DEGC/DDA gives loan break to ailing businesses

**kraig** · June-12-09, 08:35 AM

Friday, June 12, 2009
Detroit gives loan break to ailing downtown businesses

Development agency allows hotel, others to skip principal payments

Louis Aguilar / The Detroit News

Detroit -- Times are so tough that seven upscale downtown businesses, including the Atheneum Hotel, Seldom Blues restaurant and Detroit's Breakfast House & Grill, are struggling to make their loan payments to a city-supported agency.
The businesses are part of Detroit's effort to revive its commercial heart, but it's the latest setback to big, pricey dreams.
To help them ride out the rough economy, the board of Detroit's Downtown Development Authority agreed Thursday to let them pay only the interest on their loans for 18 months.
The total amount of the loans isn't large -- $4.1 million -- but the statement is sobering. The seven downtown businesses, plus one in Dearborn, represent nearly half of the 19 businesses to which the DDA loaned money in recent years to help spark a downtown renaissance.
"The economic recession visited upon Michigan this past year has been economically challenging to most all businesses located in Detroit," the DDA's Todd Carmody said in a presentation to the board.
"Many recipients of DDA loans have been particularly harmed and have found it difficult to continue making their scheduled loan payments."
Ted Gatzaros, an owner of the Atheneum Hotel in the Greektown area, said "everybody, from what we can tell, has been pretty hard hit." The hotel's DDA loan balance is $3 million.
"Downtown occupancy rates have really dropped for months now," Gatzaros said. "We never missed a payment, but many other types of loans are now impossible to get and so whatever upgrades we do are our own money."
The board didn't approve the "interest-only" amendment to the Greektown hotel's loan Thursday, but intends to do so in two weeks. Gatzaros is on the board of the DDA, a branch of the quasi-public Detroit Economic Growth Corp., and the board couldn't vote on his loan agreement while he was in attendance. DDA funding comes from tax revenue generated by downtown businesses.
Downtown Detroit had seen vast improvements over the past decade -- including several new, upscale hotels -- but the global recession has deferred other development plans.
The Borders bookstore in the Compuware building closed last week. Dreams of dotting the downtown riverfront with ritzy condominiums, some that were to be priced over $1 million, have died or remain only on the drawing board. And the once-planned $150 million Cadillac Centre, a sprawling new retail building, never got past the initial planning stage.
The DDA gave Southern Hospitality Restaurant Group $600,000 to open Seldom Blues on the ground floor of the Renaissance Center, and the Breakfast House & Grill on a prime spot along Woodward Avenue.
Those restaurants were among the eight businesses that will be allowed to pay only the interest on their loans until Oct. 2010. The two owe a combined $484,000 on their DDA loans.
The development group also loaned Southern Hospitality $200,000 for the now-closed Grand City Grille, which opened inside the Fisher Building in the New Center area in 2006.
Frank Taylor, one of the founders of Southern Hospitality, continues to receive city funding for new ventures in other parts of Detroit's downtown. He's an investor in the Detroit Fish Market, which opened in the Harmonie Park area last year.
Several of the outstanding loans that won reprieves on their principal payments are relatively small, such as one for $16,000 to Opus to Go catering.
Vicente's Cuban Cuisine also got a break on a $190,000 DDA loan balance.
"We're still serving about 1,200 [[customers) a week," said owner Vicente Vazquez.
But he said customers are spending less, and the icy credit market makes it tough for his restaurant to borrow to upgrade its equipment and property.
"It's not so much downtown business has completely died," Vazquez said. "It's more like at a standstill. But the costs keep going and going."
He said paying interest only on his loan instead of the principal lowers his monthly payment from $3,500 to $650.
"I wish I knew that in 18 months things will be better, but I remind myself Benjamin Franklin and Thomas Jefferson declared bankruptcy. But I chased my dream of doing business downtown and I still believe in that," Vazquez said.
Other downtown businesses getting a DDA loan break are Woodhouse Day Spa, whose loan balance is $175,000; and Lola's, a Harmonie Park restaurant whose balance is $86,000. The DDA also amended its loan with the Good Bread Company of Michigan, a major supplier to Detroit businesses. It is headquartered in Dearborn, and has a loan balance of $143,000.
laguilar@detnews.com [[313) 222-2760

This is another example of how the DEGC stays in favor. Everyone they're helping writes campaign checks and/or is connected with people at Detroit Renaissance, The Mayor or City Council.

**ghettopalmetto** · June-12-09, 08:45 AM

Just don't miss the interest payments, or DEGC will demolish your building..

