Can Petoskey Pointe dig out of its hole?

Back in October of 2002, Mike Uzelac went on an exploratory business trip for his cousin David Jankowski.
Dr. Jankowski is a downstate anesthesiol-ogist who had some development experience, extra money, and a strong business interest in lakeside resort towns.
Mike Uzelac thought they could do something with the Petoskey Gaslight Cinema, which had closed a few years before. Two weeks later Jankowski visited the theatre with an architect and was impressed by the gorgeous view of Lake Michigan.
Later, Uzelac met with the city manager and told him they were interested in buying and renovating the building. They wondered about folding the city’s small parking lot into the development (and replace the parking within the development).
The city manager, George Korthauer, said he suggested to Uzelac that instead of renovating just one building, perhaps they’d consider redeveloping the entire block. That way, Petoskey could get the additional parking it badly needed and turn the city’s entry point into a showcase. At that time, the city block wasn’t really an eyesore — a handful of stores were operating there. But Downtown Management Board members and others thought it could be much more than it was.
That’s how a modest plan transformed into the $60 million Petoskey Pointe vision. It involves a stately structure, seven stories at its top height, taking up an entire city block. It will include private condos, a hotel with condo options, an indoor pool and spa, a restaurant, a conference room with a movie screen, and three levels of underground parking.
Emotions have run high on either side of this issue — so much so that the idea went to a referendum in May of 2005, when the project got its final go-ahead.
Two years and four months later, there is a big hole in town.

WHAT HAPPENED?
As somebody once said, when the money runs out, everything stops. The bills have piled high for Dr. Jankowski and his partner James Wilson of Lake Street Petoskey Associates in Farmington Hills.
They owe more than $2 million to three contractors who have liens on the property and $33,750 in back taxes. There’s also an ongoing suit against Jankowski involving a much smaller development in South Haven. There are allegations of unpaid bills and uncompleted repairs of shoddy construction.
But the situation may soon change. Developers told the city manager that they are trying to restructure a loan that will not be contingent on presales of the condo units. Meanwhile, the city is taking the opportunity to upgrade its utilities at the site, he said.
Mayor Dale Meyer said he has “every indication” that the developers are getting the financing they need, but he hasn’t seen anything in writing. “The project has taken a long time, in part, because it’s very, very complex and involved buying land from seven different owners, one of which will be a new tenant (Northwestern Bank).
“I don’t care what the dates are anymore. What we’re concerned about is moving forward,” he said.
The delay is understandable, owing to the long fight against it, said B.J. Shawn, co-owner of downtown retailer Bearcub Outfitters and a project supporter.
“The delay caused a domino effect,” Shawn says, “the repercussions are amazing and misunderstood and pushed the project to a time when the economy plunged. The mortgage rate went up, the trades people got other jobs. To have to put it back together when it was moving along—that disruption was a big challenge. I think, unfortunately, we need to be really patient while it works out.”

