March 18 2015 12:00 AM

City grants tax breaks to developers who fail to register their rentals for inspections

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This story has been updated to correct an error.

On Feb. 20, Lansing firefighters were called to the new Market Place Apartments, next to the City Market, to respond to a small kitchen fire.

The buildings suppression system extinguished the fire, but 11 of the 88 apartments were shut down after an inspection by the city’s code compliance office found smoke and water damage.

But what the post-fire inspection missed, and what has repeatedly been ignored in Lansing, was a building out of compliance with the citys rental registration law.

An investigation by City Pulse of 11 projects that benefited from tax incentives since 2006 found that four properties — some owned by prominent area developers, such as the Gillespie Group, which owns Market Place, and the Eyde Co. — were not registered and that three others had some sort of lapses. The 11 projects represent 171 rental units in downtown and Old Town Lansing. The projects also present a total public tax incentive estimated investment of just over $22 million.

“The owner(s),” says Lansing’s ordinance, “shall be responsible for registering a rental property within 30 days following the day on which the owner offers the premises, dwelling or unit for occupancy.”

Despite that, Scott Sandford, lead housing inspector for the city of Lansing’s Code Compliance Department, defended the failure to cite properties. He said that newly built properties aren’t required to be registered until a final occupancy permit is issued by the building department.

Sandford’s boss, Fire Chief Randy Talifarro, did not return requests for comment.

Sanford’s former boss, Bob Johnson, head of the city’s Planning and Neighborhood Development Department, disagreed with Sandford’s interpretation.

He said the ordinance is unambiguous: The properties need to be registered.

“No one is saying they shouldn’t have (registration),” said Johnson, who oversaw code compliance until it was placed in the Fire Marshal Division in 2013.

“Sometimes it’s just an oversight,” he said about why registration isn’t better enforced.

The path tracing the lack of registration leads back to the Lansing Economic Area Partnership — LEAP — a nonprofit with which the city contracts for development. It brokered deals for which developers received tax breaks while failing to register. The vehicles for incentives they received included Neighborhood Enterprise Zones, the Obsolete Property Rehabilitation Act and Brownfield Development projects.

Lansing Mayor Virg Bernero said he expected the LEAP staff to have been aware of any registration issues as part of the agencys review and monitoring of economic incentives and the promised deliverables. LEAP acknowledges that it dropped the ball.

The cost to register a new, multi-family rental property is $400 per multi-apartment facility and inspection fees are waived for new buildings and construction if registration immediately follows construction. Renewing a registration requires an inspection, which costs $215 for one and twofamily buildings and $150 for multi-unit inspections. In addition to the inspection fee, landlords pay an additional $25 per unit for single and two-family properties, while multiple-unit properties are $18 per unit. Registration is good for two or three years, depending on inspection results.

The four projects that were not properly registered are Old Town businessman Terry Terry’s 1213-1215 Turner St. loft developments above the old Mustang Bar; John Sears 1221 Turner and its three rental units; Gillespies Market Place, 313 N. Cedar St., and the Eyde Co.s Knapp’s Centre, 300 S. Washington Square.

Market Place and the Knapp’s Centre have been renting for less than a year. Terry said his properties have been available only “recently.” Sears said his property has been “in service” since “about 2006.” Both Terry and Sears received Obsolete Property Rehabilitation Act incentives for those properties in 2006. Market Place and the Knapp ‘s Centre received other incentives.

“I don’t know the answer to that,” Sears said in a phone interview March 11 when asked if his property was registered. “I’d rather not talk to you.” Then he hung up.

For his part, after learning that City Pulse was writing an article from a source other than City Pulse, Terry paid his registration fees and scheduled an inspection. “It fell through the cracks,” he said by phone Thursday. “We’re all working hard to make this a better place, and sometimes things slip through the cracks.”

Terry is president of the Michigan Institute for Contemporary Art, an Old Town nonprofit that owns and rents lofts at 1210 Turner. Those units were registered and inspected in May 2014 in a timely manner.

