Book Caddy Finances In Trouble

**401don** · March-16-12, 07:02 AM

Fort Shelby and Inn on Ferry St. also behind.

Not sure what they want for the Book condos now but you would think with the new business downtown there would be a market for those in the 250k range over the next 12 months.

Anyone still wondering why nobody has bought the Pontch?

http://www.detroitnews.com/article/20120316/BIZ/203160376/Financial-woes-cast-shadow-Book-Cadillac?odyssey=tab|topnews|text|FRONTPAGE

http://www.freep.com/article/2012031...epay-HUD-loans

Edited my post after seeing Freep article.

**dmike76** · March-16-12, 07:14 AM

This story made my Friday morning considerably less cheerful. This place cannot fail. Bottom line. The Book Caddy is one of the cornerstones of the downtown's redevelopment. This is such a critical time for the future of Detroit. It is the tipping point between a future of prosperity and a future that mirrors the last forty years. Between this and the BS from Bing and the Clowncil.....scary.

**DLife** · March-16-12, 07:18 AM

What..a project with huge tax payer subsidies is failing....I wonder why??

**wolverine** · March-16-12, 07:46 AM

Originally Posted by DLife

What..a project with huge tax payer subsidies is failing....I wonder why??

Exactly. It seems like every project I've read about in Detroit has required enormous subsidies. Its inherent they'll fall short of expectations

**313WX** · March-16-12, 08:00 AM

No surprise there.

And it supports my conclusion that downtown Detroit would fall apart overnight if the subsidies were taken away [[despite popular belief).

Really, who in the heck uses all of those rooms regularly? Furthermore, who in the heck believes all of these hotels are doing well, given how saturated the market is down there [[they're eating each other aliv).

Detroit doesn't have many conventions [[because we can't even get our crap togethr to renovate our outdated convention center) and other thn GM [[which has the Marriot and Courtyard right in its vicinity), Detroit isn't a town that sees a lot of international business visitors due to a lack of presence from GLOBAL corporations, and with the lack of any unique entertainment/leisure experience, Detroit doesn't see many tourists from OUTSIDE Detroit.

**dmike76** · March-16-12, 08:32 AM

We could get more conventions when they finish renovating Cobo. Plus it's cheaper than a lot of places to have them here [[although Vegas is probably cheaper than us, and let's face it....WAY more fun). Places to shop and some more jobs downtown would help tremendously in getting people to buy some of those condos. Calling Dan Gilbert?......MOVE YOUR ASS ON THIS BIG BANG RETAIL THING. Eh well. We can't rely on just him of course....I wish there was a way I could help on a larger scale....

**illwill** · March-16-12, 09:34 AM

This is not a big deal for Detroit. It's only bad news forthe initial investors and the banks involved. The main factor is that thebuilding was renovated back to its original grandeur and Detroit now has a gemin the city. Even if the property changes hands, goes into default or whatever,another investor will step in and scoop it up for a percentage of the originalprice, making it a great investment for whoever that person might be. Thishappens all the time in commercial real estate worldwide. So no need to worry,we now have a beautiful structure. The investors will be fine.

**antongast** · March-16-12, 09:38 AM

Originally Posted by 313WX

Detroit doesn't have many conventions [[because we can't even get our crap togethr to renovate our outdated convention center)

I thought we did get our crap together on that? At least, I biked past the riverfront side of Cobo yesterday and it sure looked to me like they were working on it.

**stinkytofu** · March-16-12, 10:02 AM

Doesn't it seem possible that some folks who owe money on these properties can actually afford to pay the loans off but are intentionally delaying since they figure if nobody else is why should they? It's not ethical, but I could see people doing that.

**poobert** · March-16-12, 10:08 AM

Not surprising. Detroit has been throwing money at creating a Disney-esque downtown for the past 30 years and look where we are. The prevailing mentality still seems to be "you need a strong downtown for a strong city" when in reality the opposite is true. You need a strong city to support a vibrant downtown - not just hotel rooms for imaginary visitors and pretty stuff to attempt to impress suburbanites for God knows why. With those idiotic goals in mind we throw taxpayer money at these big downtown developments that have no means of being supported. Who the hell is going to stay in those rooms, and why? To go to Jazzy Liquor or the Bail bonds guy on Woodward?

