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1. Where are we at with this development?

When the city was first approached by Jeffrey Surnow, about three years ago, he expressed his vision for a mixed-use office building and/or hotel fronting a downtown park.  The city was attracted to his history as someone who always looked to harmonize the commercial elements of a development with urban green spaces.  At the time, the city had not decided where it would relocate current city and police operations, although the city was moving forward under the assumption that municipal buildings were not the best use for this site.

Sadly, Mr. Surnow passed away that spring, and there were no developments on the project until later that summer, when Mr. Surnow’s sons, Sam and Max, partnered with the Boji Group to try and bring the plan back into fruition.  This new partnership, Central Park Development Group, is the entity of which most of the public is now familiar. They came back to the city with a much larger plan, incorporating the office and park elements of Jeff Surnow’s initial proposal, with a solution for the city’s needs: a new police station and a new City Hall, which would be located in the office building.  This marriage of public and private was based upon a similar structure used for the State Senate offices in Lansing.   

As discussions with this developer became more serious, the city retained Plante Moran CRESA (PMC) as its real estate advisor to vet the details of the proposal.  Plante Moran has a long and distinguished history with large scale development projects, and in particular, municipal projects.  They’ve been side-by-side with the city, not only examining the details of this particular project, but offering guidance to alternatives when the project would hit a roadblock.  PMC was also tasked with performing a feasibility study on the city’s current City Hall and police station.  Was it a viable alternative to invest in our current facilities instead of pursuing new ones?  Their conclusion was no, citing that both buildings were functionally obsolete. 

Locating City Hall within a speculative office building presented many legal and, to some extent, financial challenges, and we - the developer and the city - made the mutual decision to pursue a standalone building for City Hall operations.  When this decision was made, the city also decided shortly thereafter that it was in its best interest to assume management and control of the city-owned portions of the project.  That decision was made in April, and that is where the project currently stands. 

The city is pursuing the development of a new police station (which is very deep into the design development process - nearly complete), a new City Hall, a downtown park, which hasn’t entered any stage of the design development process, and a parking structure. It is anticipated to close on its bond financing for the project in late 2017 or January 2018  A comprehensive overview of the project can be found here .

The private office building is solely being developed by CPDG.

On June 26, 2017, the commission released outside counsel to draft a development agreement that memorializes these terms into a development agreement. This development agreement was presented to the commission on August 28, 2017 and unanimously approved.

2. What can you tell us about the proposed office building?

As summarized at the commission’s June 21, 2017 public work session, CPDG’s involvement with what has become known as the Royal Oak Civic Center (ROCC) project has drastically changed since the first public special meeting dedicated to the ROCC proposal was held on April 18, 2016.  The city is no longer contemplating contracting with CPDG to perform the master development obligations for the city-owned projects in the ROCC (a new city hall, a new police department, a new parking deck and a new downtown park), nor is the city contemplating placing its operations into CPDG’s proposed private office building.  As it stands today, CPDG’s sole responsibility would be construction of its proposed $37.8 million, 128,000 sf (rentable) office building, and the city would be responsible for the construction of the new police station, city hall, parking deck and downtown park.  This structure is reflected in the proposed term sheet.

 

A term sheet was provided and presented to the public on June 26, 2017.  The term sheet seeks financial assistance from the city and outlines a schedule by which the city and/or Downtown Development Authority (DDA) would recoup this investment.  Given that a significant gap exists between the cost of construction of new office buildings in Southeast Michigan and the market rental rates the region commands, the request was expected.  It is anticipated that the market rental rate for CPDG’s proposed building is approximately $30/sf, a rate has been verified by numerous commercial real estate firms in Southeast Michigan, as well as the city’s real estate consultants on this project, Plante Moran CRESA (PMC).  

 

PMC analyzed CPDG’s design development package and verified to the extent possible the accuracy of the assumptions represented therein to determine the financial gap between what the building would cost and what rents the building could reasonably command.  That gap was identified between $5 million and $10 million.

 

The chief difficulty with constructing a speculative office building is financing, and city discussions with CPDG and its lender focused upon the minimum amount the city could provide that, in addition to CPDG’s equity, would secure financing.  That figure was identified at $5.5 million, the low end of CPDG’s financial gap and the request made in the proposed term sheet.

