TheCaseforRejectingtheCoreSpacesProposal

IntroductionThebestuseofAnnArbor’spubliclandisaseriousconcernforcitizensandCouncilalike.Shouldthemostcentralparcelremaininginpublicownershipbesoldtoaprivatedeveloper?Ifso,whatisafairprice,andmoreimportantlywhatisthecollectivecommunityvisionforwhatshouldbebuilt?Isthereacommunityconsensusforhowthiscentralparcelwillinteractwithitsneighborsandtherestofdowntown?Whatarethepossiblelegalpitfalls?Whatarethealternatives,andaretheybeingseriouslyconsidered?Weallwantthebestuseofpubliclandthatbenefitsthecityforthelongterm.Ourcityhasgrownsignificantlyinthepastfiveyearswithmanynewdevelopmentsonprivateland.ThereforeitisincumbentoncitizensandCounciltotakeafreshlookattheproposalfortheLibraryLot,takingintoconsiderationAnnArbor’sgrowingpopulationdensityanddemandsforparking,openspaceandsocialhousingequalityissues.Whenconsideringsaleofthismostcentralplotofpublicland,weshouldbeextremelycarefultoensureasalemeetsbothpublicneedsandlegalrequirementsiftheparcelisencumbered.Ourgoalforusemustbetoenhancethevitalityofdowntown,offermore(ratherthanfewer)amenitiestoresidentsandvisitorstoourdowntownarea,incorporateandshowsensitivitytosurroundinghistoricuses,andcreateadestinationthatallcanbeproudof.TheCoreSpacesproposalraisesmanylegalandfinancialquestionsandshouldberejected.Councilhasnoobligationtoacceptthisproposal,andhasthepowertorejectit,asspecifiedinthefirstofthe“AdditionalProvisions”oftheOfferingMemorandum.”(SeefulltextinSection6.) Thefollowingisalistofcriticalissuessurroundingthecurrentproposalanddecision-makingprocess.TheymustbeadequatelyaddressedpriortothecurrentCoreSpacesoranyotherfutureprivatedevelopmentonthisuniquepieceofpublicland.Index

1. LegalOverview2. TheLibraryLotParkingFacility3. BuildAmericaBonds4. Publicvs.PrivateUseofBuildAmericaBonds5. ACautionaryTale6. AnnArborOfferingMemorandum7. SelectionofCoreSpaces8. TheCoreSpacesProposal9. AdditionalCommunityBenefits10. CitizenIssueswithCoreProposal11. ConcernsAboutthe“UrbanPublicPark”ontheLibraryLot

November1,2016 2

12. FinancialConcernsAbouttheCoreSpacesAgreement13. ConcernsaboutCoreSpacesParkingAgreement14. LegalConcernsAbouttheCoreSpacesAgreement15. ConcernsAboutHowFloorAreaRatio(FAR)isCalculated16. Conclusion17. Relevantlinks18. Attachments

1.LegalOverviewIftheCityofAnnArborfinalizesitsagreementtoselldevelopmentrightsfortheLibraryLottoCoreSpaces,itmaybeviolatingtheprovisionoftheBuildAmericaBondsthatfundedtheundergroundparkinglot.AnysuchviolationwouldresultinlossoftheFederalsubsidy,andcouldcosttheCityupto$40milliondollarsofinterestpenalty.Theconcern,inshort,isthattheCityissellingequitytotheprivatesectorfromapublicprojectfinancedbyafederallysubsidizedlowinterestloan.Inaddition,formanyotherreasonsthissaleisnot“inthebestinterestoftheCity.”(OfferingMemorandum,(AdditionalProvisions,1.NoObligationtoProceed,page24)2.TheLibraryLotParkingFacilityOnNovember5,2007,CityCouncilaffirmedinR-07-517“ResolutionRequestingthattheDowntownDevelopmentAuthorityPrepareaWrittenRecommendationfortheConstructionofanUndergroundParkingGarageontheCity-OwnedSouthFifthAvenueParkingLot.”Followingseveralyearsofplanning,lawsuits,andothernegotiations,theunderground5thAvenueparkingstructureopenedinSeptember,2012.Thegaragehas738spaces,manyreservedforpermitparking.ThestructurewasfundedbyBuildAmericaBonds;oftheapproximately$50millioncost,itisestimatedthat$5millionwasallocatedtoreinforcementstoallowbuildingalargestructureontopofthelot.However,theprojectengineer(fromCarlWalkerInc.)estimatedthat30%ofthetotalprojectcost,orapproximately$15million,wereelementsunneededbytheparkingstructure.3.BuildAmericaBondsBuildAmericaBonds(BABs)aregovernmentalbondseligibleforcertaintaxadvantagesundertheInternalRevenueCode(IRCSection54AA).TheseBABswereissuedin2009and2010forthecreationoftheLibraryLanestructure.Theymaybeusedforgovernmentalpurposesonly,i.e.,publicuseandnotmorethan10%privateuse.BABs

