A proposed $100 million-plus public-private development in downtown Royal Oak is the subject of a lawsuit in Oakland County Circuit Court saying the city is violating state law and its charter and ordinances.

The battle threatens the construction of the Royal Oak City Center project, which would transform the city's hip downtown. But the plaintiffs argue it would worsen the city's parking problems and harm existing businesses, and also the city is planning to finance it in ways that are not allowed.

Multiple alleged missteps are at issue pertaining to the planned Royal Oak City Center project being led by Central Park Development Group, a joint-venture between Lansing-based The Boji Group LLC and Birmingham-based Surnow Co.

The complaint alleges that the city essentially gave the developers $5.5 million from its general fund as equity — a rare move — to secure financing from Flagstar Bank for a 128,000-square-foot office building to be built on a surface parking lot west of city hall to be owned by the development group.

"There is a specific state law as to how and what municipalities can invest their money in," said Ethan Holtz, a partner at the Southfield office of Jaffe Raitt Heuer & Weiss PC, which is representing the plaintiffs (see box). "You can't put them in private real estate deals. (You can put them in) bonds, mutual funds, CDs, things like that. There are good reasons for that; this is public money and this is a public trust."

The term sheet for the development calls for Central Park Development Group to pay back $12.8 million over 20 years in property taxes, regardless of what it is assessed at.

But David Gillam, the city’s attorney, contends that because the city commission deemed the additional employment, increased downtown foot traffic and business activity, plus tax revenue, as a “public benefit,” such an investment is well within its legal right.

"Any lawyer I've spoken to, any real estate professional I have spoken to, nobody has heard of anything like that," Holtz said.

The complaint also says that the city's portion of the project — a new city hall, police department headquarters, parking deck and public park — would have to be paid for illegally by issuing tens of millions of dollars in bonds when the city is already above its debt limit, which the charter stipulates can be no more than 5 percent of its state-equalized value of about $2.8 billion, or $169 million.

But according to Gillam, state law, which trumps the city charter, allows Royal Oak to have bond debt of 10 percent of its SEV, or about $280 million.

And the suit also contends the development would eliminate hundreds of parking spaces in a downtown where parking is at a premium.

The elimination of those spaces would harm the businesses and landlords, whose property abuts the planned development at Main Street and 11 Mile Road in the trendy downtown nestled between Ferndale and Birmingham, the lawsuit says.

Ron Boji, head of The Boji Group, says the parking situation will actually improve once the project is complete, but acknowledges that temporary headaches would be caused.

"It's going to be better than it is today, along with bringing 700 new employees" to the planned privately owned office tower.

Boji said a parking study on the project will be presented Sept. 12 before the planning commission which will show that his and Surnow's development will actually have a net positive effect on parking in the area, which sees the greatest level of activity as people head there for its lively nightlife on the weekends.

"Is there going to be 6 to 8 months of interference, of disturbance of people parking while all four developments are going up? Yes. But that's progress."

He also said the $5.5 million in city equity is an "economic incentive."

"It is done all across the state. The MEDC (Michigan Economic Development Corp.) does it every day. Municipalities do it all the time."

The city commission unanimously approved the development agreement, and resolutions authorizing up to $18 million in revenue bonds and $40 million in capital improvement bonds, last week.

Plaintiffs:

• Little Tree Sushi Bar Inc., 107 S. Main St.
• Dixie Moon Saloon LLC, 111 South Main St.
• The Nash Family Ltd., co-owner of 107 South Main St.
• M&R Realty 111 South Main LLC, co-owner of 207-211 Main St.
• Sullivan Investment Group L.P., owner of 219 South Main St.
• Third Street Properties Inc., owner of 177 West Third St., 307 South Center and 310 South Center St.
• Corp One Inc., co-owner of 210 East Third St.
• Group 225 Inc., co-owner of 210 East Third St.
• Corp One Property Company LLC, co-owner of 210 East Third St.
• One Hundred Seven South Main LLC, co-owner of 107 South Main St.
• R&M Realty LLC, co-owner of 207-211 Main St.