Developers Claim Hardship
Main Dock Inn developer Melanie Libby and co-owner Ira Green have applied to proceed with their proposed hotel development in the Market and Main Historic District, claiming financial hardship if they do not. The appeal was made at the Tuesday, April 9, Historic District Commission (HDC) meeting, but a decision was deferred to a special meeting scheduled for 1 p.m. Wednesday, April 24.
The developers contend they must be allowed to demolish two buildings, the former Ryba’s Fudge Shop building (which is a contributing structure to the historic district) and Indian Drum (non-contributing), to alleviate financial hardship brought on by city government action when it established the historic district. The two also presented updated architectural plans for the proposed hotel, which the commission reviewed.
The Ryba’s Fudge building was deemed to be contributing to the historic district because it was built by Selma Dufina, the first woman fudge shop operator on Mackinac Island. The historic significance, therefore, is not so much architectural as it is cultural, but contributing structures are the buildings the city wants most to protect under its new historic district designation. Allowing demolition of a contributing structure would be a last resort accorded to Ms. Libby and Mr. Green, after they prove they have exhausted all other development solutions. Their testimony April 9 outlined, point by point, the various options that must be considered under historic district guidelines, and they argued that none were viable.
Mr. Green and Ms. Libby purchased lots 127B and 128 from Jim Wynn for about $5 million January 8. The next day, January 9, the Mackinac Island City Council established the Market and Main Street Historic District, a governmental action, they say, will cause undue financial hardship because it could restrict the development of their property that they expected when they paid such a high price for it. In its present shape, they argued, the property won’t generate enough income to pay the mortgage.
Ms. Libby reported that the property containing the Selmas’ Fudge building and the Indian Drum, lot 127B, was appraised in 2012 for about $1.96 million, the value used for the purchase. In writing their business plan, they designed a building that would maximize the use of the property to the extend allowed by thencurrent zoning, which was the three-story hotel spanning the front of the dock, from lot line to lot line.
When the city council established the historic district the next day, elements of their new property, mostly the Selma’s Fudge store, were restricted from the development they need to successfully amortize the purchase and make a profit.
Prohibiting the demolition, they say, will cause an undue financial hardship because maintaining the property as is with two single-story buildings would result in a yearly $75,000 deficit. The co-owners calculated this amount by subtracting the net operating income of the property, about $80,718, from their current loan payment on the appraised value ($1.96 million), $155,221.
Said Mr. Green: “Government action doesn’t have a right to impose a hardship on us and that is what’s happening.”
City attorney Tom Evashevski disagreed, saying, “We do have a right to impose a hardship, but we’re required to give relief…in the form of allowing demolition, if that is the only way that we can relieve the hardship.”
In the decision process, he said, the HDC first has to determine if the applicants have made the case that action beyond the owner’s control, government action in this case, has caused the financial hardship. Next, if the HDC agrees that a hardship has been caused, the applicant must further convince the commission that other options to alleviate the hardship have been explored. Finally, the HDC must be satisfied that demolition will allow the hardship to substantially lessen the hardship. Mr. Evashevski noted that lessening hardship does not necessarily mean breaking even on an investment.
This process, said HDC Chairman Andrew Doud, is still being worked out as the commission seeks to establish the way it will handle such cases in the future and to evaluate applications consistently.
Ms. Libby and Mr. Green did say that they would be willing to sell the lot in question, lot 127B, for $1.9 million, the price they paid for it January 8, but they said it would be unlikely that a buyer could be found.
“If someone were buying that property today, they would be paying a different price because it has a different bundle of rights and a different value” Ms. Libby said. “But at the time we paid for it and we established the value, there were more rights. That is the difference.”
In response to another question from Mr. Evashevski, Mr. Green said the developers were committed to the purchase for months before they closed the deal.
“We had a million dollars on the line for 90 days,” before signing the purchase agreement, Mr. Green said. He said the property was on the market for months before they purchased it, so he said he doubts anyone wants to buy it.
“We did present back in December a different project, so yes, we were committed to that for some time,” Ms. Libby added, referring to the larger hotel they had proposed, which was prior to their purchase of the property.
Relief from renting the existing space in the buildings wouldn’t work, either, the they contended, because the required rent would be too high. They could lease the space for $76 a square foot to make a return on their investment, but that price is extremely high for Mackinac Island, said Mr. Green. Mr. Doud agreed, saying Mackinac Island commercial leases range from $20 to $60 a square foot.
Mr. Green said some businesses might pay the higher rate, but they might not be businesses that would be attractive to the Island. He can reserve the right to choose his tenants as a landlord, and Mr. Doud agreed.
Another alternative to demolition that Ms. Libby and Mr. Green were required to explore was relocating the Selma’s Fudge building to another lot in the same the historic district, but they contended that only Windermere Point and Mr. Green’s bicycle rental on the old MaNally beachfront, lot 138, are the only two vacant lots available. He already is permitted to build a new hotel on his lot, he reminded the commission, that having been done prior to the REU moratorium the city later imposed.