November1,2016 3

provideaFederalsubsidythroughFederaltaxcreditstoinvestorsequalto35%ofthetotalinterestpayablebytheissuertoinvestors.ThebondissuancebytheCityofAnnArborfor$49,420,000.00waspreparedbyDykemaGossettPLLC,actingasbondcounsel.IntheirAugust19,2009lettertotheCityofAnnArbor,theywrote:

“…weareoftheopinionthattheBondsare“buildAmericabonds”andare“qualifiedbonds”undersection54AAoftheCode.FailureoftheCitytocomplywithsuchrequirementscouldresultintheBondsfailingtobe“buildAmericaBonds”undersection54AA(d)or“qualifiedbonds”undersection54AA(g)retroactivelytothedateofissuanceoftheBonds.”

4.Publicvs.PrivateUseofBuildAmericaBondsTherearetwoprivateactivitybondtestsundersection141oftheInternalRevenueCode;failureofeitherwillresultinthebondsbeingclassifiedasprivateactivitybonds,andthetaxbenefitswillbecancelledretroactively.Thefirstprivatebusinesstestisifmorethan10%oftheproceedsareusedforanyprivatebusinessuse.Thesecondprivateusetestisifmorethan10%ofthebondsareeithersecuredbyanyinterestinpropertyusedforaprivatebusinessuse,orderivedfrompaymentsforpropertyusedforaprivatebusinessuse.5.ACautionaryTaleItisrelevanttonotethatonNovember6,2014,theSecuritiesandExchangeCommissionannouncedfraudchargesagainsttheCityofAllenPark,Michiganandtwoformercityleadersinconnectionwithamunicipalbondoffering.ThereisaparalleltoAnnArbor:inbothcasestheinitialproposalwasforadifferentprojectthanthefinalone.ForAllenPark,theinitialprojectwasamoviestudio,butitchangedtoavocationalschool.ForAnnArbor,theoriginalprojectwasapubliclyowned“buildingauthority”tobecreatedbyCityCounciltoownahotel/conventioncenter,butitchangedtosellingthedevelopmentrightstoaprivatedeveloper.6.AnnArborOfferingMemorandumTheFebruary2015OfferingMemorandumbytheCityofAnnArbor,managedbyCBREGroup,Inc.,was“toacquireanddevelopthesurfaceofthe“LibraryLot”parceltotalingapproximately35,112squarefeetindowntownAnnArborat319S.FifthAvenue.Thepropertysitsupona711space,City-ownedfour-levelundergroundparkinggaragethat

November1,2016 4

hasbeenconstructedtoallowforhighdensitydevelopment.TheCitywillretaincontroloftheundergroundparkinggarage.”“TheCity’sgoalistoprovideforadispositionofthepropertytoaprivatedeveloperordevelopmentteamforahighdensity,modern,sustainableurbanredevelopmentthatcontributestothefabricandlivabilityofdowntownAnnArbor.”Inthe“AdditionalProvisions”oftheCity’sOfferingMemorandum,thefirstone,“NoObligationtoProceed,”isespeciallyrelevanttoanyCouncilvoteontheCoreSpacesproposal:1.NoObligationtoProceed–Thecityisundernoobligationtoproceedwiththisprojectoranysubsequentproject,andmaycancelthisOMatanytimewithoutthesubstitutionofanotherifsuchcancelationisdeemedinthebestinterestoftheCity.Furthermore,theCitymayrejectanyandallproposals,towaiveanyirregularitiesorinformalitiesinaproposal,andtoissueanewormodifiedOM,ifitisfoundtobeinthebestinterestoftheCity.”7.SelectionofCoreSpacesFollowingaprocessinwhichmultipleproposalswerereviewed,onJanuary19,2016,CityCouncilpasseda“ResolutiontoAffirmandApproveCOREastheselecteddeveloperof319SouthFifthandAuthorizetheCityAdministratorandCityAttorneytoBegintheNegotiationProcessforSaleoftheProperty.”(FileID:16-0025)CoreSpacesisanIllinois-basedrealestatefirm.8.TheCoreSpacesProposalTheCoreSpacesproposal,fora17-storybuilding,includesgroundfloorretail,office,residentialandaboutiquehotel.Itincludesa12,000squarefootplaza,designedtosatisfytherequirementforpublicspace.Inexchangefordevelopmentrights,CoreproposespayingtheCity$10million(lessnormalfeesandclosingcosts),andintendstoutilize,onalong-termexclusivebasis,200parkingspacesintheundergroundgarage,eitherpurchasingthemfor$5million,orleasingthematmarketrates.9.AdditionalCommunityBenefitsIntheapprovalresolution(File16-0025),CouncilauthorizedtheCityAdministratorandCityAttorneytonegotiateforthefollowingcommunitybenefitsaspartofaproposedSaleAgreement:

