An Open Letter to the RFP Advisory Committee

The following is a statement prepared for the March 3, 2011 meeting of the RFP #743 (the Ann Arbor Library Lot) advisory committee. The meeting has since been postponed to March 8.

PLPP requested an opportunity to present this statement verbally to the group, but we were refused. We are now making the statement public.

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You are meeting today to discuss a letter of intent between Valiant Partners LLC and the City. This is based on the recommendation of a consultant, The Roxbury Group. Though the 11/23/10 minutes stated “the Valiant proposal ...presented the better option for long-term viability”, the report itself said “this report does not include and is not intended to serve as a feasibility study... it is generally assumed that the overall concepts...are valid and supportable from a market and demand standpoint.” But an unsolicited, independent analysis from nationally recognized hotel expert Chuck Skelton provides a strong case with extensive data that the proposed hotel and conference center are not financially viable.

We urge you to recommend that the City withdraw RFP #743 and notify all proposers that no award will be made. We base this request on the following:

1. Neither of the two remaining proposals (Valiant, Acquest) actually meets all the stated objectives of the RFP.

2. The entire process of deciding how downtown city property is to be developed is being reconsidered. We believe that disposal of any public land should begin with a full community discussion of the desired outcome. The Library Lot is one of the most valuable downtown city-owned vacant parcels. It would be best to set aside this present effort and to begin again.

3. The Valiant proposal contains many likely costs and risks to the City. Complete details are too lengthy to include but the crucial points are these:

· The success of the entire enterprise hinges on a successful hotel operation. But current data show that projected room rates and occupancy are wildly unrealistic. The hotel will almost certainly operate at a loss.
· Payments for the City (used for bonds) are predicated on a high rate of return from the hotel and made only after the primary mortgage holder is paid and after profitable operation.
· Construction of the conference center would be financed by privately financed bonds. Again, lease payments (dependent on hotel income) to the City would be used to pay this debt. If the bonds go into default, the conference center is at risk.
· Operation of the conference center would be the complete responsibility of the city and no funding is provided from this proposal. As documented by Skelton and others, conference centers everywhere are operating at a loss.
· Valiant financial statements do not indicate that the City will receive property tax payments by leasing the land and air rights to the hotel and conference center. Thus, the City will receive no direct revenue from the project.

4. Thus, the Valiant proposal does not fulfill Site Objective #3 of the RFP:

Financial return. The proposal must provide a positive financial return to the City. In the absence of other considerations, the City has a fiduciary responsibility to obtain fair market value upon the sale of City assets. Long-term lease or other property arrangements will be considered, but must meet this financial return criterion.

This financial return requirement was repeatedly stressed by your committee and by its chairman in justifying the elimination of other proposals submitted under the RFP. Since this proposal also does not provide a financial return to the city, it should not be accepted.