**kraig** · June-12-09, 09:03 AM

Originally Posted by ghettopalmetto

Just don't miss the interest payments, or DEGC will demolish your building..

With the possible exception of the Dearborn business, I think all of the businesses are leasing their properties.

**Joseph C. Krause** · June-12-09, 11:16 AM

Did I misread this or is the Downtown Development Authority giving money to a business in Dearborn?

Downtown needs to be a place for human beings to live and a place that serves the surrounding neighborhoods. It currently only exists as an entertainment and office-worker's destination. The streetcar "may" help connect it with some residents, but until it is viewed as a legitimate place for people to live and not only as an entertainment object, it will not sustain itself.

Even running the busses on a few of the arterial streets more frequently [[the Woodward line runs often enough, but Michigan doesn't, for example) would better connect downtown with the neighborhoods. Get that connection going, open a quality grocer ad encourage a few key places to extend their hours and it would begin to appeal to people living nearby.

And should development return, seek to build small-scale urban multi-use buildings and use them at first only to fill in gaps in areas that are already successful. Harmonie park could use a ring of these on all of its parking lots, for example. And the building on the corner of the park is a good place to move a small school if that area were used for urban living.

The CBD was the *entire* city for more than 100 years. In this sense, I don't think there is such a thing as focusing too much on downtown if the focus is to make it a city diverse in uses and activity there rather than as a place that only tries to impress visitors. I'd like to be able to fill a prescription, buy some parsley or dine on some delicious Arabic food after 7PM there.

Part of my fantasy is that the Illitch stadium plan fails and that his empire crumbles and ends in the hands of individuals who understand how cities work and rebuild the NW corner of downtown. Think of very well-designed small-scale development creating an entirely new section of downtown on the old streets without closing them for a megablock.

**kraig** · June-12-09, 11:51 AM

Originally Posted by Joseph C. Krause

Did I misread this or is the Downtown Development Authority giving money to a business in Dearborn?

Downtown needs to be a place for human beings to live and a place that serves the surrounding neighborhoods. It currently only exists as an entertainment and office-worker's destination. The streetcar "may" help connect it with some residents, but until it is viewed as a legitimate place for people to live and not only as an entertainment object, it will not sustain itself.

Even running the busses on a few of the arterial streets more frequently [[the Woodward line runs often enough, but Michigan doesn't, for example) would better connect downtown with the neighborhoods. Get that connection going, open a quality grocer ad encourage a few key places to extend their hours and it would begin to appeal to people living nearby.

And should development return, seek to build small-scale urban multi-use buildings and use them at first only to fill in gaps in areas that are already successful. Harmonie park could use a ring of these on all of its parking lots, for example. And the building on the corner of the park is a good place to move a small school if that area were used for urban living.

The CBD was the *entire* city for more than 100 years. In this sense, I don't think there is such a thing as focusing too much on downtown if the focus is to make it a city diverse in uses and activity there rather than as a place that only tries to impress visitors. I'd like to be able to fill a prescription, buy some parsley or dine on some delicious Arabic food after 7PM there.

Part of my fantasy is that the Illitch stadium plan fails and that his empire crumbles and ends in the hands of individuals who understand how cities work and rebuild the NW corner of downtown. Think of very well-designed small-scale development creating an entirely new section of downtown on the old streets without closing them for a megablock.

Harmonie Park has been renamed Paradise Valley a.k.a. Africantown.

**Detroitnerd** · June-12-09, 12:07 PM

The cynic in me says that the DDA is looking for some good press, lest it become better known as the "Detroit Demolition Authority"?

But aren't these breaks for businesses just a little ... regressive? Why do we have this mentality that the DDA is there to help these high-end businesses when you can't buy a pair of freaking underwear downtown? Maybe opening a high-end restaurant to cater to the business-lunching cronies from City Hall wasn't such a hot idea after all, and maybe it shouldn't be subsidized. Just a thought.

**kraig** · June-12-09, 12:27 PM

Originally Posted by Detroitnerd

The cynic in me says that the DDA is looking for some good press, lest it become better known as the "Detroit Demolition Authority"?

But aren't these breaks for businesses just a little ... regressive? Why do we have this mentality that the DDA is there to help these high-end businesses when you can't buy a pair of freaking underwear downtown? Maybe opening a high-end restaurant to cater to the business-lunching cronies from City Hall wasn't such a hot idea after all, and maybe it shouldn't be subsidized. Just a thought.

I'm sure the owners of The Rhino would have appreciated this kind of cooperation.

