City Manager Quietly Issues eBay Land Sale Report … And His Core Defense Doesn’t Check Out.

Above: City Manager George Lahanas at the Feb. 18, 2020, City Council meeting. (Photo by Raymond Holt)

East Lansing City Manager George Lahanas has now issued a 785-page report on what happened with the decision to auction off a million-dollar piece of public property on eBay and not let more than a handful of people know about the auction.

But while this long-awaited look inside the decision-making does answer a few long-simmering questions — like who came up with the eBay idea — at the core is a defensive claim by Lahanas that is clearly contradicted by the documentation he has now provided.

Lahanas says that by deciding to use eBay instead of an auction house that would have widely advertised the sale, the City saved about $100,000 on costs related to the sale. But the supporting material shows Lahanas was advised that the actual figure of what the City saved by going with eBay was closer to $1,000.

What did the City lose by picking eBay over an auction house? Real marketing that might have driven up the price substantially by letting many more potential buyers know about the auction.

Above: City Council member Lisa Babcock, who initiated the call for the special report at the Jan. 7 meeting. (Photo by Raymond Holt)

In case you haven’t been following what some have jokingly called East Lansing’s “silent auction,” the matter involves a piece of property on Merritt Road near Costco, listed by the City of East Lansing on eBay in early 2019 and consequently sold to a marijuana speculator for $1,000,900. The City has said it notified “approximately 12 interested parties,” but has never given a full accounting of who those 12 were.

The company that won the eBay auction is now asking a lot more for the property, and the City has come under fire for having failed to properly advertise the auction of a property that was quickly increasing in value due to the Michigan marijuana real estate gold rush and its proximity to the new Costco store.

In the new report, Lahanas again puts forth what’s been his core defense all along. He says the reason the City staff went with eBay and not a traditional auction house is that the eBay listing cost only $153 while an auction house would have taken 10 percent of the winning bid.

According to the report, “Based on the desire to minimize the fees paid from the City’s potential profit from the sale, Planning Director [Tim] Dempsey proposed the idea to City Manager Lahanas” of using eBay, an idea said now to have been raised by Dempsey’s successor, Tom Fehrenbach.

“Based on the fee structure, paying $153 compared to potentially $100,000, City Manager Lahanas agreed with the hosting [of] the sale through eBay … .”

The problem with this claim is that Dempsey had made clear to Lahanas that the two auction houses they were considering using would charge the buyer, not the City, the 10 percent commission.

In fact, in an email dated Dec. 3, 2018, Dempsey underlined the word “buyers” to make the point very clear to Lahanas: “They both charge the buyers 10% of the price of their fee.”

The newly released documents show that the auction house Dempsey recommended would have charged the City a marketing fee of $1,250. But according to the proposal from that firm, that fee would have led to significantly more marketing than City staff ever undertook.

The $1,250 fee to be paid by the City to the auction house, LASTBIDrealestate.com, would have covered designing and printing a color brochure mailed to potentially interested parties, including “medical marijuana companies in Michigan and more.”

It would have also covered the company undertaking social media advertising, producing signs to be put on the property itself, internet listings, and email blasts.

None of those things ever happened, not even the placing of signs on the property. The report aims to explain the failure to widely advertise the auction:

“At the point of posting, Planning Director Dempsey mentioned that he would be contacting all parties that had previously inquired about this parcel specifically and medical marihuana sites in general in the City, to notify them about the posting and that the listing would be posted for 30 days to provide sufficient time for bidding. Planning Director Dempsey did not suggest, and City Manager Lahanas did not request, broader publication of the bidding.”

The report continues: “Though not thoroughly discussed, staff believed all interested potential buyers were contacted, taking into consideration the recent change in use” — presumably meaning the rezoning by the City Council to allow for marijuana sales.

“At this point, the inevitable decision and responsibility for the listing and marketing of the parcel fell to City Manager Lahanas. In retrospect, the oversight at this point was failing to post to the City’s website or broadly market the parcel listing.”

The City still suggests this might not have brought in any more money. But, the report concedes, “it would have promoted greater transparency in the process.” Lack of transparency, the report says, “is the key learning point for staff in this process.”

The potential to have brought in more money to this financially challenged city is not named as a key learning point. Yet clearly an auction house would have been incentivized — more than City staff seems to have been — to maximize the number of bidders and the winning bid, since their commission would have been based on the sale price.

The new report doesn’t seem to reflect at all on what difference the auction house might have made in terms of driving up the price. And, as noted, the report misrepresents by nearly $100,000 what the use of an auction house would have cost the City.

It’s worth noting that Dempsey told City Attorney Tom Yeadon on Dec. 10, 2018, that he had “a number of concerns from my perspective” about the proposed contract from LASTBIDrealestate.com. Dempsey didn’t say what his concerns were, but based on someone’s notes on the draft contract, it looks like they probably related to whether the City could agree to such things as guaranteeing there were no “hidden defects” on the property. The property was known to have environmental contamination.

Above: Then-Planning Director Tim Dempsey presenting to City Council.

So, it appears Dempsey may have seen reasons other than cost to avoid signing up with LASTBIDrealestate.com. But his reason for not signing up with them wasn’t the fear of the City having to forfeit 10 percent off the top of the sale price.

If Lahanas thinks that was the reason to go with eBay, then he wasn’t (and isn't) carefully reading what Dempsey sent him.

Interestingly, the City’s release of the 785-page report has been almost as quiet as the auction itself.

The report was posted to the City’s website without a press release. It was buried in the news queue under earlier posts. It has not been included on this week’s Council agenda. And there was no issuance of a Friday e-Dialog newsletter in which it might have been mentioned.

In fact, ELi would not have noticed the new report had a Council member not alerted us to it. The special report was ordered by a 4-1 vote of Council back in January of this year, pushed by newly elected Council member Lisa Babcock, who had made an issue of the eBay auction in her campaign.

Only Mayor Ruth Beier voted against ordering the report. Beier expressed concern that it might intimidate staff and make them feel Council is looking to blame someone.