Valiant Partners proposes reduced-size conference center in downtown Ann Arbor, report shows
Ryan J. Stanton | AnnArbor.com
New York-based Valiant Partners is proposing a reduced-size conference center in downtown Ann Arbor with one to two floors of additional commercial office space — designed to strengthen the viability of the project and rid the city of any financial risk.
Those revisions are outlined in a new report by the Detroit-based Roxbury Group, a consultant hired by the city of Ann Arbor to assess two competing development proposals from Valiant Partners and Acquest Realty Advisors of Bloomfield Hills.
The outcome of the consultant's study was announced Wednesday afternoon at a meeting of the Ann Arbor Downtown Development Authority.
AnnArbor.com has since analyzed the 30-page report, which concludes the Valiant proposal is "clearly preferable from a financial perspective." But it appears more evaluation is needed before anyone can say a hotel and conference center would be viable.
A year ago, Valiant and Acquest both proposed building a hotel on the city-owned Library Lot site on South Fifth Avenue, atop an underground parking structure being built by the DDA.
Both firms also asked the city to make a financial commitment to fund a conference center that would drive the success of the hotel. Valiant's plan included the conference center onsite, while Acquest asked the city to separately build a conference center across the street.
City officials expressed concerns early on about putting the city at risk financially, but Valiant now says it's promising a risk-free deal to the city.
"To ensure that this is the case, Valiant has offered to guarantee the amount of financing necessary so that any shortfall is covered by the developer, not the city," the Roxbury Group's report states. "Additionally, under the revised proposal, the excess ground rent plus the taxes generated by the residential units total roughly $275,000, more than double the original offer."
More simply put, the revisions to Valiant's proposal would increase the annual net cash flow to the city's general fund from $128,784 to $273,731, the consultant's report shows.
Valiant has scaled back the proposed size of the conference center from 32,000 to 26,000 square feet and has eliminated a rooftop public open space feature. It also has reduced the number of condominium units in the mixed-use project from 12 to 6.
Valiant still is expecting to build a 150-room hotel and says the conference center would offer banquet seating for up to 500 people. The project also would offer 48,000 square feet of office space, a 5,000-square-foot restaurant and 6,000-square-foot public plaza.
In all, there would be about 178,000 square feet of new development contained within a maximum height limit of 180 feet.
Instead of asking for $8.1 million in bonds backed by the city, Valiant now is counting on borrowing $6.9 million in the form of tax-exempt revenue bonds issued by the Economic Development Corp., which would be paid back over 30 years.
Roxbury is advising the city's Library Lot advisory committee to provide a "conditional selection" of Valiant's proposal and have the city enter into of a letter of intent with Valiant, setting forth specific terms of financing with a timeline for closing and construction.
Mayor John Hieftje said a lot of details still need to be worked out and there's "a long time to go" before it might arrive on the City Council's agenda. But he called it significant that Valiant is proposing not to seek any public money for the project.
"That's the most important thing that came out of this," Hieftje said. "I know myself, along with other members of council, quite some time back said we don't want to put the city at any financial risk for this. It's not a time to be putting the city at any risk for private ventures."
Roxbury notes upfront its report is "not intended to serve as a feasibility study for the concepts included in the two proposals." Rather, the consultant went into the evaluation with the assumption that both proposals are valid from a market and demand standpoint.
The report still states "both groups bring substantial wherewithal and access to financing based upon their past project experience" and "both present a credible case for having the ability to obtain financing for projects of the scale being proposed." However, the report also found both proposals raise issues of market feasibility.
"Both suggest the addition of a full-service hotel to the downtown, which while anecdotal market evidence would suggest is needed to meet current demand, will require further definition as to pricing, scale and offerings before any final transaction were to occur," it states. "Further, the Valiant proposal suggests other uses that may not be fully supported by current market demand, such as luxury condominiums and up to 48,000 square feet of Class A office space."
