City Cooperation with PDIG Stops, Pending Major Foreclosure Sale

Image: One of the properties at issue

This afternoon, the East Lansing Downtown Development Authority (DDA) voted unanimously to cease, for now, any further work on the proposal from the Park District Development Group (PDIG) regarding the major blighted area downtown. This means all DDA efforts to move forward the project at Grand River Avenue and Abbot Road in East Lansing will temporarily cease. Without the DDA moving forward on a development agreement between the City, the DDA, and PDIG, the redevelopment project is effectively stalled.

The reasoning among members of the DDA to delay voting on the development agreement is that with the project properties now in foreclosure and facing an imminent sheriff’s sale—and individuals associated with PDIG caught in a plethora of lawsuits related to this project and others around the country—it does not make sense for the DDA to continue to spend effort and City resources on the PDIG proposal before them.

Said DDA member Brad Ballein, “I’m surprised we’re talking about a building that is in foreclosure.” (The foreclosure actually involves multiple buildings in the project area.)

Former East Lansing mayor Doug Jester, now a member of the DDA and a resident of downtown, made the motion to stop work on the development agreement efforts, saying that, months after requesting one, the DDA is still not in possession of an appropriate “due diligence” report and yet the properties are now facing a foreclosure sale.

Jester and others said at today’s meeting that any additional effort on the project by the DDA or the City should wait at least until there is resolution about the foreclosure sale. The DDA voted unanimously to tell the City Attorney, who was present, to do no additional work looking into the background of PDIG and its associates. (The City Attorney bills the City for every hour of work on this and other matters.)

Earlier in the meeting, City Attorney Tom Yeadon had suggested adding a paragraph to the development agreement between PDIG and the City that would have attempted to prevent the City of East Lansing from being dragged into any of the lawsuits involving PDIG and its associates. However, this language was set aside when the DDA decided not to adopt the development agreement at this time.

At the June DDA meeting, Cory Leon of National Development Council (NDC), who had submitted a “due diligence” report to the DDA, informed the DDA that he had received information from the developer only the day before about a legal complaint concerning failure to pay the mortgage on the East Lansing properties. That complaint had been filed in Cuyahoga County Court in Ohio on June18 and was occasioned by a notice filed on June 1 by the lender stating that the loan was in default. (Read more.)

The written NDC report had included this conclusion: “From our investigation it appears that the pending lawsuits will not hinder the developer in any way.” But news of a notice of default filed by the lender on June 1 – and a notice on June 29 that a foreclosure sale had been scheduled for July 30 in Ingham County – then led Cory to say that information about the status of the loan on this property could affect his conclusion.

This, in turn, led to the DDA asking City Attorney Tom Yeadon to dig deeper and to give what he found to Leon, so that he could amend his report accordingly. At today’s meeting, Yeadon said it would be very time consuming (and thus, expensive) to chase down all the different lawsuits and he sought guidance from the DDA about whether they wanted him to dig deeper into various legal avenues.

What will happen next regarding the dilapidated properties at the west end of East Lansing’s downtown? This issue will be contested in the Cuyahoga County Court. Already claims are being thrown back and forth.

On July 22, City Center Two Project, LLC (the original borrower on the loan for the properties at both Grand River Avenue and Abbot Road and two shuttered apartment buildings on Evergreen Avenue adjacent to Valley Court Park) filed a Temporary Restraining Order to prevent the lender, Mountain Vista Opportunity Fund I, LLC and DDR Corp., from conducting the foreclosure auction on July 30 until a legal dispute between these parties is adjudicated by the Court.

We have located a letter from another attorney representing PDIG—R. Christopher Cataldo of Jaffee, Raitt, Heuer & Weiss from Southfield, Michigan on the foreclosure. In that letter, dated June 10, 2015, Cataldo says his “clients dispute that they are in default” on agreements allegedly at issue in the foreclosure suit.

Cataldo claims, “My client has received all necessary approvals from the City of East Lansing and the Sate of Michigan and is proceeding to close its $71M construction facility within the next several weeks.” In fact, the development agreement and financial incentives for this project have not been approved by either the East Lansing DDA or the East Lansing City Council.

The Brownfield Redevelopment Authority Board, comprised of the same members as the DDA, met immediately after the DDA meeting and voted unanimously to delay action on the TIF plan for the project using the same condition—waiting until after the foreclosure sale is resolved.

If the foreclosure sale occurs, presumably PDIG will no longer own the properties and its application to East Lansing for a site plan, development agreement, and tax incentive financing here will be moot.

What happens next with the properties will depend, in part, on whether the foreclosure sale goes through, who buys the properties at foreclosure, and what legal entanglements exist around the properties.

UPDATE, July 23, 8 pm: A comma was added to the headline.

Disclosure: At the DDA meeting, Alice Dreger spoke during public comment against continuing trying to broker a deal with PDIG on this project.