The owners also looked into state tax credits as a means to alleviate the hardship, but no credits at the state level are currently available.
When asked by audience member Trish Martin if the two had investigated federal credits, Mr. Green said funds available “are modest and difficult to achieve.”
The two also pointed out that neither Selma’s Fudge Shop nor the Indian Drum are contributing to the Island’s National Historic Landmark designation, so demolition of the two would not affect the Island’s national status.
When audience member Mary Dufina asked what other remedies beside demolition could alleviate the hardship, Mr. Green said, “To hit the numbers we had to hit, we couldn’t come up with anything that would make even close to sense to recover [about] $80,000 a year income.”
Audience member Richard Lind brought up another issue, asking, “How can we even consider approving a hotel when we can’t provide the water services” because of the moratorium on issuing sewer REUs?
Mr. Evashevski explained that the Planning Commission and Department of Public Works has not and will not issue any more sewer Residential Equivalency Units until the moratorium is over. Project applications can be approved, but construction will not be able to commence until the moratorium is over and REUs are secured. The city is rationing access to the sewer system, which is near capacity, and invoked a sixmonth moratorium December 19 (The St. Ignace News, December 27).
Commissioner Brad Chambers asked if the limited sewer REU availability can be considered in the HDC demolition decision, Mr. Evashevski said REUs are a separate issue that the Planning Commission, not the HDC addresses.
Responding to other questions, Mr. Evashevski said that the city’s three-year-long study to adopt the historic district does not mean that the developers knew their hardship was imminent when they purchased the property.
“Life has to go on,” he said. “We can change zoning on a moment’s notice. We can impose other legislation that can have an impact on value. But business has to keep going. People buy, people sell, people lend [money] based on values. The fact that this has been in discussion for three years rather than three months makes the hardship even stronger. For three years, nothing happened. We’re looking at our zoning ordinance now. We could make some changes that affect somebody’s property values.”
Mr. Evashevski also noted, however, that most owners of other contributing buildings in the district may not be able to claim economic hardship.
People, he continued, “are entitled to make investments based on what the law is today. They have a protected right to do that. If we change the rules after they have made that commitment to the point where they are really in a jam or left out to dry, that’s the hardship. And that’s why I’m saying that it will not apply to someone who just chose to not develop their property for the last 20 years. They’ve owned it for 20 years, they’ve been happy with their level of income without going lot line to lot line or going up three stories, that stuff just happens. They have not made, however, that type of investment that leaves them in a situation that is just upside down, with nowhere to turn. And that’s what these folks are trying to show us and that’s what they have to show us, because we’ve determined that it is in our best interest to preserve these buildings, and they have to show us that they are in this unique situation where they really have nowhere to turn without taking a huge loss or a substantial loss if they don’t get relief. I think we are going to see a relatively few number of these” cases in the future.
In a contentious moment early into his presentation, Mr. Green suggested the city moved quickly to establish the historic district as a way to stop his development, but his comments were met with strong denials from both the commission and members of the audience.
In a review of the hotel plans, Commissioner Chambers expressed his concern over the design of the six-foot overhang from lot 127B into lot 128, saying it looked “awkward” and questioned the historic nature of the design.
The six-foot overhang was made to maximize the square footage of the hotel’s second floor while still preserving city street passageways below without supports.
City architect Rick Neumann, who has already approved the revised Main Dock Inn design, which the HDC also placed on file at the Tuesday meeting, said the overhang can be negotiated with a legal easement, which the city council approved after a closed session discussion later Tuesday afternoon.
Mr. Neumann also said that the building is designed with three fronts because of the nature of the property facing the waterfront and two streets.
“It’s a beautiful building,” Mr. Green agreed.
At the special meeting April 24, Mr. Doud said he would like specific height notations included on the project plans, as well as aesthetic faux windows incorporated on the firewall side of the building that faces the Pancake House.
Ms. Libby and Mr. Green said they welcomed suggestions to improve the Main Dock Inn design.
“Direct us,” Mr. Green said, “and that’s what we’ll do.”
The April 24 meeting will allow the HDC to make a decision before May 5, at which time the Main Dock Inn proposal will automatically be approved because the application was filed March 5.
The commission approved a request to adjust the site grade of Sam Barnwell’s application for a single family dwelling in the Annex. He presented an updated site plan with a drawing to indicate a more accurate site grade slope, which resulted in the removal of a basement window. The change was approved with all present in favor, with commissioner Lorna Straus being the only member absent.
Anneke Myers of city council inquired if the HDC wanted to purchase a subscription to the Michigan Historic Preservation Network monthly newsletter, costing $150 a year. Commissioner Jennifer King was in favor of the expense, but commissioner Lee Finkel wanted to review an sample copy before voting on the issue. The commission agreed to revisit the item at its regular meeting next month.