A summary of the financial investment being asked of the city is as follows:

• The city shall deposit $5.5 million in escrow with the lender simultaneous with CPDG’s equity of $8.5 million.  All of CPDG’s funds are to be used first, the city funds shall be used second, and the funds from CPDG’s lender shall be used last.
• The city-owned land will be conveyed to CPDG for $1.00 at the time of closing (approximate value estimated at $900,000).
• Potential tenants may request incentives from the DDA, but this is not part of the development agreement

 

In return, CPDG has agreed to the following in return for the city’s investment:

• A reconciliation of the DDA portion of the taxes at year 8 for 50% ($2.75 million) of the city’s cash investment and year 15 at 100%, so that the DDA itself is guaranteed to receive at least $5.5 million in tax revenues over 15 years.  If there are any shortfalls at year 8 or year 15, CPDG shall pay the difference to the city.
• A reconciliation at year 10 for the total city contribution (cash and land) and year 20 on the total taxes paid by the office building inclusive of local and state schools.  At the end of year 20, if the total taxes paid by the office building are not a minimum of $12,800,000, CPDG shall pay the shortfall and any such shortfall in the total tax amount would only be paid to the city.
• CPDG shall provide financing for the total cost of its project simultaneous with closing on city bond financing
• Personal Guaranty for completion of construction of the office building would be provided by Ron Boji and Sam Surnow

 

On June 26, 2017, the commission released outside counsel to draft a development agreement that memorializes these terms into a development agreement.  Upon completion of this development agreement, the commission will be asked to provide the final vote in the affirmative or negative for the project.  It is anticipated this agreement will be before the commission in late August or early September 2017.

3. Can’t city facility issues be fixed? Why not just repair the existing building?

Each of the buildings has numerous problems that could be repaired.  However, the work required is so extensive as to approach the cost of replacement according to a study commissioned from Plante Moran Cresa which is available on the city’s website.  They found both buildings “functionally obsolete.”

 

Neither building was designed for the kind of use the city needs from it today and in the future.  They were built for a time when manual typewriters and carbon paper were considered high tech.  This is especially problematic in the police department which simply doesn’t have room for the equipment it needs today.

 

City Hall wasn’t even designed to be a City Hall, or even an office building to begin with.  The architect modified a plan he already had for a school building.  According to one of our local historians, the plans were given to the city free of charge.  One look at the overall design of the building --  the extra wide hallways and stairwells -- and it’s clear it was modeled after a school. It’s broken up into a lot of small spaces separated by load bearing walls. It even has a central clock system which quit working after the most recent flood.

 

Unfortunately, what makes for a good school design does not make for a good City Hall.  This building simply does not work well and it never did.  Renovating it would make it look better and might solve the heating, cooling, and electrical problems but it wouldn’t make it work better.  It would still be an extremely poor design.

There is a logistical problem too.  Renovating would require moving all of the employees to another location while the renovations are done, then moving them back. There isn’t a suitable facility in Royal Oak to serve as a  temporary City Hall.  The city would probably end up renting portable office trailers and putting them in the parking lot.

Finally, the aspect of this project that seems to have the most overwhelming public support is the downtown park.  It’s also the amenity that makes the private office development most attractive.  The park is planned for the location of the current city hall and police building.  If City Hall operations don’t move, there is not a place for the park.

4. What do you hope to accomplish with a new City Hall facility?

Improved customer service

• Place related functions together
• Reduce the number of separate counters
• Put the community room on the first floor
• Improve meeting room audio and video
• Provide for overflow crowds

Improve Functionality

•  Reduced maintenance/energy costs
• Reduce staffing needs
• New/improved meeting spaces
• Heating and ac systems that actually work and don’t cause periodic floods.
• ADA compliance
• Reduce police prep time/put more cops on road

5. What are the possible sites for City Hall?

The site under consideration would front a new downtown park, located directly east of Troy St.  Once the decision was made to pursue a standalone building, many alternatives were considered on the overall site.  There isn’t a portion of the site that wasn’t considered.  The city even (briefly) looked at placing it in the proposed parking structure.    

Ultimately, the commission voted in January on its current placement, which adds a dynamic element to the park while reinforcing the civic aspect to the overall site plan. 

6. Was combining City Hall with the police station ever considered?

With approximately 100 people in the ROPD and another 100 people in the City Hall departments, the building would need to be approximately 65,000 to 75,000 square feet.

Given the limitations of horizontal space on city-owned sites without taking up too much parking, a combined building would have to be vertical and a minimum 4 to 5 stories tall.  Due to the requirements of separating public and police activities, for security reasons, this type of building would require additional square footage and have multiple stairwells and elevators above and beyond what would be required by code, adding significant cost of the project.   This is why two separate buildings types are being proposed for the city of Royal Oak.  All the operation efficiencies the city is hoping to achieve will be lost if it starts adding levels.

