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