**JBMcB** · March-16-12, 10:13 AM

Originally Posted by illwill

This is not a big deal for Detroit. It's only bad news forthe initial investors and the banks involved.

And bad news for anyone who wants investors to fix up buildings downtown. If this place defaults it's sending a clear signal to potential investors of other properties - spend money to renovate and loose your shirt.

Investors go where they money is. If you want to attract redevelopment dollars, then redevelopment needs to turn a profit.

**stinkytofu** · March-16-12, 10:14 AM

Originally Posted by poobert

Not surprising. Detroit has been throwing money at creating a Disney-esque downtown for the past 30 years and look where we are. The prevailing mentality still seems to be "you need a strong downtown for a strong city" when in reality the opposite is true. You need a strong city to support a vibrant downtown - not just hotel rooms for imaginary visitors and pretty stuff to attempt to impress suburbanites for God knows why. With those idiotic goals in mind we throw taxpayer money at these big downtown developments that have no means of being supported. Who the hell is going to stay in those rooms, and why? To go to Jazzy Liquor or the Bail bonds guy on Woodward?

Yes, because the Book Cadillac is so Disney-esque.

**Bham1982** · March-16-12, 10:32 AM

Originally Posted by illwill

This is not a big deal for Detroit. It's only bad news forthe initial investors and the banks involved.

The "initial investors" are the Michigan taxpayers. The renovation was primarily done with public money. If Book Cadillac defaults, the taxpayers lose a ton. The developers have very little skin in this game.

**corktownyuppie** · March-16-12, 10:32 AM

Any development which was done before 2009 is having this exact same problem. The Fountain Park condominum complex in Livonia had double-digit foreclosures and back taxes owed because the properties were bought at pre-recession prices, which require payments that aren't sustainable in these times.

Bottom line? Book Cadillac isn't going anywhere. If they have to restructure their debts, they won't be the first. The same problem is going on at Orchestra Hall and every other project in all of Metro Detroit done between 2005-2009.

**Packman41** · March-16-12, 11:28 AM

Originally Posted by illwill

This is not a big deal for Detroit. It's only bad news for the initial investors...

I beg to disagree, this is a problem for Detroit. You said, “…it’s only bad news for the original investors.” Well, the City of Detroit, through 2 of its pension funds are original investors. Let’s take a look at a list of some of the junior mortgage holders and see how many times the word Detroit comes up [[source – dBusiness magazine October 2008 edition):

Detroit General Retirement Fund $ 9.0 million
Detroit Police & Fire Fund $15.0 million
Detroit Sec. 108 HUD Loan $18.0 million
Detroit EDC Development Loan $ 5.7 million
Detroit EDC Remediation Loan $ 6.8 million
Total $54.5 million

Remember, these junior mortgage holders are behind the first mortgage holder. The FREEP article now says that some carpenters pension fund is the senior mortgage lender and has a $50.0 million loan out to the BC. The junior mortgagees only get paid AFTER the senior mortgagee is paid. Not a nice place for the junior mortgagees to be in when the senior mortgage comes due in June 2013.

And why are the Detroit pension funds involved with this? Do you remember the name Jeff Beasley? He is the guy the Feds indicted for taking kickbacks and bribes in exchange for voting on risky investments that to date have cost the pension funds $84 million. So, this may increase that loss by another $24 million and make it a $108 million loss for the two pension funds.

So yes, this happens all the time, everywhere around the world in commercial real estate. The original investors – here the Detroit Pension Funds and the taxpayers - take it in the shorts and the next guy buys it on the cheap – but hopefully NOT like what happened over at the Pontchartrain.

**corktownyuppie** · March-16-12, 12:38 PM

Originally Posted by JBMcB

And bad news for anyone who wants investors to fix up buildings downtown. If this place defaults it's sending a clear signal to potential investors of other properties - spend money to renovate and loose your shirt.

Investors go where they money is. If you want to attract redevelopment dollars, then redevelopment needs to turn a profit.

I agree, but with one caveat. Spend money to renovate at 2008 prices, and you will lose your shirt. Birmingham, Grosse Pointe, Detroit, doesn't matter. Only exception is likely on the borders of campus in Ann Arbor.

At today's prices...it's a whole different ballgame.

Again, I don't see the Book Caddy as a bad project. It's doing about as well as can be expected for any development project made before the bust.

