Wednesday, November 25, 2015

Pyramid Controversy

We've got a pyramid controversy in West Michigan, and it has nothing to do with "pyramid schemes."
Yes, a real pyramid. It's an office building, not a tomb, though the confusion is understandable.
The pyramid was built by Steelcase, the office furniture company, back in 1989. They left in 2010, and it's more or less just sat around ever since. In 2014, an education group agreed to buy the building, but early in 2015 Steelcase sold it to a developer instead. The developer plans to sell it to Switch, a technology company that runs Internet data centers. Switch would turn the pyramid and surrounding area into one of the largest data centers in the eastern US, a project that would bring $5 billion in investment over the next 10 years.

That all sounds pretty good. Old building that no one has been willing to buy for years, sold to a high-tech firm that will bring what is effectively an entire new industry to the area? Hard to argue with that. Ah, but not so fast, it's never that simple.

Controversy #1: The education group (ECI) who were planning that purchase in 2014 are suing Steelcase. According to this article:

According to a lawsuit filed in Kent County court on Wednesday, Nov. 18, the original purchase price was $7.5 million. But, after ECI found infrastructure problems with the Pyramid, the purchase price went down to $3 million.
The suit alleges Steelcase secretly negotiated to sell the property to Norman Properties, while it still had a purchase agreement with ECI.

ECI is asking the courts to force Steelcase to sell the pyramid to them at the lower price, plus pay damages for reneging on the deal. Steelcase would like them to just go away. I suspect the end result will be somewhere in the middle, with Steelcase paying ECI some undisclosed amount to drop the suit. At least, that's likely if the new deal actually goes through, which brings us to...

Controversy #2: For Switch to move into the pyramid, they're demanding a tax break, and that's not going over well. Conservative lawmakers and political groups are denouncing it as crony capitalism and government picking private-sector winners. They've definitely got a point. All other things being equal, you'd rather see investment made on the merits of the companies involved, not based on which government is willing to pony up the best deal.

On the other hand, the folks pushing the tax breaks are saying that they're just leveling the playing field between Michigan and other states. They have a point, too; with that $5 billion investment on the line, someone is going to give Switch what they want. Assuming they craft the bills intelligently, such that Switch only gets the benefits if they actually bring investment into the state, Michigan should end up with a positive value in the end.

I'm really not sure which way this one will go. If the tax breaks can pass the state legislature, I'm confident that our notoriously business-friendly governor will sign them. It seems to be the logical thing to do, even if it's ideologically unpalatable. Asking the Michigan state legislature to value logic over ideology, though, is a pretty tall order. After what they've done with the roads, I have no confidence that logic plays any part in their deliberations.

It would be nice to see something made of the pyramid again, especially if that something involves a whole lot of investment and a new high-technology industrial center. The hurdles to clear look pretty high, though.

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