Wednesday, May 24, 2017

Will a $350 million 'Chinatown' funded by EB-5 visas save Ypsilanti from its economic woes?

Posted By on Wed, May 24, 2017 at 12:50 PM

click to enlarge COURTESY DRAWING
  • Courtesy drawing
A Chinese-American developer based out of Troy is planning to spend up to $350 million to build a mixed use "Chinatown" that could be the long sought after golden project that rescues Ypsilanti from its ongoing economic troubles.

At its May 23 meeting, the Ypsilanti City Council approved a letter of intent to sell 36 acres of the vacant city-owned Water Street property just east of its downtown to International Village LLC. The development would offer 1,600 bedrooms in buildings that are up to six stories. Unit sizes are yet-to-be determined. Plans also call for plazas, restaurants, offices, Chinese markets, transit nodes, and an "Eastern-themed" design.

As the builder — Saginaw-based Spence Brothers — billed it in its presentation to council, International Village will be a "regional focal point for Eastern culture, Eastern cuisine, Eastern customs, and Eastern living."

It would largely cater to a mix of Chinese and other Asian students studying at Eastern Michigan University, University of Michigan, and Wayne State University. Some would be affluent, while others would be of average means. The development - which city officials referred to as a "Chinatown" - would also include 120 units of professional housing.

Beth Ernat, the city of Ypsilanti's economic development director, called the deal "transformative."

"It's a master development of the entire site that would be transformative — not just to Water Street, but to the character of the entire community," she tells Metro Times.

Just as interesting are the funding sources. The development team told council that 40 percent of the capital will come from the "sale" of EB-5 visas. The visas are available to foreign investors who invest at least $500,000 in an American infrastructure project that creates jobs that last at least two years. International Village claims it will create at least 1,000 temporary and permanent jobs.

The controversial visas landed in the news last month because the sister of White House Senior Adviser Jared Kushner offered them as part of a real estate deal in Beijing. Called the "golden visa," Chinese investors spent $24 billion on "buying" EB-5s during the last decade. However, some see it as a sale of citizenship for wealthy investors, and President Donald Trump has proposed killing the program.

If it lives, the visas can pull in a large amount of capital, and the rest of the funding will come through traditional investment. The developer, Amy Xue Foster, works in global funding, and has experience raising capital, officials say.

As of now, the city would sell each acre for $1, though International Village will remediate the Water Street property's polluted soil, a project that's expected to cost between $4 million and $8 million. The latter will also lay infrastructure like streets and sewer, though all that is subject to change in later negotiations.

While being home to southeast Michigan's only "Chinatown" is an exciting enough prospect for Ypsilanti, the importance of the development goes well beyond that. It could also solve the city's ongoing Water Street debt issue, a decades-long saga that nearly led it into receivership, which I regularly reported on for MLive while covering the city for seven years.

In the late 1990s, the city council decided to get into real estate speculation and bonded over $3o million to purchase the 38-acre Water Street property. The former industrial site sits on the Huron River just east of downtown, and city leaders at the time envisioned clearing the property of its factories and selling the land to developers who would build mixed-use developments.

The new construction would have essentially extended downtown east, and the city would have used the new tax revenue to pay down the bond principal. But the real estate market crashed and the development never happened, with the exception of a Family Dollar.

That left the city to struggle when payments for up to $1 million annually came due in 2011. The debt forced Ypsilanti to make cuts to city services and constantly worry about Lansing sending in an emergency financial manger.

In 2015, a developer proposed a low-income housing project for the land, but the state discovered that the city hadn't properly cleared the soil of industrial pollution that included lead, mercury, PCBs, and other heavy metals.

That sunk the project, and the city started planning an expensive new cleanup effort. Ernat says the proposed development could solve the pollution and debt issues, which is what makes it so exciting, should it pan out.

"More than just the tax revenue, it's the increased use of downtown, it's the jobs it creates, and the benefits that come from individual jobs on a site that doesn't have any use at the moment," she says.

But is it too good to be true? To be clear, the city and developer only signed a letter of intent, and the next step is a 120-day period of due diligence during which either party can back out.

As Council Member Brian Robb pointed out, other developers who come to Council with projects are typically further along in the planning process, so this is far from a done deal.

"Of all the proposals to come before council looking for a letter of intent, this project is the most vague," Robb said. "It's intriguing, I just wish we were given more details. We'll know more in four months."

The cost is also suspicious. One could almost build an arena in Detroit's Midtown with $350 million, so how will the numbers work in Ypsilanti? EB-5 visa revenue will cover a lot of that, but, again, the visa program is being targeted by Republicans.

And there's no clear idea of how much tax revenue the project will generate, though that level of investment will likely cover the current $880,000 annual debt payments.

International Village pointed out in its presentation that Ypsilanti's proximity to southeast Michigan's universities and auto industry drove its decision to explore the site.

Somewhere, former Ypsilanti City Manager Ralph Lange, who never found the golden development to solve the Water Street boondoggle, weeps softly.

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