing the entire committee as the hearing board. Any councilmember who voted with Derezinski on that – which was everyone except for Sabra Briere (Ward 1) and Marcia Higgins (Ward 4) – gave little weight to Rapundalo’s record of service on the council’s liquor committee since its very creation back in 2007. So I think the council is unlikely to show Rapundalo any deference when it comes to the conference center development agreement.

Work Session Views: Decision Time?

Historically, the Ann Arbor city council’s inclination has been, whenever possible, not to make a decision at all. The current status of the city’s Argo Dam is a good example of that. In early 2009, the city embarked on a public engagement process about the Argo Dam, which led the community to believe that the city council would be making a major policy decision that summer about leaving the dam in place or removing it.

But the council has never voted on the issue, which formally leaves the question open, though from a practical point of view, the dam is still in place. Margie Teall (Ward 4) and Carsten Hohnke (Ward 5) have remained vigilant in making sure that subsequent decisions made the council – like approving construction of a portage-free bypass around the dam – don’t necessarily preclude the dam’s eventual removal.

From the time of the Library Lot RFP issuance, councilmembers were eager to stress that the issuance of the RFP did not represent a decision to develop any of the proposals that might be submitted. After receiving proposals, it was again stressed that the city was under no obligation to accept any of them. And after identifying Valiant as the best of the six proposals received, the RFP review committee stressed that there was no obligation to do a deal with Valiant.

At the work session, councilmembers again appeared eager to downplay the significance of approving a letter of intent. Sandi Smith (Ward 1) characterized it as a “going steady” phase, with a prenuptial agreement to be possibly realized in the form of a development agreement. Margie Teall (Ward 4) indicated she was satisfied with David Di Rita’s characterization of the letter of intent as an outline to get to a final deal, but not the deal itself.

But at the RFP committee meeting in early March, Eric Mahler indicated his skepticism that the letter of intent did not place an obligation on the city to see the negotiations through to the proposal of an actual real estate deal. Mahler, an attorney, represented the city’s planning commission on the committee.

And at the council’s work session, the same concern about the contractual nature of the letter of intent was expressed by Stephen Kunselman (Ward 3), who did little at the session to hide his overall displeasure with the whole proposal. He stated flatly that he felt the arrangement being proposed was “very squirrelly,” and offered up his assessment that when the city went fishing for development proposals, “we catch nothing but leeches that want to suck on the public dollar.”

Even if Kunselman’s colleagues on the council may have rolled their eyes at his rhetorical flourish, they likely took to heart his point about the contractual nature of the letter of intent. It’s not “just another step” in the process where the city can take any action, or no action, for any reason at all. This is, in fact, a decision point of some kind that requires a proposal to come before the council.

What kind of decision point does the letter of intent represent? I think it’s somewhat similar to appointing a study committee to make a recommendation on establishing a historic district in a particular area. The council has a recent record to show that appointing a committee does not necessarily result in establishing such a district. At its July 6, 2010 meeting, the council rejected a study committee’s recommendation that a historic district be established along Fourth and Fifth Avenues, just south of the Library Lot. I can imagine that some councilmembers might even draw upon that episode as an analogy: Just as appointing a committee did not obligate us to vote for a historic district, we are not obligated to approve the development agreement that emerges in four months time after the letter of intent is signed.

But I think that for any councilmembers who appeal to that analogy, there will be others who are persuaded by a different historical episode involving the non-appointment of a historic district study committee – at the council’s Oct. 20, 2008 meeting. The committee in question would have studied an existing district, the Old Fourth Ward, to consider removing one property from the district. Then representing Ward 3, Leigh Greden argued against even appointing a committee, independent of what recommendation the committee might eventually make. Here’s how The Chronicle reported Greden’s sentiments:

Councilmember Leigh Greden suggested that if a recommendation came back from the committee to remove the property, he still did not imagine he could vote for its removal – acknowledging that he’d perhaps made that conclusion too soon.

Put coarsely, if you’re going to vote no later, you might as well vote no now.

At the March 14 city council work session: Carsten Hohnke (Ward 5).

I think some councilmembers might follow that same logic in weighing their vote on the letter of intent between Valiant and the city of Ann Arbor – a letter that is supposed to lead to a development agreement. An additional factor playing into that logic is that the real estate deal associated with the development agreement will need eight votes for approval by the city council.