A combined location works much better in a rural environment where land is available and you can go horizontal instead of vertical.

7. Did you ever consider sites outside of the Central Business District?

The idea of a new civic center campus isn’t new. Over the years, the city has explored sites inside and outside of the central business district (CBD), including but not limited to the former school administration building and the senior center site. In the end, the preferred option by multiple city commissions and stakeholders has been to create a civic center area in the downtown.

There are many reasons why a downtown civic center is attractive in a traditional city:

• Many efficiencies are realized when City Hall is close to the police station, courts and business community.
• It is the city commission's goal to increase office space and the number of office users in downtown Royal Oak in order to provide daytime customers for our retailers and restaurants. City Hall is a mid-sized office building with about 100 employees and functions. It draws many people downtown to support local restaurants and shopping. To move it elsewhere would work against the needs of our downtown and our established goal.
• Our current downtown location is a principle attraction for many of our employees and prospective employees. A location outside of the CBD would make it harder to attract and retain staff.
• The city does not own land outside of the CBD that would be economically feasible to construct a new office building with the requisite parking requirements for 100 employees.
• At no point was it considered to develop a building upon dedicated park land or to incur acquisition and/or demolition costs to develop on a private parcel that we would have to purchase. Doing so would add significantly to the cost of the project and would require displacing active businesses, which would also be in direct contravention to the commission's goals.

8. Will general parking fees across the downtown have to be raised to meet debt service for a new deck?

There is no such thing as free parking.   It will cost the city about $25,000 per space to build a parking structure, and that is without adjusting for the spaces that were already there.  In Royal Oak, parking has always been paid for with parking system revenue.  The city does not use city tax revenue for parking.  One way or another, the city will need to increase parking revenue.  That can be done by increasing fees, or it can be done with a special parking assessment on properties in the Central Business District, which are not required to provide their own parking, or with a combination of the two.  The city has always used parking fees in the past to finance parking in Royal Oak.  Birmingham uses both fees and special assessments.

The DDA serves as the city’s parking committee, and it has created a subcommittee to look at how the city should be paying for parking.  That could lead to the use of special assessments in the future.  

Current rates are extremely low.  Anyone who spends anytime in downtown Detroit is well aware of this.  The rate in the garage at Woodward and State Street is $5/hour.  The city of Royal Oak charges .75/hour and the first two hours are free.

9. What is the cost to the taxpayer for this development?

Our current cost estimates are as follows:

Police building: $14-$16 million  

Furniture, fixtures, equipment and technology (FFE&T): $2.4 million

City Hall:  $9-$10.5 million /  FFE&T: $1.575 million  

Parking Structure: $14-14.5 million

Park and site improvements: $9.75-10.75

The city will spend another $900,000 on construction management and about $581,000 on bond issuance costs.

All of these numbers are estimates.  No portion of the project has been bid yet.  That said, the numbers for the police building are based on detailed plans, whereas the numbers for City Hall are based on standard construction costs per square foot.  The city does not have plans for City Hall yet.  The parking structure is very similar to the one the city currently has under construction, and the city has recent bids on it that verify the standard cost estimate.

The parking system will bear the full cost of the parking structure and receive all of the revenue it earns.  The city will probably use revenue bonds as with the new structure at Center St and 11 Mile.  Revenue bonds only pledge the revenue of the parking system, not tax revenue, as security to the bond holders.

The annual debt service on the other three components is estimated at $2.4 million per year for 25 years.  The city manager is recommending the DDA pick up the debt service on the park, which is estimated at $737,000.  That leaves about $1.6 million to the general fund for City Hall and the police building.  That sounds like a lot of money, and it is, but the city’s OPEB and pension bond issue is saving the city $2.5 million per year, the new buildings will have lower utility and maintenance costs, and will reduce staffing needs.

The type of bond the city will issue is called a “limited tax general obligation bond.”  That means bondholders have a claim on existing (already authorized) taxes and other revenue, but the city cannot issue any additional taxes to pay the debt service.  In other words, there will be no tax increase as a result of this project.

10. Why are there are not going to be public open bids since taxpayers’ bond risk is funding?

The construction will be bid, as with every city project.  The city has taken full control over the construction of the police building, city hall building, parking structure and park.  It no longer has a developer involved in the city portions of the project.  The developer is only building its office building, not the city facilities.  With the city in control, Royal Oak will follow its normal processes for bidding construction work.  

