A dispute over a road let a Michigan developer to lose a project -- and more. By Alison Rice

Compared to the usual hurdles facing proposed projects -- public acceptance, environmental requirements, and such -- getting a road built would seem to be the least of a developer's challenges.

That wasn't the case in Novi, Mich., where plans for a 296-acre new urbanist community failed after a lengthy dispute with the fast-growing Detroit suburb over the construction of an essential road.

"Our problem wasn't in getting approvals," says Ronald L. Hughes, president of Hughes Properties, a firm in Bingham Farms, Mich., that developed the property as Sandstone Associates. "Our problems started afterwards."

A Michigan circuit court judge agreed in 1999, awarding Sandstone a $33 million judgment that's climbed to more than $71 million with interest and attorney's fees.

Municipalities have taken notice. "Cities are bringing it up. They're making more compromises," says Robert Gibbs, president of Gibbs Planning Group in Birmingham, Mich., and designer of the project. "They're saying, 'We don't want to be another Novi.'"

But the case is a cautionary tale for builders and developers about how things can go unexpectedly wrong, and the importance of taking prompt action if they do, because regardless of the court's decision, no one -- not the developer, not the city, and not the public -- ended a winner in the Novi case.

'A Postcard'

As planned, the Vistas of Novi featured 100,000 square feet of retail with 1,200 units of multifamily and single-family homes on narrow lots with alleys and rear garages.

"I think if it had been built as planned, the Vistas would have been a national model. The developer was sophisticated, and so was the planning staff," says Gibbs. "I think parts of it would have been a postcard."

Buyers would have had their choice of product and price, from $175,000 row houses and live-work condos to $400,000 mansions. "It would have been a true neighborhood, with all price levels of homes," Gibbs says. "The idea was to let [buyers] move up and down in the same neighborhood."

Approved in 1991, the Vistas would have been completed by 2000.

"Our timing would have been perfect," says Hughes. "We had the first and largest neotraditional development in Michigan, only to see it not get launched while other projects were planned and built."

Ironically, given the later litigation, the Vistas' approval process went smoothly. "This was one of the easiest [new urbanist developments] to get approved," says Gibbs. "We got 101 variances ... the only one we were denied on was granny flats."

No Through Traffic

The honeymoon ended in 1993, when the city only partially completed an extension of Decker Road that linked the Vistas with Novi Road, restricting the development from through traffic.

"When they barricaded the road and then stubbed it, we knew we had a serious problem," says Hughes, who had agreed to a special assessment with the understanding that the $3.7 million raised would pay for building the road by the time the Vistas opened.

(While neither the city manager nor the mayor returned calls for this story, the city asserts in court documents that there was no contract to complete the road within a specific period of time.)

The limited access affected the developer and builders. "I know it affected our sales absorption," says Scott Jacobson, president of S.R. Jacobson Development Corp. in Bingham Farms. The builder, which expects to close 320 homes in 2002, built the first Vistas subdivision. "It made it difficult for our customers to get to us."

Finally, in 1995, Sandstone, in default on its loans, sued to open the road. A judge agreed, and that year, the city opened a temporary road, which was completed in 1996. But that came too late for the Vistas property, almost all of which was sold between 1995 and 1997 to cover Sandstone's debt payments.

"They took our special assessment and used it as private matching funds [to complete another road project], saying they'd complete the extension in one to three years and then open up the road," Hughes says. "That's what put us out of business. That's what led to our financial demise."

Finally, the developer sued for damages, winning $33 million in 1999 after a judge ruled that Novi had committed a "taking" of the land by failing to build the road and preventing Sandstone from developing it as planned.

The city disagreed. In documents filed with the Michigan court of appeals, the city asserts that inconvenient access to the Vistas did not constitute a "taking" by the city because, in the end, the developer still owned the property. It also contested the judgment, arguing that a judge cannot award damages on "speculative lost profits."

Settling Up

But neither Novi nor Sandstone wants to take their chances with the appellate court. "It's a roll of the dice for both sides," says Gerald A. Fisher, the new city attorney.

So the developer and the city have been negotiating a settlement that would give Sandstone $20 million and 95 acres of parkland that would be rezoned for development. It's not a popular solution with Novi residents, but neither is the estimated tax increase of $250 annually on a $100,000 house for the next 15 years required to pay the judgment.

"You have to start with the premise that the judgment is now three times the annual budget of the city, so obviously they don't have the cash to make a realistic offer," Fisher says. "So what other assets can be used that are mutually favorable? What property does the city have, and what property does the developer want? The only match that came up was this particular property."

It's a costly resolution to what some suggest was initially the easily fixable problem of the road extension. "The project literally blew up over a $20,000 item that the developer was willing to pay," says Gibbs.

The planner believes that more public attention could have saved the project. "I think there could have been daylight brought to this."

As for the developer, he isn't convinced that public pressure would have helped, but he's certain he won't be so patient in the future when problems arise. "If I had to do it over again, I would have gone to court earlier," Hughes says. "We waited too long trying to get the road open. That was a mistake."

--Alison Rice is based in Arlington, Va.

BIG BUILDER Magazine, March 2002