November1,2016 5

A. Including10%ofallhousingunitsasworkforcehousing(affordablehousingforlowerincomehouseholds).

B. AhigherlevelofLEEDCertificationthantheproposedLEEDSilver,withapreferenceofLEEDPlatinum.

C. BuildingandsitedesignthatprovidesimprovedpedestrianconnectivityfromFifthAvenuetoLibertyPlazapark,aswellasfromBlakeTransitCentertothesite.

Notethatthesearedesired,notrequired,benefits,anditisuptoCoreSpacestoagree.10.CitizenIssueswithCoreProposal MembersofCouncil,theMayorandtheCityAdministratorhaveallstressedtheimportanceofpublicinputinthisprocess.Reviewingthatinputidentifiesnumerous,seriousconcernswiththeCOREproposalthathaveyettobeaddressed.OnOctober22,2015,theCityofAnnArborpresentedtwo“PublicInputMeetings”withthedevelopmentteamsfromCOREandCAVenturestopresenttheirproposals,aswellastheopportunityforthepublictocomment,askquestionsandvoiceconcerns.Bothsessionswerewellattended.Thepublicgaveinputorally,electronically(withhand-heldresponseclickers)aswellaswrittenon3x5cards;however,almostnoneofthepublic’squestions,commentsorconcernswereaddressedatthemeeting.Whilewewereassuredthatthisinputwouldbeaddressedatalaterdate,thatneverhappened.Theresultswereeventuallypostedonline:http://bit.ly/2dP0i8iTheyindicatedseriousconcernsabouttheCOREproposalthatneedtobeaddressed.Publicinputintheoralandwrittenphasesincludedseriousconcernsregarding:

• lackofrespectforclearlyexpressedcitizenpreferenceforpublicuseofthisspace

• theclosednatureoftheselectingprocess• lackofopengreenspaceandtrees• lackofmeaningfulconnectivitytoLibertyPlaza• lackofcontextwiththesurroundingbuildings• excessivedensityinlimitedspace• absenceofamorepublic-friendlyoption• inadequateparking• availabilityofprivatelyownedlandbettersuitableforthistypeofdevelopment• $10millionpaymentfordevelopmentrightsisinadequate.

November1,2016 6

Themosteasilyquantifiablepublicinputcamefromtheelectronicinputsection.Itshowedthat:

A. AmajorityDisagreedorStronglyDisagreedthattheCOREproposal"hasanattractive,aesthetically-pleasingdesignand/orconveysaniconicimagesuitableforasitethatisinthecoreofdowntown."

B. AnoverwhelmingmajorityDisagreedorDisagreedStronglythattheCOREdesign"isincontextwithitssetting,appealingfromallfoursidesandcompatiblewiththecharacterofthedistrict."

