July 13 2016 09:45 AM

Meridian, East Lansing compliant on big-box deed restrictions

I'll make a prediction. Costco’s coming to Lansing will reshape the region's retailing. It's a great operation that will challenge Meijer, Walmart, Home Depot, Best Buy and other big box stores on price and quality, even the way it treats employees. I've called it fantasyland for shoppers.

But like its competitors, Costco Wholesale Corp. is quite willing to make demands on communities where it locates, and is doing just that as it is negotiates with East Lansing and Meridian Township for the store it hopes to open by fall 2017.

It is insisting on deed restrictions that forbid the sale of its proposed $4 million, 154,000 square foot-building to the only business that might want to actually buy it — that is, other big box retailers.

This is standard practice for big stores who come to town and big foot local officials. What the restriction means is that when a home improvement center or large retailers like K-Mart fail, the building remains vacant — urban blight. And incredibly, big-box retailer have cited these “dark stores” that they create as the reason that their buildings have limited value and should be taxed at rates below the cost of construction.

The strategy is likened to the man who murders his parents and at sentencing pleads for mercy because he's an orphan.

Meridian Township and East Lansing are jointly negotiating with Costco on the permits and permissions for a store on the former Four Winds Golf course at Park Lake and Saginaw Highway.

And even though Meridian Township has been burned badly by big box-store tax refunds, Meijer being the most notable example, the township board buckled during negotiations with the retailer.

Township Treasurer Julie Brixie is hoping East Lansing will tackle the deed restriction issue. She’s been a strong critic of the big-box store tactic, which stripped millions of dollars in tax payments to Meridian Township, The Okemos School District, CATA and other public agencies.

Tax rate comparisons by the Michigan Municipal League cite Lowe's as an example of big-box stores rigging the system. It found that its stores are assessed $22.10 per square foot in Michigan compared with $79.08 in North Carolina.

Nonetheless, Brixie and fellow town board members voted unanimously for an agreement allowing East Lansing to rezone the property.

“There's a lot of support in the community for the Costco project,” she said. “It looks better than the high density apartment complexes that were proposed there in the past.”

But she didn't dispute the suggestion that the township board blinked.

And it's likely that East Lansing also will blink.

In part it's because the Michigan Appeals Court and the Legislature have begun to address the irrational rulings of the Michigan Tax Tribunal, which closely align with the business friendly agendas of the Michigan Chamber of Commerce and the Michigan Retailers Association.

The Appeals Court, ruling on a dispute between Menards and the city of Escanaba, found that anti-competitive deed-restricted property serves to undervalue the property. It ordered the Tax Tribunal to reexamine its tax reduction decision that hinged on the depressed values of failed big-box stores. The ruling establishes a legal precedent.

Analyzing the Appeals Court decision, Jack Van Coevering, an attorney with Foster Swift Collins & Swift, illustrated the wholly artificial, nonsensical standard used by the Tax Tribunal to resolve the property value of existing stores.

“In the Tribunal, Menard’s Inc. relied entirely on a sales comparison valuation of eight sales of former big box properties. Five of the sales were deed restricted by the seller to prohibit use of the store for big box retail as well as many other commercial uses. Three of these sales were converted to factories, one to a strip mall and another remained vacant. A sixth sale from a bankrupt big box retailer was converted to a City Hall. The remaining two sales were of stores that were nearly a third of the size of the Menards’ store,” he wrote for the website Lexology.com.

In addition to the court ruling, the Michigan House of Representatives has passed a bill requiring the Tax Tribunal to value property at its highest and best use, essentially the cost of a building minus depreciation. The Senate has yet to vote on the measure and its fate in the Governor's Office is unknown.

But the momentum on dark stores is enough for East Lansing to back off on deed restrictions, at least so far.

“Our feeling is that the legislation going through the Legislature is going to address the issue,” said Tim Dempsey, East Lansing director of planning, building and development.

While the court decision and legislation address the tax valuation issue, neither limits big-box stores from attaching restrictive covenants to deeds or deal with the blight of abandoned properties.

But for Costco, both Meridian Township and East Lansing are compliant. “You have to consider who you are dealing with,” Dempsey said. “Costco's track record versus Walmart's is dramatically different. I don't think Costco has ever closed a store in Michigan.”