Book Building and Tower renovation

**esp1986** · January-21-10, 09:46 AM

Originally Posted by davewindsor

The wikopedia article had said: In October 2009, Key Investment Group of Clinton Township, Michigan announced plans to for a renovation that would transform the building into 260 environmentally sustainable apartments and retail. The investors also revealed that they were looking to purchase the building from AKNO Enterprises of Vancouver in a matter of weeks after the announcement.[2] http://en.wikipedia.org/wiki/Book_Tower#cite_note-1

Did they buy it in early November? Why would they announce it if it wasn't close to closing date? 8, 7, or 6 months is still way too long before even getting a cleaning crew in there. How did they know they can get 260 apartments and retail in there if the plans weren't finalized? There had to be some kind of analysis done on the building prior to the announcement to know they could get 260 apartments in there. At $10+ million, I'm sure they would have had the inspections conditional prior them firming up the offer. What sort of inspections are we talking about here that would take longer than a couple days? Who's gonna spend $10+ million on a vacant building unless they know all this stuff beforehand? It's not like buying a building for a few hundred thousand in back taxes or even a buck. Their story just doesn't add up.

Well, they said they were going to close on the building, but I can find no public record of the sale, and as I can tell, it is still owned by AKNO of Vancouver... the plans for the building are public record, they can get access to those to use for planning. However, before construction begins, they will likely need to have an engineer do a structural assessment, inside and out, to determine the exact extent of renovations needed.

When the Book-Cadillac Renovation was announced by Kimberly-Clark, they thought all was a go, until engineers were in the building and found more damage than originally thought. This is when they backed out.

Now the chance of this same case happening is very slim, considering the relative condition of the Tower and Building compared with the Hotel, but they likely have not had engineers go through and thoroughly inspect the building. Once that is done, they will probably have to get final quotes from all of their subcontractors before construction can begin. We are reportedly seeing this with the Broderick Tower right now, even though they have been "planning" that renovation for 5+ years.

So give it till the end of March or so when it is safe and snowless on top of the building, then give them the same 90 days that J.C. Beal has said it will take to start construction [[time to get subcontract quotes), and we are in June. The timeline makes perfect sense to me... they were not going to start the project in the winter, but what I am skeptical about is the whole plan in general, and until we hear more, I will continue to wonder.

DetroitDad · January-21-10, 11:44 PM

Finally! Wouldn't this be great if it happened?

Advertised price is not good criteria to compare properties.

Moving up from one of the Central Business District's [[CBD) low income properties, into a mid priced property has proven problematic. Some of the above posters are pointing out advertised prices, and using them as criteria for comparison. The problem with comparing properties based on price is that you are not looking at what's included, such as utilities, ammenities, deposits, mandatory fees, and parking. Beyond that, two bedrooms are hard to find in Downtown Detroit, and when you do find one, they tend to be askewed by the colleges, in that they charge a base rate for a two bedroom with one person, and then they also charge extra for each additional tenant. The charging on a per person bases makes sense for college buddies but is ludicrous for couples and families.

Beyond hidden fees, lack of competition is one thing that has made us somewhat leery of renting at Washington Square [[under the former management and Trolley Plaza name) and Claridge House. Low income buildings and indeed the middle-upper income buildings seem to really care about keeping your business, while the mid-priced buildings really seemed to take renters for granted.

**cmubryan** · January-22-10, 12:31 AM

Here's our site: http://www.villagegreen.com/detroit/washington-square/

**3WC** · January-22-10, 09:09 PM

Folks, let's assume that those people paid $10 million for the real estate. They say they're raising $360 million to do 4 buildings; let's say $150 million [[way low) is for the Book deal. There's supposed to be 260 apartments.

Let's say they financed the whole shebang, conventionally, to get the deal done. Let's say they amortized the loan over 30 years, 360 months, at 6.5% per annum [[low in this market for that kind of deal). That's $1,011308.33 per month for the debt service. Or, $3,889.65 per month per apartment.

Now, they say they're going to have 3 floors of office [[a big loser) and retail. And, presumable they want the taxpayers to pay a big chunk of the debt service by using tax credits [[good luck), and less out the office/retail, so cut the per apartment debt service in half, and the debt service per apartment is $1,945.00 per month.