However, Roxbury concluded: "Valiant appears to have presented a mixed-use proposal that is inherently more capable of reinforcing its own uses to achieve greater viability, and remains flexible enough to adjust to market conditions."
The consultant found Valiant's revised proposal "represents a credible and comprehensive approach," which, on its face, "puts all real financial risk associated with the transaction on the developer’s shoulders, and essentially provides a path for privately financing the development without the need for government subsidy beyond the normally available entitlements."
But the report states "much additional due diligence" needs to be undertaken to ensure that the finance structure actually can work.
Acquest lost points in the consultant's evaluation for lacking specifics on how it would finance its project, relying instead on its track record of financing other similar projects. As such, the consultant found it "impossible at this phase to assess the degree to which the Acquest project can be financed." But it appears it would involve a financial commitment from the city.
Valiant, on the other hand, has provided a "very specific proposal for the financing of its project," according to the consultant. The report said the Valiant proposal is "far more compelling and significantly more responsive to the RFP, as well as to goals articulated in the stakeholder interviews, the A2D2 Initiative and the Downtown Plan."
While the consultant's report appears to suggest the Valiant proposal could be viable, much of the evidence presented is anecdotal and based on interviews with community leaders who already support the concept and data provided by the DDA itself.
A large portion of the Roxbury report is little more than a regurgitation of the options of leaders of the Ann Arbor District Library, Ann Arbor Area Convention & Visitors Bureau, Ann Arbor SPARK, the University of Michigan, and the Ann Arbor/Ypsilanti Regional Chamber of Commerce. The general consensus from those interviewed is there is a need for a conference center in downtown Ann Arbor to accommodate unmet needs.
For example, while U-M and two downtown hotels offer meeting rooms and banquet facilities that can be used to accommodate conferences, not a single facility in downtown Ann Arbor can both house and meet the conference needs of groups larger than 350.
"There is broad consensus around the proposition that a facility which can accommodate a minimum sit-down banquet capacity of 500 people would satisfy needs that are currently unattainable on either the university campus or elsewhere within Ann Arbor," the report states. "Some suggest, however, that given the availability of the Eagle Crest Marriott in Ypsilanti, which can accommodate 500, only a facility that could accommodate up to 650 would be seen as a ‘game changer’ within the market."
The report compares Ann Arbor to seven other medium-sized college towns throughout the United States, including Athens, Ga., Berkeley, Calif., Boulder, Colo., Columbia, S.C., Fort Collins, Colo., Madison, Wis., and Champaign-Urbana, Ill.
It found Ann Arbor has the highest hotel occupancy rate, but ranks 5 out of 8 in number of hotel rooms downtown. It also found Ann Arbor ranks 4 out of 8 in terms of total meeting space in the city, but it ranks at the bottom in terms of meeting space available downtown.
The largest meeting space in Ann Arbor — 6,325 square feet at the Michigan Union — is significantly smaller than the largest meeting space in any of the other comparable cities.
Based on several reports and interviews with community leaders, the consultant concluded Ann Arbor has a strong hotel market — one that is underserved in its downtown. "Ann Arbor is already a popular destination for visitors and conferences and will become an even greater draw given the trend to travel to smaller, less expensive venues," the report states.
"By establishing a 'game-changing' conference center as its central project element, Valiant has identified the more compelling project for the site," the report found. "Acquest itself recognizes the need for a conference center, but does not actually propose to develop one."
DDA board member John Splitt is one of five members of the Library Lot advisory committee, which also includes City Council Members Stephen Rapundalo and Margie Teall, Planning Commissioner Eric Mahler and Park Advisory Commissioner Sam Offen. Splitt said the committee still is expecting more financial data from the consultant.
"This needs to be talked about further. The proposal needs to be refined, but they removed the city being the holder of the bond for the conference center portion of the project," Splitt said. "If this goes forward and a letter of intent is signed, there's much more negotiating to truly define what it is they're proposing and how it will be financed, and that has further to go."