A modest proposal

[3WC]

Detourdetroit: Excellent question. I was expecting it. yes, I do feel the same way about zoning. There's a strong body of law supporting my position.It embodies the concept of vested rights.

If I buy a property then I of course take it subject to the then existing zoning code. However, as occasionally happens, an area in which my property is located, is rezoned. A rezoning does not affect me because my use of the property continues as a pre-existing use.

Fnemechek, I believe it is the role of government in the situation you posed to pick and choose developers. Subsequent to the ill-fated Cohen attempt to renovate the S-H, the City sent out RFPs on that building and the Kales. The properties were offered at $100,000 each subject to the approval of the City as to the satisfaction of the city's development criteria. I recall the $100M had to be submitted with a proposal. I do not believe anyone brought in my the preservationists ever stepped up to the plate with any cash, or a remotely feasible deal. I sure don't trust the City, or banks for that matter, or myself, to make reasonable real estate/development decisions every time, but somebody has to do it, and based on my experience, emotionally driven preservationists, prospective developers without any money, track record, or reasonably feasible development proposals, are the last people anyone should listen to or permit to make such decisions.

[Warrenite84]

The biggest beef I have concerns how Mr.Gilbert can be given one year options to build on the Statler site, Hudson's site, one property off Library & Gratiot, AND the Lafyette Building, without firm committment that SOMETHING get built of reasonable size and quality required? Mr. Ilitch foot dragging on renovation committments of some of his buildings, and land speculators not put to task for proper building maintainance and security are next on my list. Are these missteps of the DEGC?

When a would-be developer kind-of wants to develop city property, shouldn't the city require a construction bond of some sort to ensure the developer, [[who holds development rights for a stated period), doesn't dither and waste the city's time?

[PQZ]

The biggest beef I have concerns how Mr.Gilbert can be given one year options to build on the Statler site, Hudson's site, one property off Library & Gratiot, AND the Lafyette Building, without firm committment that SOMETHING get built of reasonable size and quality required? Mr. Ilitch foot dragging on renovation committments of some of his buildings, and land speculators not put to task for proper building maintainance and security are next on my list. Are these missteps of the DEGC?

When a would-be developer kind-of wants to develop city property, shouldn't the city require a construction bond of some sort to ensure the developer, [[who holds development rights for a stated period), doesn't dither and waste the city's time?

The real estate process is typically an iterative process with each party entering into progressively more restrictive covenants.

The purchaser usually does some level of home work to verify that they are in the ball park on the project idea and will approach the seller. If in general agreement on price - and depending on a whole host of factors such as the perceived desirability of the property, investment return expectation on the side of the sell er etc. - the two perties typically negotiate an option period in which the buyer has sole rights to purchase the building and complete its due diligence.

The buyer doesn't want to hire an architect and spend significant sums of money and have the property snatched out from under him and the seller typically is paid a fee of some sort to compensate for not being able to sell. There is a huge range of variations from the seller having a parcel of little to no value and thus giving a long term, no cost option to a parcel having huge development potential and the seller giving short, expensive options. Ask for too big of an option and the buyer walks. Concede to too long of or too cheap of an option and ou shoot your self in the foot.


This is the phase that the Quicken / Rock properties are in. It is my personal opinion that the DDA erred by giving Gilbert options on too many parcels for too long of a period -and at no cost to boot. It is my personal opinion that the Kilpatrick administration was so ga-ga eyed over another Compuware - like campus that they made bad business decisions.

In private transactions, the seller doesn't care if the buyer completes the project or not. They simply take the cash and walk. A city has a different set of concerns as they are seeking to ensure the full development of the parcel to maximize tax revenue and benefit to the City. It is detrimental to the CIty to have a half-finsihed project, so the CIty goes the extra step fo the development agreement.

In the case of the City of Detroit, the City usually has to sell the property at little to no cost and provide a range of incentives which could include infrastructure work like sidewalk replacement etc. This adds another layer in that as the likely costs of the building and its revenue potential are refined during the option, a series of negotiations take place about the scope and scale of the city particpation.

This results in a development agreement in which the proprty is transferred to the buyer when they close on their bank financing. The bank, the buyer & the seller get in one room and sign the papers simultaneously. The bank doesn't want to give the loan until the buyer has the property and seller doesn't want to sell until the buyer has the moeny to construct. Because a bank wants to have the land and any improvements as collateral, the City / DDA usually can't get the property back int he event the developer fails to develop what they agreed to. The DDA in that case usually asks for punitive damages and lloks to partner with the bank to either buy back the property or help tthe bank move forward with disposition fo the property.