Add to that insurance, CAM, utilities etc [[usually at least 45% of the monthly rent, and what do you have? Let's just say the total debt service and operating costs total $2500/month. How much do you all think they should add on for their profit. Then you'll get the true monthly rent nut they have to make at 100% occupancy. [[If an apartment complex is 100% leased, the rents are too low.) Lenders will impute at least a 5% vacancy rate or higher regardless of the quality of the project.

Hey, cmubryan, why don't you see if Jonathan would go for this deal.

This is all very conservative based on the public info.

Dream on folks.

**bsu** · January-23-10, 01:28 AM

I thought the Book Building was completely closed up and shut down. But there seems to be some action in the building when we drove past tonight. Here are two pictures I took of the main entrance. There was a large chandelier on and what appeared to be temporary construction lights strung through parts of the 2nd floor. The top floors were lit up also.

**esp1986** · January-23-10, 09:14 AM

Originally Posted by bsu

I thought the Book Building was completely closed up and shut down. But there seems to be some action in the building when we drove past tonight. Here are two pictures I took of the main entrance. There was a large chandelier on and what appeared to be temporary construction lights strung through parts of the 2nd floor. The top floors were lit up also.

those lights have been on for weeks...

and someone mentioned the cost of renovation... at over $150 million... wrong! that building will cost closer to $100 million... Ferchill proposed an $87 million rehab, and add in the energy efficiency premiums and we are right around $100... plus, factor in a few federal tax credits for being "green" and it brings it down immensely.

**3WC** · January-23-10, 12:32 PM

It's going to cost far more than $100 million, but use any numbers you want, with tax credits [[if any can be sold), "green" credits, assume the availability of the necessary conventional financing component that's required, and it's still uneconomic under any scenario.

Do any of you think the Book-Cadillac is economically viable and will avoid a major restructuring, with huge losses, within the next 3 years?

**esp1986** · January-23-10, 01:13 PM

Originally Posted by 3WC

It's going to cost far more than $100 million, but use any numbers you want, with tax credits [[if any can be sold), "green" credits, assume the availability of the necessary conventional financing component that's required, and it's still uneconomic under any scenario.

Do any of you think the Book-Cadillac is economically viable and will avoid a major restructuring, with huge losses, within the next 3 years?

I think it is staying afloat solely because of the ability it has to host banquets, weddings etc. These are a real money maker for places like that. It has instantly become one of the premier places to hold a wedding, which is a big plus. Having a lot of the condos sold also helps. Most buildings like that with condos, have associations which collect annual dues, and with the payment of those dues, they can pay for things like elevator maintenance, heat and electricity for common areas. With the autoshow this week, they are sure to take in a lot of business. and with the economy improving, it will only get better. John Ferchill said back in October that the building is surviving because of it's versatility with restaurants, hotel rooms, gathering areas and condos.

**Gsgeorge** · January-23-10, 02:02 PM

Originally Posted by esp1986

I think it is staying afloat solely because of the ability it has to host banquets, weddings etc. These are a real money maker for places like that. It has instantly become one of the premier places to hold a wedding, which is a big plus. Having a lot of the condos sold also helps. Most buildings like that with condos, have associations which collect annual dues, and with the payment of those dues, they can pay for things like elevator maintenance, heat and electricity for common areas. With the autoshow this week, they are sure to take in a lot of business. and with the economy improving, it will only get better. John Ferchill said back in October that the building is surviving because of it's versatility with restaurants, hotel rooms, gathering areas and condos.

I agree. The Book Tower proposals have not included a full-service hotel & banquet areas. This would bring operating and renovation costs down significantly.

**esp1986** · January-23-10, 08:50 PM

Originally Posted by Gsgeorge

I agree. The Book Tower proposals have not included a full-service hotel & banquet areas. This would bring operating and renovation costs down significantly.

Operating for sure, because there is then money to cover the long term financing costs, such as the bank loans on the building itself.

**MotownSpartan** · January-23-10, 09:05 PM

Originally Posted by esp1986

I think it is staying afloat solely because of the ability it has to host banquets, weddings etc. These are a real money maker for places like that. It has instantly become one of the premier places to hold a wedding, which is a big plus. Having a lot of the condos sold also helps. Most buildings like that with condos, have associations which collect annual dues, and with the payment of those dues, they can pay for things like elevator maintenance, heat and electricity for common areas. With the autoshow this week, they are sure to take in a lot of business. and with the economy improving, it will only get better. John Ferchill said back in October that the building is surviving because of it's versatility with restaurants, hotel rooms, gathering areas and condos.