So even if the letter of intent might have sufficient votes for approval, the real estate deal already looks like it will fall short of the eight-vote requirement.

Based on their remarks at the work session, Briere and Kunselman are likely no votes, as is Mike Anglin (Ward 5). At the work session, Anglin recited a laundry list of criticism of the project, from insufficient public process to the project’s lack of viability.

Anglin’s Ward 5 colleague, Carsten Hohnke, expressed his view at a 2010 Democratic primary election forum that the conversation about what should go on top of the library should start fresh, with a clean slate:

Hohnke said he is not convinced that any of the proposals that had been submitted are good ones, and it’s important to remember that a request for proposals does not need to be acted on by the city. If none of them meet the satisfaction of the community, there’s no need to accept one, he stressed.

Hohnke continued that he would like to see a renewed effort of community conversation – starting from a blank slate, with no preconceptions. What is the best solution for this vital parcel right in the center of our community?

Hohnke’s contribution to the March 14 work session conversation hinted that he was still thinking along the lines of starting fresh. He asked Rapundalo to review for the council how the RFP committee had winnowed down the six proposals to the final two proposals, both of which called for some kind of hotel and conference center. Among the six proposals that did not make the final cut was one for a community commons put forward by Alan Haber and Alice Ralph – who both attended the work session. [Chronicle coverage from January 2010: "Hotel/Conference Center Ideas Go Forward"]

Mayor John Hieftje’s vote could be purely political. It was Hieftje’s penchant for using the privilege of voting last in any roll call vote, to cast such purely political votes, that finally led the council in 2006 to change its rules for roll calls. The start of a roll call vote now rotates among councilmembers.

With four likely votes against the letter of intent – Anglin, Briere, Kunselman, Hohnke – there’s sufficient safety in those numbers that Hieftje could join them. With potentially five votes against the letter of intent, it’s hard to see how Valiant or other councilmembers would want to invest time and energy in putting together a development agreement that’s not going to meet the eight-vote minimum.

Certainly in the past, the council has been reluctant to proceed with only thin majorities. In early 2005, DDA board members were told that there were at least six votes in support of the 3-Site Plan to develop city-owned downtown properties – all the plan needed to go forward. But then councilmembers Leigh Greden and Chris Easthope counseled against placing the 3-Site Plan on the council’s agenda, in order to generate additional support on the city council. By late in 2005, the public engagement process had actually seemed to diminish rather than increase council support, and the 3-Site Plan never made it to the council’s agenda.

Conclusion: Get the Dirt out of the Hole

Besides offering a rule of thumb for calculating land value, at the March 14 work session Peter Allen also told me he thinks the entire Library Lot block needs to be master planned, before trying to develop that individual parcel. For a course he teaches at the University of Michigan, Allen assigned his students in 2009 to complete an exercise like that. [Chronicle coverage: "Column: Visions for the Library Lot"]

Restarting the conversation about the Library Lot – as Hohnke suggested back during his 2010 Democratic primary campaign – is a process that would be consistent with Allen’s suggestion to master plan the whole block. That conversation could take place in the context of a proposal currently being worked out by the DDA and the city that would assign the DDA responsibility to facilitate the development of other uses for downtown city-owned surface parking lots. That proposal, however, is currently stalled.

I think any use of the space above the underground parking garage needs to be considered as a coherent part of the city’s thinking, not just with respect to that entire block, but also in connection with the Ann Arbor Transportation Authority’s countywide transportation plan, the possible construction of a new downtown library – which has been put on hold, but might re-emerge – and even the current discussion of a corridor improvement authority along Washtenaw Avenue.

The sooner the city council votes down Valiant’s specific proposal for its conference center, the sooner we can settle into a process that might well produce a community consensus for a different kind of conference center – one that includes a real vision for the kind of inquiry and collaboration that might take place at the conferences such a center might host.

Valiant’s proposal is, I think, like the pile of dirt that poured through the breach in the retaining wall, piling at the bottom of the underground parking garage site. As a guy in a hardhat told me Thursday morning, the pile of dirt wasn’t hurting anything, but it was in the way. Valiant’s current proposal is like that pile of dirt, because it just needs to be cleaned out of the hole for now. If we need more dirt, there’s plenty more where that came from.