Lenders usually require some sort of construction bond to finish the project and occassioanlly the City will ask for one if there is work inside City ROW or on City property.

[Lowell]

Thanks to all for a very informative discussion.

I think both sides make persuasive arguments. On one side one can hear something akin to a national security argument. "If you knew what we knew you would understand. But we can't tell you what we know." On the other I hear, "If we satisfy every tiny detail and speculation, nothing will be done."

My position has always been, if there is a development lined up for a site that will create badly needed jobs and add to the tax base, wish it were otherwise, but let 'er rip. I would love to see every building of architectural quality preserved and support what I call a triage to priortize those which should be defended. But life moves on and if opportunity knocks we need to answer.

So my question is why a site, let's pick on the Statler or Lafayette, is chosen and why it is expedited to the front of the line when there is no particular development committed to it? I am not taking sides; I am just trying to understand the thought process behind a decision like that. I guess I have looked at the Tuller and other sites sit idle for decades now and that prompts my curiosity.

[3WC]

PQZ's explanation [[#53) above re: competing interests and the overall process is about as accurate, concise and understandable as I've ever seen.

Lowell, I want to respond to a couple of your comments as well, and address a point I don't think has been raised. I have 2 long time friend who own or owned real estate in the area of the Statler; one owned the Fyfe building and the other owns the fire damaged building remaining on the Statler. The owner of the Fyfe told me that the hulking Statler was bad for his business and even though the Fyfe is in a great location he was never able to maximize the potential of the building as a result of the vacant, abandioned and unsecured buildings in the area.

The owner of the little building next to the Statler wanted to get AAA out of the deal and renovate it, but even though he had several prospectcive tenants, no one would remotely think of moving in there as long as the Statler was in the condition it was.

Buildings like the Statler, the Lafayette, and many others are like cancers in the neighborhoods surrounding them. Leaving them stand until someone with the money and during a period when a renovation is economically feasible, takes on such a project just doesn't work. How many times has it been tried? How many times has it worked?

My view is that most preservationists have tunnel vision, concentrating on one structure to the exclusion of the tremendously negative impact, exacerbated over time, it has on the economic viability of its surroundings.

[detourdetroit]

oh...so much to write, so little time. what's the point?

[PQZ]

Thanks to all for a very informative discussion.

I think both sides make persuasive arguments. On one side one, can hear something akin to a national security arguement. "If you knew what we knew you would understand. But we can't tell you what we know." On the other side we hear, "If we satisfy every tiny detail and speculation, nothing will be done."

My position has always been, if there is a development lined up for a site that will create badly needed jobs and add to the tax base, wish it were otherwise, but let 'er rip. I would love to see every building of architectural quality preserved and support what I call a triage to priortize those which should be defended. But life moves on and if opportunity knocks we need to answer.

So my question is why a site, let's pick on the Statler or Lafayette, is chosen and why it is expedited to the front of the line when there is no particular development committed to it? I am not taking sides; I am just trying to understand the thought process behind a decision like that. I guess I have looked at the Tuller and other site sit idle for decades now and that prompts my curiosity.

I don't think thats it at all. In fact I have been pretty forthcoming for a very long time on this forum and have given very detailed decriptions of the challenges facing buildings. I recall giving excrutiatingly detailed and factual arguments about why the Statler was a goner. Preservationists, because they did not like the outcome, instead chose to ignore or dismiss the arguments. Time and time and time again the preservation community in Detroit has made no effort to "learn the business." FOBC and PW ought to have been carry Ferchill's jockstrap and soaking up each and every nuance they possibly could so they could apply it to future buildings. But if they aren't going to do that and don't want to learn - - well then, they can't turn to the people who ARE involved and say "you're wrong" when they have not bothered to learn the business.

What has also been continuously ignored on this forum is that leaving a building in place and throwing money at it to mothball it diverts that money from other uses. There is a very limited amount of money the DDA and the City have to work with on building mothballing. From an economic development perspective it is a no-brainer when faced with two options.
1. Lend $300,000 to a company to create jobs, tax base and occupy a storefront in a building that tyou have already invested money
2. Reboard up some windows and keep the vacant building next to the vacant store front that remains vacant because you skipped option 1.

To answer your second question of why the Statler or Lafayette or Tuller get demolished. Its quite simple. Numerous development proposals were floated and time and time again, there was no feasible economic reuse. Each and every building is unique in its economic viability - from layout to location to physical condition. If there is no even slim hope that barring some miraculous market change the building can be redeveloped - well, frankly it is irrespeonsible for the City to allow the building to stand. As 3WC noted, it drags down property values and market demand for surrounding buildings. It becomes a safety hazard, the City continues to throw good money after bad in trying to secure the building.