**Detroitnerd** · June-12-09, 12:34 PM

Yeah, and then some businesses that DON'T cater to the City Hall muck-a-mucks get the dozer sicced on them. How about a comprehensive policy that doesn't benefit one well-connected business owner at the expense of another business?

**bailey** · June-12-09, 12:36 PM

Has Frank Taylor ever run a successful restaurant? By successful, I mean one that hasn't defaulted on its loans and abruptly closed or depended upon public money or subsidized rent to stay open.

**kraig** · June-12-09, 12:46 PM

Originally Posted by bailey

Has Frank Taylor ever run a successful restaurant? By successful, I mean one that hasn't defaulted on its loans and abruptly closed or depended upon public money or subsidized rent to stay open.

Not in Detroit, that's for sure.

**Joseph C. Krause** · June-12-09, 01:23 PM

Yes, add underwear to the list of things it would be fantastic to be able to procure after 7PM downtown, or at all.

**Joseph C. Krause** · June-12-09, 01:24 PM

I frequently need underwear at short notice!!

crawford · June-12-09, 01:31 PM

Let me get this straight, Detroit taxpayers are subsidizing the construction of unneeded, money-losing luxury hotels and restaurants [[and now are being asked for further subsidies to delay their inevitable demise), but there's no money for police, schools, or housing demolition.

Everyone thought I was crazy when I questioned the public subsidization of all this crap. There is NO demand, notwithstanding the claims of many on DYes [[on another thread, people making wild claims that Detroit restaurants are packed, you can't get a seat on public transit, there are no available apartments, etc.).

You need to grow DEMAND, not supply. We have waaaaay too much supply of hotels and restaurants downtown relative to the market. We had four hotels that were half empty. The brilliant solution was to subsidize the construction of five new hotels. Now we have nine hotels that are 70% empty, and three are in danger of closing. Shocking. Maybe we should subsidize another half dozen hotels and see what happens?

Anyone can subsidize the hell out of something to keep it open. You could open a Ritz Carlton in Flint if you gave enough subsidies. This is NOT how you revitalize a city. Give people a reason to live and work downtown, and then you will have demand.

**Joseph C. Krause** · June-12-09, 01:46 PM

This is also why I have mixed feelings about Dennis Kefallinos. He does only the most threadbare minimum to maintain many of his buildings, but he manages to keep a significant number of them in operation where other landlords would have given up and vacated them. Also the low-end businesses that seem to be going in to the Kresge building might actually be a component of what downtown needs, despite the tacky sign.

You're spot-on, crawford.

**bailey** · June-12-09, 02:07 PM

Give people a reason to live and work downtown, and then you will have demand.

But of course the standard rebuttal is; no one wants to live and work downtown because these things [[hotels, nice restaurants, nice convention centers) aren't there so we must subsidize to create them. It's the chicken or the egg discussion. However, I think the "build it and they will come" crowd is losing that argument so far.

**Detroitnerd** · June-12-09, 02:11 PM

How about we switch mantras. I prefer "renovate it and they will come."

Of course, only as applies to pre-1950 Detroit buildings...

**ghettopalmetto** · June-12-09, 02:14 PM

Originally Posted by bailey

But of course the standard rebuttal is; no one wants to live and work downtown because these things [[hotels, nice restaurants, nice convention centers) aren't there so we must subsidize to create them. It's the chicken or the egg discussion. However, I think the "build it and they will come" crowd is losing that argument so far.

First of all, this isn't a subsidy. These businesses are still expected to pay the interest on their loans. They're just getting a deferment on the principal for 18 months. Student loan lenders engage in this practice all the time, yet I don't see threads started with people bitching about all the poor 20-somethings who are being "subsidized" by the banks. Let's get rid of them too, shall we?

I have reason to believe that businesspeople in Detroit are not idiots. They open a business because they feel like they can make a buck in downtown Detroit, despite numerous obstacles. Which hotels and restaurants are operating with subsidies? Care to name names?

The alternative is to this deferment of principal payments is to lose honest, taxpaying businesses. Is that what you would prefer?

If anything, "no one wants to live downtown" because it's quickly becoming little more than a Mad Max wasteland of empty lots.

**bailey** · June-12-09, 02:43 PM

Which hotels and restaurants are operating with subsidies? Care to name names?

Are you serious? I mean a shorter list would be to name ANY hotel that has been built in Detroit in the last 20 years WITHOUT a subsidy in the form of tax breaks, historic tax credits, or some other form of public money investment. It'd be a really short list. I think it would be zero.

Restaurants...well, take a look at the article. I believe one could add that Asian Village disaster to the list of epic fail.