PROJECT HISTORY
Ted Pall is the biggest critic of Petoskey Pointe. Some would say he’s obsessed. Coincidentally, he — like developer Dr. Jankowksi — is an anesthesiologist. Naturally, he disagrees with B.J. Shawn’s interpretation. He blames the delay on Jankowski’s inexperience. (Jankowski did not return a phone call for an interview.)
Pall said he’s followed the story since 2003, when he first heard wind of the project, with its movie theatre and parking. “I thought, this sounds really good. I just hope this isn’t just going to be a large condo project. He soon learned it largely was (the hotel rooms are also available for purchase as condos.) After attending his first planning commission meeting in September of 2003, he became a regular at the meetings.
His biggest complaint was that Dr. Jankowski had little development experience for a project this complex and expensive.
“I had his resume, and there was literally nothing like Petoskey Pointe on it. His focus had been on converting apartments to condo units.”
Jankowski later teamed up with Jim Wilson of Lake Street Petoskey Associates of Farmington Hills, who had never tackled anything near this magnitude, Pall said.
Pall also said the Petoskey Pointe proposal defied the reports of two planning consultant groups who advised the city that the site should be “historic and quaint,” low to the ground and green. Neither firm said anything about the need for condos. The only idea he did like — a movie theatre — was actually a large screen in a conference room.
Emotions over the project quickly heated up. Brad Leach, the city planner for 22 years, suddenly quit after writing a 20-page report, largely critical of the project.
“We’re all for revitalizing the downtown,” said Joseph McGee of Joseph’s World of Art and Antiques. “But the biggest is not always the best. From the get-go it was always going to be too big.”
Yet the project enjoyed strong support from many storeowners who have long struggled with the resort economy of boom summers and bleak winters.
“Building that project and having it at the town’s entry shows a commitment to the viability of this town,” said B.J. Shawn. “It’s a visual and economic commitment to the town that will entice more viable businesses to move here. Right now, we can’t recruit significant business here, and Mitchell Street is suffering immensely. You put that project here and people will come. Customers will come, and people living in the condos will as well.” Shawn also predicted that the project would prompt storeowners to put apartments or condos above their stores.
The planning commission took six months to approve the project, at which point it went to the City Council in January of 2004. The next month, a meeting went badly out of control — people were screaming at each other. The city manager gained approval to take the project back from the council and resolve outstanding issues with the developer.
Eight months later, the project was back — this time with a request for the city to pay $10 million for parking spaces for the private condo owners, as well as the public. Many downtown storeowners were happy to see additional parking for the city, but the underground deck was immediately an issue. One was timing.
“I find it incredible that they took so long to bring up the issue of public financing for the parking,” Pall said. “Why would we start to talk about this at the very end of the process, when people have picked sides and it’s so emotional?”
Compromise ensued. The city would not pay for private-use parking, but would pay $6 million for 190 public parking spaces. The money would come from the developer’s property taxes that would normally go into the city’s general fund. To reduce what it owed, the city agreed to give the developer its parking lot for which it originally paid $20,000, but was now worth $970,000. Ultimately, the diverted property taxes would also go toward building another city parking lot.
“I think the city did a very good job negotiating, given that we only paid $20,000 for it in the first place,” Meyer said.
Pall argued that the public parking spaces should be at street level, but instead they’ll go in the lowest underground level. He also noted that parking structures were far more expensive than the average cost, and he worries that the parking structure won’t last nearly as long as the building unless it’s well maintained. If defects aren’t caught immediately, they can be catastrophic, he said.
“Salt and water can corrode and rust the metal rods in the concrete structure. If the parking structure doesn’t hold up, there goes the whole building.”
With a $60 million structure at stake, it was one more risk in the project.
Finally, he questioned why taxpayers are footing the bill for what’s essentially customer parking for Petoskey Pointe.

RELUCTANT STUDENTS
Supporters of the project tagged Pall and others as naysayers and un-American.
But Pall did the American thing: he ran for mayor and won. Little did he know just how tumultuous his one-year term would be.
A week before he took office in January of 2005, the council approved the project.
With Pall as mayor, the City Council now had the votes to deep-six the project. But it didn’t (“It would have been too ugly,” Pall said). Instead opponents gathered petitions for a referendum in May.
The town was deeply split. Petoskey Pointe became a subject like religion and politics. People wouldn’t talk about it unless they agreed with each other. Meanwhile, tens of thousands of dollars went into the referendum. Supporters spent $30,000 in ads ($20,000 came from the developers) and opponents dished out $10,000.
Residents voted 55 to 45 to go with the project. At long last, the developers could go full throttle. Purchase agreements were supposedly in place. But it wasn’t until December — seven months later — that the final sale of Northwestern Bank went through (it actually didn’t—the land couldn’t be sold until the contaminated soil was removed.)
A Petoskey News Review article
announced the sale and included the developers’ new timeline: they’d start demolishing buildings in March of 2006, start construction in spring/early summer of 2006, and wrap it all up by late spring/summer of 2008.
Which didn’t happen.
Demolition actually began in June of 2006, and the site hasn’t changed much since then — except that the city has done significant utility work.
A ribbon-cutting ceremony on May 30 was telling. Behind the scenes, the sale of the Northwestern Bank parcel was still pending. The construction drawings weren’t finished, and there was talk of financing problems. In introductory remarks, the point was made that the developers had not come to Petoskey to do this project. Dr. Jankowski later admitted: “The development process was a graduate course in real estate development. We were reluctant students. Hopefully, we passed the course.”