Inshort,thepeopleoftheCityofAnnArborfoundtheCOREproposalunattractiveandinappropriateforthisimportanttractofpublicland.InadditiontothePublicInputSessionsofOctober22,over5,000citizenshavesignedapetitiontohavetheproperty“designated,inperpetuity,asanurbanparkandciviccentercommons.”Similarly,theAnnArborDemocraticPartyhaspassedtworesolutionsadvisingtheCityagainstcommercialdevelopmentofthelotanddirectingtheCitytosubmitanyproposaltoapprovalbythevoters.Inshort,thepublichasgivenmuchvaluableandvalidinputthroughorganizedchannels(LibraryGreenConservancy,TheA2CommitteefortheCommunityCommons,A2Dems),throughtheCitysanctionedPublicInputSessions,andbyspeakingatnumerousCityCouncilMeetings.Thepublichasraisedmanyseriousconcerns,andhasactedingoodfaithwhiledoingso.AllthisfocusedcommentarysupportsinvokingthekeystatementintheOfferingMemorandum:that“theCitymayrejectanyandallproposals…ifitisfoundtobeinthebestinterestoftheCity.”(AdditionalProvisions,1.NoObligationtoProceed,OM,page24) CityCouncilneedstoshowthatit,too,hasbeenactingingoodfaithbypubliclyaddressingthepublic’smanyseriousconcernsandbyrejectingtheCOREproposalasinadequateandnotinthebestinterestoftheCity.11.ConcernsAboutthe“UrbanPublicPark”ontheLibraryLotCityofAnnArbordocumentsconcerningestablishingan“UrbanPublicPark”ontheLibraryLotcontainanumberofrecommendationsandrequirements(CityofAnnArborTextFileNumbers14-0334,14-0470,and14-1326–seelinksinSection16below).

November1,2016 7

Inthe“ResolutionDesignatinganUrbanPublicParkLocationontheLibraryLotSite,”April7,2014,“ThefourthresolvedclauseacknowledgesthenecessityfortheCitytoworkwithalltheneighboringpropertyownersontheLibraryBlockinordertoachievethepedestrianconnectivitythatwillresultinvital,attractivepublicspaces.”Possiblegoalsofthiscollaborationinclude:

• ReorientationofthephysicaldesignandusesoftheseadjacentpropertiessothattheyhelptocreatepedestrianinteractionwiththepublicparkontheLibraryLotStructure,

• CreationofpedestrianwalkwaysthatconnecttheLibraryLaneStructureandpublicparktoLibertyPlazaLibertyStreetandWilliamStreet;

Todate,neithertheCitynorCoreSpaceshasadequatelyaddressedthedetailsandscheduleforfulfillingthesegoals.Initspublicpresentations,CoreSpaceshasdeferreddealingwiththesequestionsuntilitsdealwiththecityisfinalized.WebelievetheCityshouldrequireaplanwithspecificobjectivesandatimetableforfulfillingthembeforeapprovinganyagreementwithCoreSpaces.Thesecondresolution,“EncouragementofCreativePublicProgramming,”listsspecificgoalsfortheLibraryLotasapublicspace:"Whereas,TheCityCouncilalsoapprovedthePACrecommendationsincluding,butnotlimitedto,theimportanceof“placemaking”principlesandthe“activation”ofurbanpublicspacesthrough:pedestriantraffic,relationshiptoadjacentproperties,activitiesdesiredbythecommunity,andfundingformaintenanceandsecurity,aswellascloseconsultationwiththeAnnArborDistrictLibrary(AADL),andfurtherpublicinputregardingthedesignandusesofdowntownpublicopenspaces;...Again,CoreSpaceshasnotaddressedtheserecommendations,whileatameetingatthedowntownlibraryaCoreSpacesrepresentativesuggestederectingamasonrywallseparatingtheirsitefromtheadjacentpropertiestothenorth,completelyincontradictiontotheCity’sgoals.12.FinancialConcernsAbouttheCoreSpacesAgreementThoseadvocatingonbehalfoftheCOREproposalarguethattherevenuefromthenewdevelopmentistherealbenefittotheCity.ThisistheimplicitargumentforbuildingtheLibraryLanestructuretosupportatallbuilding:thattheCityandDDAneededtoinvestpublicresourcestoencouragetheprivatedevelopmentthatwouldpaytaxestotheCityduringadifficulttime.ButthatargumentisdisprovedbythelevelofdevelopmentthathasoccurredsincetheLibraryLaneprojectwaslaunched.Since2009tenlargeresidentialdevelopmentshavebeenbuiltinornearourdowntown,adding3,117