We shouldn’t adopt the attitude that if we let Valiant’s conference center proposal sink out of view, we’ll lose forever the opportunity to enjoy the benefits that a conference facility in downtown Ann Arbor might bring.

Why do I think that? It’s because I believe in second-hand learning. At the DDA’s January 2011 board meeting, management assistant Joan Lyke’s last one before her retirement, she addressed a few remarks to the board, summarizing what she’d learned working at the DDA.

On Lyke’s bulleted list was this: “If an idea is good, it will always resurface.”

And that’s what the committee voted to do – specifically, to recommend to the city council that a letter of intent (LOI) be signed with Valiant, the developer, which could eventually lead to a development agreement. The city council will receive a presentation on the letter of intent at a work session on Monday, March 14 at 7 p.m. at the Washtenaw County Board room at 220 N. Main St.

David Di Rita of the Roxbury Group addresses the Library Lot RFP review committee. Left in the frame in the background is local attorney Tom Wieder. Right in the frame is Vivienne Armentrout, a former Washtenaw County commissioner and author of the blog, "Local in Ann Arbor." (Photos by the writer.)

In the draft of the LOI unveiled at Tuesday’s committee meeting, the city and Valiant would try to strike a development agreement no later than four months after the signing of the LOI, with construction to start 15 months after the signing of the development agreement.

Attending the committee meeting on Tuesday was David Di Rita of The Roxbury Group, which has served as a consultant to the committee. In November, Di Rita had delivered a report to the committee recommending Valiant’s proposal over a similar project proposed by another developer – Acquest.

The majority of Tuesday’s meeting time was taken up with Di Rita delivering introductory remarks – a self-described “soliloquy” – and walking the committee through the main points of the draft LOI, or responding to committee member questions.

In his introductory remarks, Di Rita distinguished between the idea of analyzing the financial viability of a specific proposal – which he stressed that The Roxbury Group had not done – and the overall economic validity of a concept.

Key points in the draft LOI are the idea that Valiant would pay for the acquisition of development rights on the property, but could use part of that payment for the design and financing of the conference center. The city of Ann Arbor would own the conference center, and would not be held liable for its maintenance and operation costs, unless Valiant were to cease holding the management agreement. The city’s ownership could, according to the draft LOI, possibly implicate payments by Valiant to the city in lieu of taxes. The draft LOI also calls for reserving no fewer than 350 daytime parking spaces in the underground parking garage, currently under construction, for the hotel/conference center.

In addition to committee members, more than 20 people attended the meeting, filling the fourth floor conference room of city hall. Attendees in the audience included Ward 1 councilmember Sabra Briere; Ann Arbor District Library director Josie Parker; and AADL board member Nancy Kaplan. Several people who attended have expressed objections to the hotel/conference center project, based on either the substance of the proposal itself or the decision-making process.

Related to complaints about the decision process, the meeting began with an adamant request from local attorney Tom Wieder to be allowed to address the committee, which was denied by the committee’s chair, Stephen Rapundalo.

Rapundalo’s refusal to allow Wieder to address the committee was supported by city administrator Roger Fraser, who also attended the meeting, and who raised the specter of asking Wieder to leave. At that point Wieder ended his persistent requests, and was allowed to stay.

Wieder based his request to verbally address the committee on the city of Ann Arbor’s policy of handling all committee meetings under the requirements of the state’s Open Meetings Act – a policy that does appear to afford members of the public at least the reasonable expectation of being able to address committees during meetings like the one on Tuesday.

Background, Review

On Nov. 5, 2009, the city council first appointed a five-member committee to review proposals in response to the city’s RFP for use of the top of the Fifth Avenue underground parking garage – the so-called Library Lot. The city-owned Library Lot is located north of the downtown library, between Division Street and Fifth Avenue. The garage, currently under construction, is a project of the Ann Arbor Downtown Development Authority.

That committee consists of: Stephen Rapundalo (Ward 2 city council member), who chairs the committee; Margie Teall (Ward 4 city councilmember); John Splitt (DDA board member); Eric Mahler (planning commissioner); and Sam Offen (member at large). Offen also serves on the Ann Arbor park advisory commission.