Once a building has reached the point that it is highly unlikely for it to be redeveloped, the best answer is a quick and expedient demolition to remove a liability.

[Lowell]

3WC you make good points and I can understand the blight argument and even accept it as a valid one. I am sure it was essential in the decsion to allow the demise of the Madison Lennox from the view point of the DAC.

But allow me to beg my question. There are no doubt thousands of businesses and residents who have far more blighted properties next to them, often burned out hulks with no historical or aesthetic virtue, who could make the same plea.

I am guessing that it may just come down to "big dogs eat first", which I can ompletely understand, but I my question was also asking if there is some established process for prioritization based on some set of formal rules. It just seems baffling one suddenly falls and while others, just as controversial if not more so, remain -- particularly with no development plan for the site.

Addendum since PQZ posted while I was writing the above.. Thanks it mostly anwers what I was asking although I am still wondering if there is a decision forumla. But I can undertand that formulas don't apply to all undertakings.

[3WC]

Lowell, you pose a very valid dilemma. There certainly are thousands of struggling people in Detroit whose burdens are increased by the decline in property values resulting from derelict, abandoned buildings in their neighborhoods.

And, you're correct that someone has to establish priorities. The voters are the ones upon who that burden inevitably rests. They must elect public officials who pledge to invest whatever money is available for demolishing abandoned, burned out structures in the neighborhood.

I have long advocated that every abandoned, vandalized structure in the city be demolished. There ought to be federal money for such an undertaking.

True, there would be some very large urban prairies, but so what. Developers hate blight and won't build in blighted areas. Lenders won't lend in such areas other than under the gun of the CRA.

I believe that many developers, when [[if) the economy improves would develop large areas, with infrastructure in place already. I have been in many gated communities, several with 15,000+ homes, and many with $300,000 homes, and gating them always increases home values. Why not, when the economy improves, wall off a 20 block area with limited staffed entrances, and build shopping and other stores in the center?

One of the most successful builders in your area is Robertson Brothers, whose many developments are always gated.

First, the City has to be cleansed, both downtown and in the neighborhoods, of vacant, abandoned structures.

[Lowell]

Agreed on the need for Federal assistance. Look how the billions flowed into New Orleans following Katrina, yet we only get scorn and derision for our slow motion Katrina. A President can come and stand atop the rubble of the WTC, loudly vow reconstruction and revenge and send in billions more, but there are no Presidents racing here to stand atop ours even though we have had more cumulative death and destruction than either of those events.

A little bitterness? Yep.

[PQZ]

Lowell, you pose a very valid dilemma. There certainly are thousands of struggling people in Detroit whose burdens are increased by the decline in property values resulting from derelict, abandoned buildings in their neighborhoods.

And, you're correct that someone has to establish priorities. The voters are the ones upon who that burden inevitably rests. They must elect public officials who pledge to invest whatever money is available for demolishing abandoned, burned out structures in the neighborhood.

I have long advocated that every abandoned, vandalized structure in the city be demolished. There ought to be federal money for such an undertaking.

True, there would be some very large urban prairies, but so what. Developers hate blight and won't build in blighted areas. Lenders won't lend in such areas other than under the gun of the CRA.

I believe that many developers, when [[if) the economy improves would develop large areas, with infrastructure in place already. I have been in many gated communities, several with 15,000+ homes, and many with $300,000 homes, and gating them always increases home values. Why not, when the economy improves, wall off a 20 block area with limited staffed entrances, and build shopping and other stores in the center?

One of the most successful builders in your area is Robertson Brothers, whose many developments are always gated.

First, the City has to be cleansed, both downtown and in the neighborhoods, of vacant, abandoned structures.

Ehhhh, I have to disagree with you on that. I don't think its that easy. Clear cutting a neighborhood of abandoned homes will have only a marginal effect on the desirability of the area for redevelopment. It may serve to pique the interest of a developer to a small degree to investigate the potential, but something beyond a cursory review will scare the crap out of them.

The real bugaboo is land assemblage. Hundreds of owners with clouded titles and dreams of huge paydays from developers is 75% of the challenge. Market, financing, construction and infrastructure all come after that. Keep in mind you are going to have to refurbish / replace nealy all the infrastructure.

Jefferson Village is the perfect example of dealing with muliple ownerhsip issues. At least there the City owned 65% of the land and it still took significant public subsidy to buy out the rest and prepare the site for development.