11. How come the city is not bringing in multiple companies and citizens to present alternative proposals to be debated?

When it became clear that this project was a serious possibility, the city retained Plante Moran Cresa, whose wealth of knowledge in this arena supercedes any of city staff’s.  PMC has worked on dozens of municipal projects in SE Michigan, and it is currently coordinating the District Detroit arena development in downtown Detroit.  PMC has been the city’s eyes and ears in not only vetting the current proposal, but also bringing alternative ideas, footprints, floor plans, etc.  As this project has evolved over the course of the last three years, every decision that has been made has been made publicly, and usually followed by significant media coverage.  Certainly, the city was aware of the feedback of many in the community when it was evaluating whether to locate future operations into an office building.

12. Will the public be invited to give input/feedback on the new central park?

A landscape architect has just been hired to solicit feedback from our community – focus groups, town halls, etc. – so that the park represents what the entire community wants.  This public engagement process should begin sometime this fall.

13. How will construction costs of a park be paid for, and does the city have enough revenue to pay for maintenance costs once it is built, without a parks millage?

The park will be built using bond money.  The city is asking the DDA to agree to pay the debt service costs on the park.  

The city does not have a design for the park yet.  It has just selected a landscape architect who will design this park and Normandy Oaks.  It is impossible to speculate what amenities will be placed in the park.  Unless we install something requiring very high maintenance -- a swimming pool or ice skating rink with ice making equipment -- basic costs will be mowing and landscape maintenance.  

14. Will parking spaces be lost?

This development is projected to result in a net increase in available parking spaces  because the project  includes a parking structure with 450 new spaces.  (See table below.)

The office building tenants will use a great deal of those spaces between 9:00 a.m. and 5:00 p.m. Monday through Friday.  However, they will use very few in the evenings and weekends, which is when the city has a parking shortfall in the area.   The city will gain parking during the hours that it needs more parking evenings and on the weekends.

Impact of Proposed City Hall and Police Building on Farmers Market Parking
Existing Parking Lot
Spaces when city bought farmer's market	217
Spaces prior to 2015 addition	338
Spaces today	428
Impact of Proposed Police Building
Spaces lost for building	(84)
New spaces in police lot	36
Net change due to Police Building	(48)
Impact of Proposed City Hall
Spaces lost for building	(85)
Spaces used by city vehicles	(22)
Additional parking on Troy Street	50
Net change due to City Hall	(57)
Impact of New Parking Structure
Spaces planned in new structure	450
Spaces lost in library lot	(116)
Spaces lost in City Hall lot	(115)
Spaces needed on weekend mornings by office bld.	(25)
Net additional parking from structure	194
Net Change in Farmers Market Parking
Net increase in available parking over current	89
Total number of spaces	517
Percentage increase over current	20.8%
Percentage increase over 2015	53.0%
Percentage increase over original	138.2%
If Downtown Development Authority Adds Two Floors
DDA will consider adding one or two floors at DDA expense to the structure.  Assuming two:
Additional parking spaces	225
Net Increase in available parking over current	314
Total number of spaces	742
Percentage increase over current	73.4%
Percentage increase over 2015	119.5%
Percentage increase over original	241.9%
Impact on surface parking (not including parking structure spaces)
Spaces Today	428
Police Net	(48)
City Hall Net	(57)
Put city vehicles in structure on weekends	22
Net  change	(83)
Total spaces available	345
Percentage reduction from current	-19.4%
Percentage increase over 2015	2.1%
Percentage increase over original	59.0%
Surface parking would be reduced from current by 19% but overall parking would increase by as much as 73%
This is more surface parking than the city had at the market in 2015 and an almost 120% increase in total parking.
This is 59% more surface parking than the city had when it took over the market and a 242% increase in total parking.
Note:  This analysis is not including other near by privately owned parking lots and structure or other city owned lots and structures.  The Emagine facility is less than two blocks away.  The Center Street structures are only three blocks away.  The city also has other nearby surface lots.  This is closer than many, if not most,  Eastern Market customers park.

15. Where will the physically disabled and senior citizens park?

All of the city’s parking lots and garages provide handicapped parking spaces in compliance with the Americans with Disabilities Act.  

The ADA does not require existing facilities to be modified to meet the current act requirements until changes are made.  That is why the city can have a current City Hall and police building that do not meet  ADA standards.  The new buildings will at least meet current standards.