Mark Clouse of the Eyde Co., which developed and opened the Knapp’s Centre in the renovated Knapp’s Department Store building in November, said registration had also “fallen through the cracks” for his organization. Eyde Co. registered the building on Friday. The company has been renting residential space for eight or nine months, Clouse said.

Rachel Michauz, vice president of the Gillespie Group, said the group believes it is in compliance with the city’s rental registration laws. “Based on the information we have, we believe we are compliant,” she said in a phone interview. “We are desirous to always be compliant.”

Market Place has been actively advertising the rental units for more than 30 days, Michauz confirmed.

Properties that have been in and out of compliance include 220/222 S. Washington Square, owned by the Capital Property Group, whose registration lapsed in July 2012; 406,408 and 410 S.

Washington, owned by 406 S. Washington LLC, which are registered; and 109-111 S. Washington, owned by LWE LLC, which are registered.

And there are developers who comply with the city requirements, though not always smoothly.

Scott Gillepsie, the brother of Pat Gillespie but who is in business for himself, developed the new apartment and commercial building at Marshall Street and Michigan Avenue. That building was cited for failing to register in February. He said it was an oversight that was remedied when brought to his attention. The property is registered, but it is awaiting a scheduled inspection.

Another property he owns, at 329-337 S. Washington, has been properly inspected and registered for years, he said. City records show that property was registered in May 2014. Multiple units owned by former State Rep. Lingg Brewer at 317 Grand River Ave. and those owned by Saed Saboury at 1135 N. Washington were properly registered.

Bernero said LEAP should have followed up on registration when it arranged tax breaks.

“I certainly support holding business people accountable for the promises that they’ve made to the city,” Bernero said. “I believe we contracted with LEAP to do just that.”

“I didn’t think of it,” said Bob Trezise, president and CEO of LEAP, when asked why the economic agency had not verified whether incentivized projects had registered the rental properties as required by law. “We live and learn. We’re always interested in self-improvement. I can’t anticipate everything in advance.”

Trezise said all agreements with the city since 2008 have included broad language requiring developers to follow all local laws and ordinances. He says he is uncertain if future agreements will include specific language related to rental registration, noting that ultimately that’s the responsibility of the developer.

Johnson, the planning and neighborhood development leader, echoes Trezise.

“It’s the landlord’s — or the owner’s — responsibility to register,” said Johnson.

“I am not pointing fingers here, but nobody from the city mentioned, nor did anyone inquire about it,” says Eyde spokesman Clouse.

Lansing Councilwoman Carol Wood, who chairs the Public Safety Committee, which has jurisdiction over inspections, is demanding city officials act.

“Letters should go out to the property owners immediately. Inspections should start as soon as possible,” she said. “Legal should determine whether the city can fine those who have not complied and what other recourse there is for the city.”

Fines may well be in the offing for this situation. In an email sent to the Rental Property Owners Association of Mid- Michigan in December 2014, Sanford said code enforcement was cracking down on unregistered properties.

“Going forward our office policy will be to issue any landlord in the City, a municipal civil infraction ticket for $500.00 for any unregistered rental properties we find that are owned or managed by an existing landlord,” Sanford wrote in bold letters Dec. 14. “The notices that we are sending out stating that the Certification has been expired for a year or more will also be accompanied by a municipal civil infraction ticket for occupied rentals.”

Under that declaration, may of the developers could face fines because they are already existing landlords in the city.

Richard Williams, president of the Rental Property Owners Association, the failure to register the properties is an issue.

“It’s just not right,” he said.

Because of an editing error, the original version of this story incorrectly reported when Terry Terry registered a rental property at 1210 Turner St. The property was registered on time. City Pulse regrets the error.

Also, because of a reporting error, the story incorrectly stated the ownership of 1210 Turner. The story has been corrected to say it is owned by the nonprofit Michigan Institute for Contemporary Art.