November1,2016 8

bedroomstoourhousingstock.Atleastfourmorealready-approvedlargedevelopmentswilladdanother1,363bedroomsinthenexttwoyears.(Thesefiguresdonotincludemanysmallerapartmentandcondodevelopmentsalreadybuiltorinprogress.)TheresultingincreaseinpropertytaxrevenueflowingtotheCityandtheDDAfromthesedevelopmentsisdramatic.Oneexample:In2014FoundryLoftsat413E.Huronpaid$94,802inpropertytax,andin2016itpaid$963,618--a900%increaseinrevenue.IftherewaseveranyneedfortheCitytotakeariskwithpublicresourcesto"primethepump"forprivatedevelopers,thatneedislonggone. TherealneedisfortheCitytostepuptotherealityofmorethan5,000additionalresidentswithintheDDAboundaries.TheDDAisfightingthewrongbattlebyworkingtoencouragemorebigbuildings.Instead,theCityandtheDDAshouldbeworkingtomakethecentralpartofAnnArbormorehabitableforallofthenewinhabitants.Theglaringabsenceofpublicopenspaceinthedowntownisbecomingmoreobviouswitheachadditionalhundredofnewresidentialunits.Asfortheneedtoaddnew,taxableproperty,theCityAssessor’spublishedfiguresshowthatAnnArbor’staxablevalueisatanalltimehigh.Thisisawealthycommunity.Weshouldnotbetradingawayvaluablepublicassetsforshort-term,quickcash.Creatingmoreluxuryhotelroomsandmarketratehousingforupper-incomeresidentsisnotagovernmentprioritynorisitanecessarytrade-offtoaddressanemergency. Itisquestionablewhether$10millionisadequatefordevelopmentrightsforapropertythatrequireda$50millionloan,especiallywhentheadditionalcostsofinterestontheloanareincluded.First,theproperty,undeveloped,isworth$6million(c.f.prospectiveDahlmannpurchaseagreementforformerYMCAsite).Second,therewas$5millionworthofextracementandsteeltocreateafoundationforalargebuildingontopofthegaragesite.Third,interestonthe$50millionloanwillamounttonearly$40million.Fourth,thecostofeachparkingspaceintheundergroundlotwasapproximately$70,000;selling200for$5millionvastlyunderestimatesboththeircostandvalue($70,000X200=$14million).AllthesecostsshouldhavebeenconsideredwhenAnnArboridentifiedafaircostfordevelopingthiscentralcityparcel.13.ConcernsAbouttheCoreSpacesParkingAgreementASeptember21,2016letterfromTomE.Harrington,Jr.,theCoreSpacesDirectorofAcquisitions,toSusanPollay,ExecutiveDirector,AnnArborDowntownDevelopmentAuthority(DDA),identifiesthe“longtermparkingagreementtofacilitatethedevelopmentofTheCollectiveon5thProject.”Thisletter,andtheaccompanyingLibrary

November1,2016 9

LaneSharedParkingStudypreparedbyDESMAN,raisessignificantconcernsaboutthenegativeimpacttheCoreSpacesprojectwillhaveondowntownbusinessesandparkingaccessforAnnArbor’scitizensandvisitors.Inthisletter,CoreSpacesrequeststhefollowing:

• 19624-hourequivalentspacesintheundergroundgarage• 85standardpermitspacesinthe4th&Williamgarage• 80additionaloffpeakpermitsinthe4th&Williamgarage• CoreSpaceswillpayDDA'scurrentmonthlyrentalrate• "ratesshallnotincreasemorethan3%inanygivenyear."• 20yearterm,with3renewals=80yearstotal• CoreSpacescansub-leaseparkingspaces,and"willhavecompleteandsole

discretionastotherateitchargesitssub-lessee."Herearejustsomeoftheconcernsraisedbythesedemands,quiteasidefromthequestionofwhetherreceiving194undergroundspacesviolatestheprovisionsoftheBuildAmericaBonds(seesection4above).

A. Arethesetermsthebestdealforthecity?B. Hasanyotherdevelopmentreceivedan80-yearleaseoption?Isn’ttherealimit

onthedurationofanydealtheCitycanmakewithaprivateentity?Isthisnegotiationsettingabadprecedent?

C. Willallocatinganadditional165parkingspacesinthe4thandWilliamgarageworsenthealreadylimitedparkingsituationfordowntown?

D. Willremoving165parkingspacesinthe4thandWilliamgaragediscouragepeoplefromcomingdowntown,therebydrivingawaypotentialclientsandharmingMainStreetbusinessesandrestaurants?