The city received six proposals in response to its RFP. Of those, the committee eventually selected two for final consideration – both were for hotel/conference center-type concepts. [See Chronicle coverage: "Hotel/Conference Ideas Go Forward"] Not included in the final mix were either of the two proposals that envisioned the lot as primarily open space. Alan Haber, who had worked with a group to advance a community commons proposal, also attended Tuesday’s meeting.

Among those attending Tuesday's meeting were attorney Susan Morrison, who wrote a letter to the RFP review committee on behalf of Ann Arbor resident Mary Hathaway, and Alan Haber, who is part of a group that had submitted a proposal for a community commons on the Library Lot.

The Roxbury Group was hired to assist with the evaluation of the finalist proposals – from Valiant and Acquest. On Nov. 23, 2010, The Roxbury Group delivered a report to the committee recommending the proposal from Valiant as the stronger of the two. [.pdf of The Roxbury Group report]

The RFQ (request for qualifications) issued by the city of Ann Arbor, which led to the engagement of The Roxbury Group’s services, stated that the consultant should be able to “determine if the projects submitted to the City are economically viable and make financial sense in the Ann Arbor marketplace.” [.pdf of consulting RFQ].

However, Roxbury’s report indicates that it “does not include and is not intended to serve as a feasibility study for the concepts included in the two proposals … it is generally assumed that the overall concepts included in the uses for the Library Lot contained in each proposal are valid and supportable from a market and demand standpoint.”

Economic Feasibility: Committee Discussion

During his introductory remarks, Di Rita stressed that The Roxbury Group was charged with the responsibility of taking the two proposals, from Acquest and Valiant, and making a recommendation about whether to proceed with one, the other, or neither proposal.

Di Rita stressed that Roxbury had not been charged with the responsibility of evaluating the feasibility of a hotel/conference center. Later, in response to a question from committee member Sam Offen, who said he thought that feasibility was a part of the charge, Stephen Rapundalo read aloud from the RFQ for consultation services what was expected:

• Determine if the projects submitted to the City are economically viable and make financial sense in the Ann Arbor marketplace
• Determine if respondents are financially stable and have the capacity to complete their projects as proposed
• Determine what the likely timing for each proposed project might be following selection by Ann Arbor City Council, including design development, securing financing, and construction
• Help the City determine which project will provide the maximum financial return to the City
• Assist the City in working with each developer to improve their proposals and provide the City with competitive options that optimize desired features
• Help develop criteria for review, implementation and performance of proposals before and after recommendation for award
• Help the City determine which project will provide the greatest community benefits
• Help the City create a public process that encourages community input and involvement
• Provide information on the impact of similarly scaled projects in similarly sized communities
• Assist the City as needed in negotiations with the selected project team
• Attend, in an observatory role, the project interviews scheduled for January 19-20, 2010 and the evening open house scheduled for January 20, 2010

Offen allowed that the list did not specifically call out a “feasibility study,” but said he felt that Roxbury could have done more investigation to assess that the economic assumptions behind the proposals were valid and correct, instead of taking the word of the proposers. Earlier in his presentation, Di Rita had called the conversations with the developers the “beating heart” of Roxbury’s analysis.

Sam Offen enters the fourth floor conference room of city hall for the Library Lot RFP review committee meeting on March 8, 2011.

Responding to Offen, Di Rita said that the first thing to look at was the overall economic viability before asking the feasibility question. He said if the city were interested in the financial feasibility, absent a specific development deal, then there are people far more qualified to assess that than Roxbury. They wouldn’t know what to study, until they knew specifically what the details of the project are.

Roxbury had spent a lot of time on the stakeholder interviews, including meeting with representatives from the Ann Arbor District Library, the University of Michigan and Ann Arbor SPARK, Di Rita said. And there was unanimity of opinion among the stakeholders that yes, that facility would get used. What would make it a “game changing” facility would not be just that it could host a plenary session with 500-600 people, but that it could do so in the center of the city.

Rapundalo noted that the university’s conference needs are decentralized – perhaps even down to the individual faculty member. Di Rita responded to Rapundalo by saying that this potential user of the center – the university – doesn’t know its own demand or supply for conferencing services.

Di Rita concluded that the “ultimate feasibility study” is the ability of the developer to draw financing for the project. If the development agreement results in a financed project from lenders, then “the feasibility comes along for the ride,” he said.

