Ann Arbor hiring broker as council considers selling city-owned property downtown

As the city of Ann Arbor looks to sell the old YMCA property downtown, the City Council is giving City Administrator Steve Powers an April 1 deadline to report back on efforts to hire a broker.

A majority of council members decided Monday night the surface parking lot known as the Y Lot at the corner of Fifth and William is no longer needed for public purposes.

Under a resolution sponsored by Mayor John Hieftje and Council Member Stephen Kunselman, D-3rd Ward, the council directed Powers to issue a request for proposals for brokerage services.

"This property certainly has a lot of potential, and this step is just to direct the administrator to start getting some appropriate services," Kunselman said.

"It's not selling the property," he cautioned. "It's not doing anything of that nature at this point. But we need to make the first step."

Hieftje said he has agreed for quite some time with Kunselman's repeated suggestion to put the Y Lot up for sale, given that a $3.5 million balloon payment on the property is due in December.

The council voted against that idea when Kunselman brought it forward last August, preferring to let the Downtown Development Authority's Connecting William Street planning process — which included a study of the Y Lot — finish playing out first.

Now that the DDA's process has concluded, Hieftje said, it makes sense to move forward on putting the Y Lot up for sale, even though that's at odds with what the DDA recommends.

As the first project in the Connecting William Street plan, the DDA's plan recommends the city consider marketing — as a package deal — both the Y Lot at the corner of Fifth and William and the Library Lot above the city's underground parking garage off Fifth Avenue.

The DDA believes the sites — across Fifth Avenue from one another — provide enough space to accommodate large floor plate office, high-density residential, open space and lodging.

To solicit developer interest in the Y Lot and the Library Lot, the DDA proposed a two-phase process — first releasing a request for qualifications (RFQ), and then releasing a request for proposals (RFP) to select developers. Through that process, the DDA has argued the city could insist on performance requirements to ensure each site is developed to certain standards.

"I have a disagreement with part of the Connecting William Street process that talks about trying to do some sort of a super plan for the Library Lot site and the old YMCA," Hieftje said. "We do owe money on that site, which we've been refinancing, but the market appears to be strong right now, and it seems like a good opportunity for the council to move forward and sell that parcel."

Council Member Christopher Taylor, D-3rd Ward, was the lone voice of dissent on the Y Lot resolution Monday night.

"We asked the DDA to take a long hard look at this and I think they offered some intriguing ideas about coupling this with the Library Lot," he said.

"I understand that linkage reduces the likelihood of movement soon, but I think in the end there is more value there to the city's bottom line and the community's life than the parcels separated out."

Taylor said the imminent balloon payment, in his mind, is not a threat because interest rates are low and the city can refinance without changing the status quo.

"It strikes me that we asked the DDA to take a good hard look at this and we should continue with that process," he said.

The city purchased the old YMCA property for $3.5 million in 2003 in hopes of ensuring the housing units on site would be preserved after the YMCA moved into its new facility on Washington Street. Had the city not purchased the building, city officials feared the YMCA could have sold it to someone else and the city would have permanently lost 100 units of affordable housing.

But the city found the building had been poorly maintained — the boiler was deteriorating and eventually died, the plumbing was poor, and the building lacked proper accessibility for the disabled.

Because of the deteriorating conditions, the city paid about $1.3 million to relocate remaining tenants to other housing units in 2008 and then tore down the building.

The original goal was to sell the property to a developer who would demolish the building, but that deal fell apart in 2007. The developer sued the city in federal court but lost.

The site has remained a surface parking lot ever since, and the city has continued to make interest-only payments on the property for the last decade.

"I guess there may still be some in the community who think we should continue to make interest-only payments on it," Kunselman said. "But I would just ask: Is that how you would manage your own finances?"

Hieftje acknowledged the city is enjoying a relatively low interest rate on the property. Meanwhile, the lot is roughly generating $250,000 a year in parking revenues.

After subtracting expenses, including nearly $100,000 in payments that go to the city, the lot generated a profit of about $80,000 for the DDA last year, records show.

"So it's paying the bills," said Council Member Jane Lumm, an Independent who represents the 2nd Ward. "But I don't think that's the point here. What we're trying to do, again, is just get some info on what the property might be worth."

The city's total interest through the maturity of the note is expected to be $727,692, while the DDA will have contributed $634,557. Of the $3.5 million principal payment due in December, $2.075 million is the city's responsibility and $1.425 million is the DDA's responsibility.

"As we approach that decision point, we should be certainly maximizing our options, gathering as much information as we can," Lumm said. "Selling the property in an as-is condition is certainly one of the options, not necessarily the one we'll ultimately choose."

AnnArbor.com filed a Freedom of Information Act request with the city and DDA for any appraisals of the properties studied as part of Connecting William Street. That turned up two old records.

A 68-page report by an Ann Arbor-based appraisal firm told the city in January 2009 the market value of the 0.82-acre Y Lot at 350 S. Fifth St. was nearly $4.7 million.

Separately, the city received an appraisal of the Library Lot in June 2006, before the underground garage at the site was constructed. At the time, the 1.55-acre site was home to a 190-space parking lot, and the appraiser found it had a market value of more than $6.4 million.

The developable footprint of both properties has been reduced somewhat since the construction of the underground garage and addition of a new mid-block street at the Library Lot, and the sale of a small strip of the Y Lot to the Ann Arbor Transportation Authority for its transit center expansion.

Hieftje said one of his fears is it could become difficult to sell the Y Lot if the economy takes a dive again, and the city might not always have the low interest rate it does today.

"The market appears to be strong now and I think it's a good idea for us to explore this at this point and perhaps sell this property and have money left over for affordable housing if everything goes well," he said, referencing a resolution the council passed in October.

The resolution stipulates the net proceeds from the eventual sale of the Y Lot, whenever that might be, first will be used to repay the various funds that expended resources on the property, after which any excess proceeds will go to the city's affordable housing trust fund.

Council Member Sabra Briere, D-1st Ward, said she hopes the city will be "generous about exactly how we define those costs, because it would be really easy to attribute a lot of costs to this property and thus diminish the contribution that could be made for affordable housing."

Council Member Chuck Warpehoski, D-5th Ward, said he hopes the city will continue to look for ways to make sure whatever gets built on the Y Lot is "worthy of the city."

Hieftje said he doesn't think it would be possible for the city to stipulate the land, for example, couldn't be used to build another student high-rise. But he said there might be ways the city could express its preference for mixed-use development, including ground-floor retail, possibly office space, and if there's residential included, a mix of studios and one- and two-bedroom units.

Council Member Margie Teall, D-4th Ward, said she's concerned the city could lose control over how any future building looks if it sells the property to a private developer. She still voted with the majority, noting Monday's action doesn't commit the city to selling the property just yet.

"We're going to be dealing with public opinion and expectations of what this block could be in the end, however it comes back to us from the broker," Teall said. "So I think there will still be challenges."

Council Member Sally Hart Petersen, D-2nd Ward, suggested the city might be better off loosening its control over development of the Y Lot given its "radioactive" reputation among developers.

Ryan J. Stanton covers government and politics for AnnArbor.com. Reach him at ryanstanton@annarbor.com or 734-623-2529. You also can follow him on Twitter or subscribe to AnnArbor.com's email newsletters.