E. Isthisagreementfairtootherdeveloperswhoalsoseekdedicatedparkingspaces?

F. Isthisagreementfairtoalltheindividualsnowonwaitinglistsforamonthlyparkingpermit?Isthecitypickingwinnersandloserswiththisdeal?

G. AretheassumptionsmadeintheDESMANParkingStudy,aboutwhichresidentsandvisitorstothebuildingwillusecars,valid?

H. Aretheconclusionsdrawnfromtheirassumptions,aboutpeakdemandandsharedparkingspaces,realistic?

Inadditiontothesequestionsaboutthepotentialnegativeimpactsofgrantingsomanyadditionalparkingspaces,andthevalidityoftheirassumptions,thereareothersubstantialissuesthatmustbeaddressed.

November1,2016 10

1. Howcanthecitypossiblyallowadevelopertodictateparkingratesinacity-ownedpublicfacility?("ratesshallnotincreasemorethan3%inanygivenyear.")

2. Byreservingparkingspacesinthe4thandWilliamlotfortheiruse,shouldn’tCoreSpacesalsobecomeresponsibleforaproportionateshareofthefacilityupkeep,maintenance,insurance,andotheroperatingexpenses?

3. CoreSpacesisreservingtherighttoprofitfromsub-leasingparkingspacesthatthecitypaidtohaveconstructed.(“CoreSpaceswillhavecompleteandsolediscretionastotherateitchargesitssub-lessee.”)

4. WhyisCoreSpacesnegotiatingparkingmatterswiththeDDA,withoutanyinputfromCityCouncil,theCityManager,orthepublic?

ThematerialinthisSeptember21,2016letteraddstoalltheotherevidencepresentedherearguingthattheCoreSpacesproposalisnotinthebestinterestsofthecity,andshouldnotbeallowedtomoveforward.14.LegalConcernsAbouttheCoreSpacesAgreementAfundamentalconcernisthattheCityofAnnArbor’sagreementwithCoreSpaceswillviolatetheprovisionsoftheBuildAmericaBonds,andresultinrevocationofthe35%interestrebateretroactively.AttheheartofthisconcerniswhethertheproposeddealwithCoreSpaceswillexceedthe10%privateuseallowedbytheBuildAmericaBonds.Oneissueisthatthe$5millioncostofreinforcementstotheparkingstructure,onlytheretosupportalargebuilding,isalready10%ofthetotalbond.Whenadditionalcostsareaddedforinfrastructureimprovementsnecessaryforalargebuilding,especiallyonLibraryLane,andmakingparkingspacesavailableforprivateexclusiveuseonalongtermbasis,theCoreSpacesprojectmayexceedthe10%privateuselimit.TheCitywillclaimthatthecostsallocatedforsupportingthefuturebuildingsiteandinfrastructureneedswerefundedbyCityEquity,andthereforedidnotcomefromtheBuildAmericaBonds.Thisisarathercomplexandconfusingmatter,andhowtheCityhasallocatedbondfundsandjuggledmoniesbetweenpublicandprivatebenefitsisnotclear.Inanycase,thesaleorrentalofparkingspacesinthegaragepointstoanotherareaofconcern.TheCityofAnnArborisfullyawareofpotentialissueswiththeproposedsale,specificallyinanApril14,2010lettertothethenmayorJohnHieftje,CityCouncilmembers,andSusanPollay(AnnArborDDA)fromNoahHall,oftheGreatLakesEnvironmentalLawCenter.IntheletterheaddressesrestrictionsontheuseofBuildAmericaBondsrelatingtotheparkingstructureproject,anddiscussesthetwoprivateusetests.Hisconclusionfollows:

November1,2016 11

“…thereisalegalriskthatthebondsusedtoconstructtheparkingstructureandotherinfrastructureatthesitewillviolatetheprivateactivitytest,riskingmillionsofdollarsinfederalsubsidyfortheCity,iftheparkingstructurespacesarecontractedtoorifspecialparkingentitlementsareprovidedtoaprivatefacility.Further,givenstatementsmadebytheDowntownDevelopmentAuthorityregardingthesignificantportionofbondproceedsbeingusedforsiteinfrastructuretobenefitafuturedeveloperincludingtheprivatedevelopment’sshareofcostsforLibraryLane,theservicealley,the12”watermain,sitework,andbuildingstructuralsupport(whichappearstosolelybenefittheprivatebuilding),evenalimitedallocationofparkingspacesforaprivatehotelcouldputthecityatriskoflosingmillionsofdollarsinfederalsubsidies.”