Economic Feasibility: External Views

In the last few weeks, a November 2010 report written by Chuck Skelton, who is president of Hospitality Advisors Consulting Group, has circulated throughout the Ann Arbor community – it was conveyed to the city council at the end of January. Skelton concludes that Valiant’s conference center proposal would not be successful – based on estimated revenues of $42 per square foot against estimated operating expenses of $58 per square foot, which would lead to around a $0.5 million annual shortfall. Skelton calculates an additional $0.5 million shortfall due to debt service.

Skelton’s report has received considerable interest from Public Land-Public Process, a group opposed to the conference center proposal – opposition based partly on the grounds that they contend a conference center is not economically feasible. In a post on her blog “Local in Ann Arbor,” Vivienne Armentrout calls Skelton’s report an authoritative study.

An earlier national study from 2005 by Heywood Sanders, a professor of public administration at University of Texas at San Antonio, has also made the local rounds. [.pdf of "Space Available: The Realities of Convention Centers as Economic Development Strategy"] In Sanders’ paper, which is one of several he’s written on the topic of convention centers, he concludes that “if taxing, spending, and building have been successful, the performance and results of that investment have been decidedly less so. Existing convention centers have seen their business evaporate, while new centers and expansions are delivering remarkably little in terms of attendance and activity.”

Letter of Intent: Highlights

David Di Rita walked the committee through the 15 points of the draft letter of intent.

LOI Highlights: Project Description

Highlights included a description of the project:

(i) Core elements:

• 150 hotels units – 87,000 sq. ft.
• Conference center – 26,000 sq. ft.
• Restaurant/Retail – 6,000 sq. ft.
• Public space/Plaza

(ii) Additional elements

• Office space – up to 48,000 sq. ft.
• Residential condos – up to 22,000 sq. ft.

Given the lack of a square-footage number attached to the public plaza space, Sam Offen wondered what would guarantee that the project would have a significantly-sized plaza area. Di Rita responded by saying that the “stake in the ground” is the letter of intent, with the apparent implication that from there the two parties could eventually pin down the plaza size with more precision.

During his presentation, Di Rita had introduced the idea that the letter of intent would establish the “four corners” of the deal – the what, where, when and how. Margie Teall stated that the developer understood that the project “goes nowhere” without a significant plaza area. John Splitt noted that the underground structure design depends on a plaza area, and that if one is not included, then the underground structure would need to be redesigned. [Construction is already well underway, and such a redesign would result in significant expense and delay.]

LOI Highlights: Payments, Liabilities of Ownership

One kind of payment described in the LOI is some equivalent of property taxes to be paid to the city on the conference center, even though property taxes would not apply, given that the city of Ann Arbor would have ownership of the conference center.

In the committee discussion of payments in lieu of taxes, Offen said he thought that the University of Michigan had a payment in lieu of taxes program, to which city administrator Roger Fraser quipped, “To whom?” Fraser followed up by saying that even though UM does not currently have such a program, he thought that perhaps as late as the 1950s there was some kind of program like that in place. He noted that the idea is not to have Valiant duck taxes by having the city own the conference center.

Eric Lipson, former planning commissioner, chats with Margie Teall, who represents Ward 4 on the city council and serves on the Library Lot RFP review committee. Seated is Nancy Kaplan, board member for the Ann Arbor District Library.

In addition to some payment in lieu of taxes program, there would be some kind of payment made by Valiant to the city in consideration of the conveyance of the development rights – either to the city or a 501(c)(3) nonprofit designated by the city. But that payment could be used by Valiant to help create the conference center [emphasis added]: “The Developer will be solely responsible for the design, financing and development of the Conference Center utilizing both the consideration it will provide to the City as set forth in Section 3 and to the extent required its own funds, as set forth in the Development Agreement.”

In light of the ownership by the city of the conference center, the LOI includes language meant to address the city’s potential liability [emphasis added]: “Notwithstanding the ownership of the Conference Center, neither the City nor the 501(c)(3) will be liable in any way for any costs relating to the design, financing, development, operation or maintenance of the Conference Center so long as the Developer holds the Management Agreement.” The LOI does not address eventualities where the developer ceases to hold the management agreement.