What does this mean for the Fort-Shelby hotel?

**3WC** · January-23-10, 09:51 PM

esp1936: You make some valid observations about some of the reasons why the B-C's doors are still open. Except one.

It's true that condominiums have requirements that the owners pay monthly assessments to cover the cost of CAM, insurance etc. Those costs are distributed over all the units pro=rata on a sq ft basis, usually. The developer, Ferchill, has to pay the assessments for all the unsold units.

Those assessments cover only the elevator services applicable to the units themselves. The assessments are not used to support any of the expenses of the hotel, restaurants etc.

The condos were financed by the MI State Housing Dev. Authority [[MSHDA). Ferchill initially asked MSHDA to make a $6,000,000 GRANT as a public service to get the project completed. MSHDA refused but eventually made a $6 million "loan" to the project, basically unsecured, payable only out of unit sales to the extent they are sufficient for that purpose. Ferchill's company has guaranteed the loan but essentially has no equity in the project.It is an unsecured loan. It will never be repaid in full, with interest. Basically, it turned out to be a grant, but one more politically palatable.

It's true that the Book has no restaurants, public areas etc that the B-C has. On the other hand, the B-C is a much bigger and has many more stories. The height increases the per square foot costs.

The original developer, Kimberly, backed out of the deal for one major reason. They re-ran the numbers and they did not work. Kimberly had spent a lot of money on the deal up to that point and decided to cut its losses. The Ferchill costs were much higher than Kimberly's and it boggles the mind to try and figure out how Ferchill thinks he could make it work when Kimberly [[with much more experience) concluded it couldn't.

Only time will tell. I hope I'm wrong.

**rbdetsport** · January-31-10, 03:57 PM

Something should be coming this week or next.

**DetroitZack** · January-31-10, 07:03 PM

^Just wondering, how do you know?

**mikeg19** · January-31-10, 07:21 PM

It would be nice to see something concrete on this and the Broderick soon.

jflick3535 · January-31-10, 08:22 PM

Originally Posted by 3WC

Do any of you think the Book-Cadillac is economically viable and will avoid a major restructuring, with huge losses, within the next 3 years?

Have you been talking to the same "little birdies" that say they haven't made any repayments on any of the loans and are close to having a notice of default filed against them?

can't wait to see the reaction/excuses around these parts when that happens!!

**mikeg19** · February-03-10, 01:43 PM

As much as I want this to happen because I love this building and it will really give Washington Blvd another nice piece to it, does anybody really think that this is economically viable? I'm not as well versed as some of you on here in economics and politics, but with the glut of office and residential space available in downtown, does it really make sense to do this? Don't get me wrong, I want the building to get renovated and put into use, but is it really feasible?

**esp1986** · February-03-10, 02:11 PM

Originally Posted by 3WC

esp1936: You make some valid observations about some of the reasons why the B-C's doors are still open. Except one.

It's true that condominiums have requirements that the owners pay monthly assessments to cover the cost of CAM, insurance etc. Those costs are distributed over all the units pro=rata on a sq ft basis, usually. The developer, Ferchill, has to pay the assessments for all the unsold units.

Those assessments cover only the elevator services applicable to the units themselves. The assessments are not used to support any of the expenses of the hotel, restaurants etc.

The condos were financed by the MI State Housing Dev. Authority [[MSHDA). Ferchill initially asked MSHDA to make a $6,000,000 GRANT as a public service to get the project completed. MSHDA refused but eventually made a $6 million "loan" to the project, basically unsecured, payable only out of unit sales to the extent they are sufficient for that purpose. Ferchill's company has guaranteed the loan but essentially has no equity in the project.It is an unsecured loan. It will never be repaid in full, with interest. Basically, it turned out to be a grant, but one more politically palatable.

It's true that the Book has no restaurants, public areas etc that the B-C has. On the other hand, the B-C is a much bigger and has many more stories. The height increases the per square foot costs.

The original developer, Kimberly, backed out of the deal for one major reason. They re-ran the numbers and they did not work. Kimberly had spent a lot of money on the deal up to that point and decided to cut its losses. The Ferchill costs were much higher than Kimberly's and it boggles the mind to try and figure out how Ferchill thinks he could make it work when Kimberly [[with much more experience) concluded it couldn't.