FromanIRSreport(Number:20044125)releasedOctober8,2004,IndexNumber:141.01-01),“Section1.141-3(g)(4)(iii)provides,ingeneral,...forafacilityinwhichgovernmentuseandprivatebusinessuseoccursimultaneously....”“Theaverageamountofprivatebusinessuseofagaragewithunassignedspacesthatisusedforgovernmentuseandprivatebusinessuseisgenerallybasedonthenumberofspacesusedforprivatebusinessuseasapercentageofthetotalnumberofspaces.”ThisIRSlanguagesuggeststhatthecity’sproposaltoallocatealmost200of711undergroundspacestoprivateuse**wouldmeanthatapproximately25%ofthegaragecostshouldbeassignedtoprivateuse.ThisistwoandahalftimesmoreprivateusethanisallowedinBuildAmericaBond-financedprojects.(**“TheCityisentitledtoexclusivelytransferupto200parkingpermitsintheundergroundgaragefortheexclusiveuseofadeveloper.”OfferingMemop.20)StephenKunselman,inaJanuary19,2016lettertoCityCouncil,referredtotheSECchargesagainstAllenParkforviolatingthetermsoftheirbonds;attachedtheNoahHallletter;arguedforahigherpricefordevelopmentrights;andaskedwhetheranyletterhasbeenreceivedfromBondCounselaffirmingthattheproposedsaleconformstoSECprovisions.TodatehehasreceivednoresponseaboutBondCounselruling.15.ConcernsAboutHowFloorAreaRatio(FAR)isCalculatedOnpage19oftheOfferingMemo,thefollowingstatementoccurs:“ForpurposesoftheProperty’sFAR,RespondentsmayutilizethetotalLibraryLaneparcelsconsistingof±1.56acres.”ThishasallowedCoreSpacestoincreasethelotsizeonwhichtheirFARiscalculatedfrom35,112squarefeetto67,953sf.ThislargerbaseallowsCoreSpacetobuildamuchbiggerbuildingthanwouldbeallowedifrestrictedtojusttheLibraryLotfootprint.Inaddition,theinflatedsitesizealsoallowsCoreSpacestoescapeotherrequirementsthatarebaseduponFAR.Forexample,inordertobuildsuchalargebuilding,adeveloperwhowascomplyingwithanaccurate(smaller)basemeasureofthesitewouldberequiredtomeetamorestringentLEEDlevelofenergyefficiency,requiredtoprovidemoreaffordablehousing,andrequiredtoprovidemore

November1,2016 12

parkingspaces. ItisnotnormaltoincludepublicrightofwaysincalculatingFAR-ineffectsayingthatpartofthestreetcanbeincludedinthesitesoastopermitdevelopmentofalargerbuilding.ThelegalandfinancialissuesarisingfromthisFARrecalculationaretroubling.SincetheOfferingMemoincludesthetotalLibraryLaneparcelsaspartoftheprivatedevelopmentcalculations,theadditionalinfrastructurecostsallocatedtotheLibraryLaneparcelsshouldalsobeallocatedtoprivateuse.Onpage20oftheOfferingMemo,thecitywritestheparkingstructure“wasdesignedandconstructedforfuturehighdensitydevelopment....Thesitewasconstructedtobe‘developmentready’,includingsuchutilitiesaswatermainsandelectricity.”Theconsequenceofthisrecalculationwillbeadeterminationthatmorethan10%oftheBuildAmericaBondisgoingtoprivateuse,makingAnnArborvulnerabletoforfeitureofthe35%interestrebate,againatacostof$40millionoverthelifeofthebonds.16.ConclusionTheAnnArborCityCouncilhasoftenexpresseditsfearoflitigationandfinancialdamageswhilevotingforprojectsthatmanyfindinappropriateforthecity.Thisconcernforthecity’sfinancialhealthandfearoflitigationisadmirable,andshouldnowbeextendedtofurtherevaluationoftheCoreSpacesagreement.Asoutlinedabove,thereisarealdangerthattheproposedagreementwithCoreSpaces,foritsdevelopmentandlong-termaccesstoparkingspacesintheundergroundlot,willviolatethepublicuseprovisionsoftheBuildAmericaBonds.Anysuchviolationcouldresultinlossoffavorableinterestterms,retroactivelyandintothefuture,andcostthecityupto$40milliondollarsofinterestpenalty.Thecollectiveimpactof(a)discountedsaleoftheLibraryLot,(b)concessionsonFARbyincludingotherpubliclyownedland(i.e.,LibraryLane),(c)proposedparkingagreementattheexpenseofnumerousotherparkingpatrons,(d)detrimentaleffectofparkingconcessionsoncitizensandvisitors’abilitytoparkforaccesstodowntownbusinessesandrestaurants,withnegativeeffectonthesebusinesses--allequalanenormouspublicsubsidytoaprivatedeveloper.TheCity’snetgainwillbelessthan$5million(afterset-asideforaffordablehousingandclosingandlegalfees),andahugebuildingthatcitizensofAnnArborhavecontinuallysaidtheydonotwant.