Eric Mahler, an attorney by profession, expressed reservations about the idea of city ownership of the conference center, saying that he was leery of it – because you could not write an agreement that would cover all of the city’s liability. He made his support for the recommendation to sign the letter of intent contingent on the possibility of negotiating the ownership piece.

LOI Highlights: Timeframe, Reimbursement of City Costs, Approvals

The letter of intent sets forth a four-month timeframe from the signing of the letter of intent to the completion of a development agreement. City administrator Roger Fraser allowed that this was clearly an aggressive timeline. In order for the city to allocate the necessary time and resources to get to a development agreement within that timeframe, the letter of intent provides for a payment of up to $75,000 to the city for costs related to consultants and legal counsel. However, the letter of intent also states that the developer would not be liable for the $75,000 payment, if it fails to secure construction financing.

The letter of intent includes language to the effect that the various standard approvals required of the project would be those in effect on March 8, 2011, which was coincidentally the date of the committee meeting. That was an artifact of a previous expectation that the city council would have already acted, at its meeting on March 7, to authorize signing the letter of intent. Mahler insisted that the date would need to be changed – he assured his committee colleagues that as chair of the planning commission, he could say that several things in the city’s set of development requirements might change in the future. As a specific example, he cited the introduction of the new design guidelines for new downtown buildings, which the planning commission’s ordinance review committee is now working on.

The letter of intent also mentions a “dedicated representative” of the city to help coordinate the approval process. Mahler got clarification that this essentially followed the usual practice of assigning someone on the planning staff to shepherd the project through the process. Mahler joked that he just wanted to make sure it was not the city administrator who would be the dedicated representative.

LOI Highlights: Parking Space Reservation, Other Legal Issues

The letter of intent calls for 350 daytime spaces and 250 nighttime spaces to be reserved in the new underground parking garage in support of the hotel/conference center project. Offen wanted to know how many total spaces the underground garage would offer. Susan Pollay, executive director of the Downtown Development Authority, told the committee that the new garage would have roughly 650 spaces.

Executive director of the DDA, Susan Pollay, exchanges documents with Stephen Rapundalo, who represents Ward 2 on the city council and chairs the RFP review committee.

The number of spaces allocated to the hotel/conference center is relevant to the financing of the underground parking garage. Why? The nearly $50 million in bonds used to finance the parking garage were federal Build America Bonds. In an April 14, 2010 letter to the city council, Noah Hall, then executive director of the Great Lakes Environmental Law Center, outlined federal restrictions on how the bond proceeds can be used. Those restrictions could have an impact on the city’s ability to allocate more than a small percentage of spaces to a non-public use.

Other possible legal issues are outlined in a March 8, 2011 letter to the RFP review committee from Susan Morrison, an attorney for Ann Arbor resident Mary Hathaway. Those issues include a possible argument that Valiant’s desired subordination of rent payments to Valiant’s construction mortgage could violate the Michigan Constitution. A second possible argument is the idea that the arrangement with Valiant would constitute a “business enterprise” under Michigan’s Home Rule City Act, which would require voter approval before proceeding.

Next Step: City Council Work Session

Near the conclusion of the meeting, Rapundalo raised the question of whether the committee needed to take any formal action. Fraser told him it would be helpful to have a recommendation from the committee for the city council to consider the draft letter of intent – if the council recommends changes, they can be made as appropriate. Teall concurred with that sentiment.

Offen said he’d like to see somewhere a brief description of the financial benefit to the city, given that the tangible financial benefits were a major criterion for selection of the proposals.

It was Splitt who made the recommendation that the city sign the letter of intent with appropriate amendments. During the brief discussion, Offen said he’d support the motion, but only because the previous request by Valiant that the city issue bonds to support the project had been removed. Mahler wanted to make sure that the ownership of the conference center by the city was something that could be negotiated. Rapundalo expressed his support by saying that the letter of intent resets further dialogue under a framework. He allowed that financial feasibility would become a question.

Outcome: The committee voted unanimously to recommend that the the city council consider the letter of intent.

There will be a city council work session on Monday, March 14, 2011 at the Community Television Network (CTN) studios, 2805 S. Industrial Highway Washtenaw County board room at 220 N. Main St., dedicated to the topic of Valiant’s letter of intent.