Your student loan comparison doesnt really work here. yes there is a deferrment period, but I believe that federally backed loans are not discharged in bankruptcy. When the DBC goes under, ya think DEGC is going to see any money?

The question remains, what happens in 18 months when principal starts up again? What about the region's short term future prospects makes one think ANYTHING will be any better then?

I agree with you... many of Detroit business people are not idiots. I do however, believe that Frank Taylor is terrible at managing restaurants and the taxpayer spigot to this guy needs to be shut off. He's great at the front of the house, but back of the house skills are apparently severely lacking. OR, his product is not right for the Detroit market. One or the other because not one of his detroit restaurants [[I mean the ones that are still open and haven't yet left his suppliers holding the bag) is self sufficient.

I offer as an example, the Andiamo that is in the same location as Seldom Blues. Why can't Seldom Blues make it but Andiamo can? Why are taxpayers subsidizing one over the other?

**kraig** · June-12-09, 03:09 PM

Originally Posted by bailey

Are you serious? I mean a shorter list would be to name ANY hotel that has been built in Detroit in the last 20 years WITHOUT a subsidy in the form of tax breaks, historic tax credits, or some other form of public money investment. It'd be a really short list. I think it would be zero.

Restaurants...well, take a look at the article. I believe one could add that Asian Village disaster to the list of epic fail.

Your student loan comparison doesnt really work here. yes there is a deferrment period, but I believe that federally backed loans are not discharged in bankruptcy. When the DBC goes under, ya think DEGC is going to see any money?

The question remains, what happens in 18 months when principal starts up again? What about the region's short term future prospects makes one think ANYTHING will be any better then?

I agree with you... many of Detroit business people are not idiots. I do however, believe that Frank Taylor is terrible at managing restaurants and the taxpayer spigot to this guy needs to be shut off. He's great at the front of the house, but back of the house skills are apparently severely lacking. OR, his product is not right for the Detroit market. One or the other because not one of his detroit restaurants [[I mean the ones that are still open and haven't yet left his suppliers holding the bag) is self sufficient.

I offer as an example, the Andiamo that is in the same location as Seldom Blues. Why can't Seldom Blues make it but Andiamo can? Why are taxpayers subsidizing one over the other?

You hit the nail on a bunch of heads with that one. Especially, the front of the house back of the house analysis. It's amazing how many businesses with great products and good sales go under due to poor management.

crawford · June-12-09, 04:02 PM

Originally Posted by ghettopalmetto

Which hotels and restaurants are operating with subsidies? Care to name names?

Happy to. Let's look at hotels.

The worst by far:

Athenium Suites- has been a welfare basket case from Day 1. Has lost money almost every year [[I think every year but one.) Was built with public tax dollars, and the subsidies continue to this day. There is no reason for its existence, outside of its connected owner.

Recent deals:

Book Cadillac- over $200 million in public grants and low-interest loans
Fort Shelby- about $80 million in public grants and low-interest loans
Garden Inn- received tax breaks and grants

Old school:

Millender Center- built almost entirely with taxpayer dollars. Mostly federal block grant dollars, but some city and state money.
Rennaisance Center- indirectly subsidized. Ford got the city to delay all sorts of taxes for a couple decades. Mostly the Fords and the banks subsidized this one. Does anyone know if the Mariott now pays "regular" commercial taxes?

The only decent functioning downtown hotels I can think of that were NOT built with your money are the casino hotels, but they're being subsidized too, just not by the taxpayer [[unless you're a gambler).

The casino hotels are actually the biggest money losers of all [[they make the Athenium Suites look like a goldmine). The difference is that the casinos realize this was a required cost in exchange for a Detroit casino license. If they had a choice, they would close their hotel doors tomorrow.

**ghettopalmetto** · June-14-09, 02:30 PM

Bailey and Crawford, you're talking about CAPITAL outlays. Which hotels and restaurants are having their OPERATIONS subsidized?

Lorax · June-14-09, 06:37 PM

If I can prove my business is failing, think I'd get a loan? LOL!!

The rest of us are on our own, sadly.

**bailey** · June-15-09, 07:29 AM

Bailey and Crawford, you're talking about CAPITAL outlays. Which hotels and restaurants are having their OPERATIONS subsidized?

That seems to me a distinction without a difference. The tax abatement go on for years. Setting aside the hundreds of millions in investment by the public sector in getting these places built [[which inderectly subsidized operations by freeing up that money that would have gone to capital improvements)...how is an ongoing tax break NOT subsidizing operations?

Look I understand that public private partnerships are needed to develop undesirable areas or projects. I get it. At what point though, does it just become good money after bad?