Only time will tell. I hope I'm wrong.

If done properly, this project could be huge... but there are still a few things that are troubling...

1) grocery stores... there really aren't any downtown.
2) commercial... you can have all the commercial space you want, but who is going to fill it??
3) rental cost... unless the cost to rent for these suburbanites is the same as the suburbs or less, this project may not be viable for lack of demand...

these are some of the problems troubling much of downtown... if downtown had a grocery store and department store, there would be a lot more potential... just look at downtown even before hudson's closed, people at least came downtown to shop [[albeit in smaller number than in the past), but it was still a destination because of hudson's... by then, the building was too big for the reduced demand to support and hudson's left, then it was no longer a destination, and everybody else left too...

needless to say, this project could be huge, but they will have to do it with lower costs to the end consumer because of the lack of some basic ammenities, as described above...

by the way, I heard Eastern Market was considering opening a produce store in the Compuware Building... I presume this is a dead idea, has anyone heard anything else??

**rjlj** · February-03-10, 02:34 PM

It is the old chicken or the egg debate. Who is going to come first, the people or the stores/jobs downtown? It is clear that stores are not going to open without people to support them so the people are going to have to give in.

**esp1986** · February-03-10, 02:40 PM

Originally Posted by rjlj

It is the old chicken or the egg debate. Who is going to come first, the people or the stores/jobs downtown? It is clear that stores are not going to open without people to support them so the people are going to have to give in.

clearly... the problem then becomes cost... there is no cost advantage to living many places downtown... if you do move downtown, most places charge rent $150-$200 per month higher than the suburbs, so it instantly eliminates the benefit of not having to pay for gas, and with no social benefits to living downtown, someone is going to have to offer some more affordable options if this is to change... if people can get a good deal, where they can legitimately save some money over where they are now, cost of gas included, then they will move downtown, but that hasn't happened yet.

**hudkina** · February-03-10, 03:15 PM

Most people don't want to live in an apartment for $1,200 a month. Hell, even $800 for a single-unit is getting on the pricier side.

**esp1986** · February-03-10, 03:25 PM

Originally Posted by hudkina

Most people don't want to live in an apartment for $1,200 a month. Hell, even $800 for a single-unit is getting on the pricier side.

exactly my point... in the burbs you can get a nice one bedroom for $600-$650 and a nice two bedroom for $800-$850... if more places offered these prices downtown, people would be living down there... to my knowledge, Washington Square is one of the only places offering rates anywhere near this, and I understand they have a higher occupancy rate now than ever before. So it is cost as much as anything else...

if the price is right the people will come and everything else will fall into place, and then demand will rise, THEN landlords can raise their prices, when demand begins to rise... simple economics here.

**casscorridor** · February-03-10, 03:28 PM

Originally Posted by mikeg19

As much as I want this to happen because I love this building and it will really give Washington Blvd another nice piece to it, does anybody really think that this is economically viable? I'm not as well versed as some of you on here in economics and politics, but with the glut of office and residential space available in downtown, does it really make sense to do this? Don't get me wrong, I want the building to get renovated and put into use, but is it really feasible?

I think it is absolutely feasible if they are rental apartments and a reasonable rate. I'm talking a more affordable alternative to Merchant's Row, which are quite high for the city. If the rates were low enough for students/young people, I think many would want to live there. Maybe low enough by student standards isn't possible, but wouldn't a huge tower full of apartments paying rent and first floor retail paying rent provide huge revenue?

You might be able to explain why landlords keep empty storefronts while demanding outrageous rent in Downtown Detroit. I'm sure if they lowered their rent, there would many many businesses lining up to open. Not having affordable retail space in a city downtown with very little retail is plain stupid, I don't care what the motivation is for landlords charging so much.

Look around Downtown and see what parts have foot traffic, you'll see it is the places with businesses open... restaurants, cafes, shops, etc. The places with stark concrete buildings, abandoned storefronts or parking lots have very few people walking. You could say a business won't want to open because there isn't enough foot traffic, but the business itself creates foot traffic, thats why there are clusters, such as on East Grand River between Broadway and Harmonie Park. One store opens, another one opens next door and feets off the foot traffic brining even more traffic to the first store, and so on.