**drjeff** · March-16-12, 12:39 PM

Other than the headline of that Freep piece, there is nothing in the article that indicates the Book-Caddy is in trouble. Hotel occupancy downtown has been steadily increasing and is way up this year. Other than ignoring a loan repayment that apparently everyone else is also ignoring, they are doing fine. Doesn't sound like the owner is the least bit concerned.

**Gistok** · March-16-12, 12:41 PM

Originally Posted by antongast

I thought we did get our crap together on that? At least, I biked past the riverfront side of Cobo yesterday and it sure looked to me like they were working on it.

You're right antongast.... I guess not everyone gets downtown often enough...

**swingline** · March-16-12, 12:48 PM

There's some misleading posts in this thread.

First, the hotel operations are not the cause of most of the development's financial problems. The bulk of the unrealized revenue comes from the problems selling the condos. Some might recall that Detroit and a few other parts of the country experienced a little hiccup in their real estate markets in the period shortly after the BC opened. [[This is sarcasm.) There's at least a couple of dozen units, perhaps more, that are unsold. The project's proformas certainly had them sold by now. Conservatively, you're talking at least $10 million that's gone unrealized by the project. So this shortfall is not the result of some starry-eyed misreading of the hotel or condo markets that green-lighted a project that never should have gone forward.

Also, it needs to be noted that the developer does have some skin in the game. I don't know the number precisely [[others might) but it was well into the millions. Mr. Ferchill may have gotten some of his investment back through various developer fees over the past few years, but he certainly still has a few million in the project, not to mention a few years of time.

**Bham1982** · March-16-12, 12:49 PM

Originally Posted by corktownyuppie

Again, I don't see the Book Caddy as a bad project. It's doing about as well as can be expected for any development project made before the bust.

Most projects built during the economic boom aren't on the verge of foreclosure.

There were plenty of non-subsidized projects built during the boom, such as the Royal Park Hotel in Rochester, or the Townsend Hotel expansion in Birmingham, that aren't entering default.

The obvious difference is that the Book Cadillac restoration had little to do with economic viability. If investors thought the project made economic sense, then the taxpayers and pension funds wouldn't have had to step in with funding.

**Gistok** · March-16-12, 12:54 PM

Originally Posted by Bham1982

Most projects built during the economic boom aren't on the verge of foreclosure.

There were plenty of non-subsidized projects built during the boom, such as the Royal Park Hotel in Rochester, or the Townsend Hotel expansion in Birmingham, that aren't entering default.

The obvious difference is that the Book Cadillac restoration had little to do with economic viability. If investors thought the project made economic sense, then the taxpayers and pension funds wouldn't have had to step in with funding.

You haven't been to Florida in a while, have you?

You cite 2 of the most prosperous areas of Detroit... you forgot to mention the Ritz-Carlton in Dearborn.... $3 million fire sale... not exactly prosperity...

**iheartthed** · March-16-12, 01:03 PM

How's the Fort Shelby doing?

**Detroitnerd** · March-16-12, 01:13 PM

Some of this is, no doubt, transit-related. I remember going to New York for the first time and seeing how the hotels were near subway stops.

Needless to say, the nearest subway stop to the Book Cadillac is about 400 miles away.

You have a metro where people have to drive to get anywhere.

Then you offer them a hotel where there is not only no transit system -- as there was when the hotel was originally built -- but parking is difficult and expensive.

So why not just stay out in Troy where the parking is free if you're going to have to drive everywhere anyway?

NAYSAYERS: I said it was a PART of the problem, not the entire problem.

**Detroitnerd** · March-16-12, 01:18 PM

Yeah! Rich areas seem to get along fine without any subsidies. Why don't you poor areas get it together and compete in the market fairly!

Now I'm going to get off the government-created internet, get in my car, produced by a company saved by the government, get on my government-funded road, and go eat a meal of government-subsidized meats and grains at Applebee's.

**Bham1982** · March-16-12, 01:25 PM

Originally Posted by Gistok

You cite 2 of the most prosperous areas of Detroit... you forgot to mention the Ritz-Carlton in Dearborn.... $3 million fire sale... not exactly prosperity...

But that's not the point. The taxpayers and pension funds didn't subsidize construction of the Ritz Carlton. The market made a stupid bet.

I'm not even in real estate, and I could have told the developers that Dearborn was a stupid location for a Ritz Carlton.