BROWNFIELD BUCKS
National City Bank stiffened its requirement for condo presales before it would loan money to the developers, who, in turn, became anxious to get their application approved for millions in state brownfield money (this program was created by the Engler administration to fund cleanup of polluted sites in urban areas.)
Brownfield money is actually a tax credit, but is considered an asset when applying for a loan. Controversy struck again in the fall of 2006 when opponents brought to light that the developers submitted false data in their application for brownfield money.
“What happened was, the site had been cleaned up in 1994 — all but this one little area. To get the (brownfield) grant, the developers had to do some soil borings and send them into a lab,” Pall explained. “The lab reported back the contamination, and a report went to the MDEQ (Michigan Department of Environmental Quality) in Gaylord, and that guy happened to know the areas of contamination had been cleaned up and had sand in them. He called them back and told them, ‘You’ve gotta be kidding. There can’t be contamination there.’ That’s when the lab said, it must have been contamination from the laboratory.”
When the Traverse City Record-Eagle broke the story in the fall that the tests were wrong and there was little actual pollution, nothing happened.
“My question is, why not just let anyone (who needs brownfield money) lie? Technically, they could have put in an honest application, and still have qualified for the brownfield money,” Pall said. “The brownfield law allows wide latitude to give way more money than is needed to clean up a site and to use for economic development. That’s where the rub is. It’s supposed to be used for disadvantaged sites, and I am telling you, this is the most valuable land in Petoskey. Now you have the state giving $4.5 million in tax credits to a developer with the most valuable land in Petoskey. It seems a real twisting of intent. The politicians knew the ins and outs, the developers worked with Senator Jason Allen, and that’s how it went.”

A WAY FORWARD
Pall – who is no longer a city official (he was mayor for one year in 1995, and did not run again) – said that his point in revisiting history is to protect Petoskey’s future. He feels that the city council owes the residents due diligence in ensuring that the developer doesn’t pour cement unless it can really complete the project.
“I like to take these kind of decisions to a personal level. You should only do with taxpayer money what you’d be willing to do with your own,” he says.
The city, theoretically, could pull its interest in the project — the $970,000 land parcel – if the structure is not completed by early October of 2008. The developers won’t likely meet the deadline since construction will take at least two years (unless greatly expedited), and it hasn’t started yet. Pall’s advice: the city should get an attorney and make a contingency plan.
Current Mayor Dale Meyer and City Manager George Korthauer said there are protections already in place. The city will require performance bonds from the contractors that will equal half the estimated $60 million of total project costs. That means that should the project fail, the contractors can step in with at least half of the money. These performance bonds must be committed before the foundation is poured, Meyer said.
There are also provisions within the development agreement that recognize the possibility for delays, which could extend the early October deadline, Korthauer said.
Meanwhile, a Petoskey News Review article reported last week that Dr. Jankowski said his firm had arranged financing from New York City lenders who are getting the funds from Europe and Hong Kong. Jankowski added that American banks are reluctant to provide financing for a project of Petoskey Pointe’s magnitude. Foreign banks are more willing because of the strength of their currencies relative to the U.S. dollar. Jankowski said he’s reluctant to give city officials any written confirmation of the deal because of the “nature and the arrangements with lenders,” the Petoskey News reported.
If and when the project is completed, Meyer is confident people will be happy. Downtown stores will have more customers, the community will be more walkable, the school will have much higher revenues, and there will be more parking.
“It will either happen with these guys or someone else. It’s an absolutely perfect site for this type of project, whether you oppose or support it,” Meyer said. View On Our Website