Developer suing Ann Arbor over failed affordable housing project

The old YMCA site is the subject of a new lawsuit.

File photo

HDC is suing the city on seven counts, alleging violations of the Fair Housing Act, breach of covenant of good faith and fair dealing, breach of contract, fraud and tortious interference with a contract or business expectancy.

"It's a very serious claim. Our client has been damaged substantially," said Birmingham attorney Dino Kostopoulos. "Our client spent a couple years working on this. Our estimate is our client has suffered damages in excess of $15 million."

City Attorney Stephen Postema could not be immediately reached for comment today.

A surface parking lot exists today on the site at 350 S. Fifth Ave. It used to be the old YMCA, across from Ann Arbor's downtown library. The city purchased the property in 2003 to preserve at least 100 units of low-income housing.

In 2004, the city issued a request for proposals to select a developer to construct a low-income housing project. HDC proposed redeveloping the YMCA property and the adjoining site owned by the Ann Arbor Transportation Authority.

The project was to include a condo building with 100 units of affordable housing, four stories of office and retail, market rate housing, an enclosed terminal for the AATA and underground parking. The occupants of the affordable housing units were to be residents with continuing mental or emotional impairment, documented substance abuse problems and chronic homelessness, according to the lawsuit.

In June 2005, HDC's proposal was chosen by the city over five other applicants. The City Council passed a resolution accepting HDC's proposal and agreed to a purchase price of $3.5 million for the property.

Following the city's acceptance, HDC established a company named XY to develop the project and set up another company, 200 East William, to be the developer and owner of the affordable housing. Both are listed as co-plaintiffs in the lawsuit.

In October 2006, the state awarded the developer more than $18.5 million in tax credits for the project. Soon after, the developer asked the city if it could modify the project to include a hotel and conference center and eliminate the market rate housing and offices included in the previous plans.

The plaintiffs claim the city "provided no formal response," and the issue lagged for months. In January 2007, the plaintiffs claim, they advised the city that the state required the revised project to be formally adopted by the City Council for it to process a $6 million tax credit.

What followed were several "months of frustration in attempting to secure approvals and agreements from the city," until the City Council finally approved the revised project in March 2007, the lawsuit states.

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Between 2005 and 2007, the plaintiffs spent more than $2 million on architectural and engineering fees, feasibility studies and other expenditures, the lawsuit claims. In April 2007, the developer was awarded $7.5 million in Brownfield credits, but dealing with the city continued to be a formidable process, the lawsuit claims.

In October 2007, the city finally agreed to grant the developer an option to purchase the property, but required the developer apply for demolition permits by no later than Oct. 15 - just three days after the execution of the agreement, the lawsuit claims. The plaintiffs claim when they went to apply for the permits, they were advised by the city they couldn't because the city still owned the property.

In November 2007, the City Council denied the developer's request to modify the demolition permit deadline and sent a notice from the city attorney's office terminating the option agreement, according to the lawsuit.

The plaintiffs claim the city intentionally delayed and arbitrarily refused the project in an attempt "to destroy the affordable housing project in downtown Ann Arbor in order to prevent recovering alcoholics/drug addicts and the mentally handicapped from residing at that location." The lawsuit also alleges the city wanted to reallocate the tax credits to a different project or developer and wanted to sell the property to another person or entity for more money.

"By its actions and its refusal to convey the land, the city prevented the development of the revised project," the lawsuit reads. "Because of the city's actions, plaintiffs lost the benefits of the low-income housing tax credits, the Brownfield tax credit, the construction and financing commitment and in excess of $2 million in out-of-pocket costs and the fees, profits and other benefits associated with the revised project."