November1,2016 13

Furthermore,theCoreSpacesproposalalsofallsshortofmeetingtheCity’sdefinedneedsforpedestrianconnectivityandactivationofthepublicplazaelement.Whenthisisaddedtothesignificantlegalandfinancialissuesidentifiedabove,andthenegativeimpactonpublicparkingavailability,webelieveCouncil’sbestresponsewillbetothankCoreSpaces,rejecttheirproposal,andrevisitthiscentralsitewithfresheyes.Thenewperspectivemustbebasedonfullinputfromcitizens,nearbypropertyowners,areabusinesses,anddeveloperswhounderstandthebestinterestsofAnnArborandjoinusinplanningforthecity’sfuture.17.RelevantlinksLibraryLotDevelopmentProposalsPublicEngagementSummary:http://www.a2gov.org/departments/city-administrator/Documents/Library%20Lot%20Public%20Engagement%20Summary.pdfCityofAnnArborsiteforLibraryLotRFPResponses:http://www.a2gov.org/departments/city-administrator/Pages/Library-Lot-RFP-Responses.aspxAnnArborChronicleArticles:http://annarborchronicle.com/search-results/?cx=003083320230527424487%3Aqygadm22aik&cof=FORID%3A11&ie=UTF-8&q=parking+garage&sa=Search&siteurl=annarborchronicle.com%2Farchives%2Findex.html&ref=annarborchronicle.com%2Fsearch-results%2F%3Fcx%3D003083320230527424487%253Aqygadm22aik%26cof%3DFORID%253A11%26ie%3DUTF-8%26q%3DLibrary%2BLot%2Bparking%2Bgarage%2Bcosts%26sa%3DSearch%26siteurl%3Dannarborchronicle.com%252F%26ref%3D%26ss%3D6431j1749835j34&ss=2584j546290j14 LetterfromSusanPollay,DDADirector,toStevePowers,CityAdministrator,November22,2013,abouttheLibraryLaneParkingStructureDesign:http://annarborchronicle.com/wp-content/uploads/2013/12/LibraryLanequestions112213.pdfParkAdvisoryCommission(PAC)RecommendationforRedevelopmentofLibertyPlazaandDevelopmentoftheLibraryLot(FileNumber:14-1326):http://www.a2gov.org/departments/city-administrator/Documents/Library%20Lot%20RFP%20Responses/PAC%20Comments.pdf

November1,2016 14

ResolutiontoDirecttheCityAdministratortoListforSale319SouthFifthandtoRetainRealEstateBrokerageServices(FileNumber:14-0470):http://www.a2gov.org/departments/city-administrator/Documents/Library%20Lot%20RFP%20Responses/TextFile24-Nov-2015-06-58-17.pdfResolutionDesignatinganUrbanPublicParkLocationontheLibraryLotSite(FileNumber:14-0334):http://www.a2gov.org/departments/city-administrator/Documents/Library%20Lot%20RFP%20Responses/TextFile24-Nov-2015-07-02-40.pdf18.AttachmentsNoahHallletterofApril14,2010StephenKunselmanletterofJanuary19,2016ContactpersonforLibraryGreenConservancy:PeterNagourney(nagourney@gmail.com)

November1,2016 16

November1,2016 17

November1,2016 18

November1,2016 19