Obviously another generator of foot traffic is transit. Busses brining in the fewest. But a light-rail transit system will enable many more people to come in from outside Downtown without have to drive, enabling even more foot traffic.

I think the time when we have a vibrant Downtown is fast approaching. Smart investors realize this early, and work to help it along and take part, not just sit on land waiting for someone else to do something.

**esp1986** · February-03-10, 03:39 PM

Originally Posted by casscorridor

I think it is absolutely feasible if they are rental apartments and a reasonable rate. I'm talking a more affordable alternative to Merchant's Row, which are quite high for the city. If the rates were low enough for students/young people, I think many would want to live there. Maybe low enough by student standards isn't possible, but wouldn't a huge tower full of apartments paying rent and first floor retail paying rent provide huge revenue?

You might be able to explain why landlords keep empty storefronts while demanding outrageous rent in Downtown Detroit. I'm sure if they lowered their rent, there would many many businesses lining up to open. Not having affordable retail space in a city downtown with very little retail is plain stupid, I don't care what the motivation is for landlords charging so much.

Look around Downtown and see what parts have foot traffic, you'll see it is the places with businesses open... restaurants, cafes, shops, etc. The places with stark concrete buildings, abandoned storefronts or parking lots have very few people walking. You could say a business won't want to open because there isn't enough foot traffic, but the business itself creates foot traffic, thats why there are clusters, such as on East Grand River between Broadway and Harmonie Park. One store opens, another one opens next door and feets off the foot traffic brining even more traffic to the first store, and so on.

Obviously another generator of foot traffic is transit. Busses brining in the fewest. But a light-rail transit system will enable many more people to come in from outside Downtown without have to drive, enabling even more foot traffic.

I think the time when we have a vibrant Downtown is fast approaching. Smart investors realize this early, and work to help it along and take part, not just sit on land waiting for someone else to do something.

You would think that some of these landlords would want to generate some income rather than let space sit empty in some buildings... most of us are clearly on the same page here... with half of downtown's office space empty, you would think that people would drop the prices to at least get someone in there... if places start to fill up, then higher prices can be charged as demand rises, but with no demand, nobody will pay for much of anything.

**mikeg19** · February-03-10, 05:11 PM

Originally Posted by casscorridor

I think it is absolutely feasible if they are rental apartments and a reasonable rate. I'm talking a more affordable alternative to Merchant's Row, which are quite high for the city. If the rates were low enough for students/young people, I think many would want to live there. Maybe low enough by student standards isn't possible, but wouldn't a huge tower full of apartments paying rent and first floor retail paying rent provide huge revenue?

You might be able to explain why landlords keep empty storefronts while demanding outrageous rent in Downtown Detroit. I'm sure if they lowered their rent, there would many many businesses lining up to open. Not having affordable retail space in a city downtown with very little retail is plain stupid, I don't care what the motivation is for landlords charging so much.

Look around Downtown and see what parts have foot traffic, you'll see it is the places with businesses open... restaurants, cafes, shops, etc. The places with stark concrete buildings, abandoned storefronts or parking lots have very few people walking. You could say a business won't want to open because there isn't enough foot traffic, but the business itself creates foot traffic, thats why there are clusters, such as on East Grand River between Broadway and Harmonie Park. One store opens, another one opens next door and feets off the foot traffic brining even more traffic to the first store, and so on.

Obviously another generator of foot traffic is transit. Busses brining in the fewest. But a light-rail transit system will enable many more people to come in from outside Downtown without have to drive, enabling even more foot traffic.

I think the time when we have a vibrant Downtown is fast approaching. Smart investors realize this early, and work to help it along and take part, not just sit on land waiting for someone else to do something.

I agree with you 100%. I love going downtown and bar hopping and enjoying the city. People think I'm crazy when I tell them that I want to move downtown. I'm a 23 year old college student, and as soon as I finish my bachelor degree and find a steady job, I'll be moving to the city. There is so much potential downtown for investment. I just don't understand the ridiculous rents some landlords are charging for storefront property. This isn't Chicago or New York, and probably won't ever be in our lifetimes. It would just be great to see a vibrant downtown, and I think we are on our way there. It's changed so much from even the early 90's when my dad would take me downtown. There's no reason that in the next 20 years that we couldn't have a vibrant, safe, lively downtown. [[Well, as long as the right people are in charge.)