The reasl solution isn't federal dollars for demo, its federal dollars for condemnation and eminent domain. I know that will stick in your craw from a property rights perspective, but from a practical perspective - it you want the praries redeveloped, you'll need sweeping condemnation powers [and money to execercise the powers] far more than you'll need money for bulldozers.

[Toolbox]

PQZ,

Tell them about the drug dealer that handed out stolen deeds to a property for his debt to the suppliers if they want to hear about ownership issues.

[Rideron]

The imperious self importance with which this topic began explains a lot.

[3WC]

I am always amused at many of the pie-in-the-sky proposals/ideas I see on here. Than, I go and propose one. The difference is that I realize mine is a utopian idea with little if any chance of being taken seriously. The thing is, I've discussed this with several residential and strip center developers, and it's the only way they'd even consider doing anything in Detroit. And, I don't see any possible scenario -any - that will result in a so-called rebirth of the City. So, maybe somebody ought to try it. [[Not me.)

Let's forget about eminent domain. I am opposed to its abuse for other than true public purposes, not for ball parks, casinos or to increase the tax base etc. I financially support the Institute for Justice in Washington, a public interest law firm which is involved in the forefront of eminent domain litigation. And of course, in MI, eminent domain is prohibited by case law and the Constitution from being used for any other than the historic public purposes.

That being said, I recognize that it is very frustrating for municipal officials to have to assemble properties from many people who aren't properly motivated to sell. The market place usually works, but there will always be an occasional owner who is not motivated by his own self interest, or is motivated by animosity toward the municipality, who just won't sell. And, there's the guys who have no idea of even the speculative value of their land and refuse to accept the highest and best offer he'll ever get under any circumstances. They miss the boat. Build around them.

It is possible to assemble a large number of parcels from a large number of people without resorting to eminent domain and it's done every day. I have a good friend who acquired a whole subdivision on 12 Mile between Telegraph and Northwestern for the construction a multi-family apartment development. He had a mass closing of around 200+ homes on one day. It took him 9 months to acquire the land. He paid attractive prices [[obviously) and presented a plan which answered all the questions of all the sellers, satisfactorily. All it took was patience and money and he had both. His apartment complex is one of the most profitable of the many he owns.

Try assembling oil and gas leases in a metropolitan area. You're trying to obtain the right to drill , a very objectionable use, and produce wells which many consider to be either ugly, or unattractive, or both. There are sometimes 100s of owners involved. It was done years ago in downtown Los Angeles [[up to 900 lessors per square mile) and in Beverly Hills. There's an oil well on the ground of Beverly Hills High School. There are wells all over downtown Oklahoma City, and one's next to the courthouse steps. There have been 100's of wells drilled in Ft. Worth during the last 5 years, on golf courses, schoolyards, shopping center parking lots, next to Interstate overpasses, country clubs, and over 250 wells within the DFW airport.

I believe, because I've participated in the process, that any assemblage can be achieved.

However, most owners aren't stupid. They do tend to act in their own best interests. But, the City has never been serious enough, or had the expertise, to do it. Or, in the case of the ill-fated River Front casino deal, hindered by the casinos. It's no secret that I think Dennis Archer was the dumbest, or crookedest, or both, public official that ever lived. First, the casinos never wanted to be on the Riverfront despite their stated desire to be there. Second, they imposed a $250,000,000 cap on land acquisition costs for all three casinos, an amount substantially less than the value of Steve Wynn's art collection, and one which they kew would prevent the assemblage, even with eminent domain. The City bought a bunch of land under threat of condemnation, and then screwed up the litigation process, and lost a bundle. The casinos got what the wanted, to build where they wanted to, at their temporary sites. I was very much involved and could write a book. Assemblage has to be done right and if it is it's usually successful.

[Fnemecek]

There are many, many things to respond to since I was away from the forum for a couple of days. I'll start here.

When the DDA deems a plan unviable, what it is actually doing is "withholding certain types of discretionary support" for the project. It has reached the decision that it is not going to spend staff and legal counsel hours drafting and negotiating agreements for access or purchase options to hold the property while the developer does more work. It is not going to spend staff time and resources processing brownfield and other tax credit applications for a plan that has seriously flawed assumptions. Its not going to spend time and resources doing more analysis on proformas that have already been shown to have fatal errors. For example, the Peebles proposal for the Lafayette cost the DDA several tens of thousands of dollars in staff time and legal fees.

So, then do what most other jurisdictions do. Charge a fee for those those things. In fact, if I recall correctly, the DDA already charges a fee for processing brownfield applications.

Wow. You are right. We do have very different models for governance. Yours is to waste money left and right on crackpot proposals. Mine is that professional staff and elected leadership are smart enough to generally make good decisions about such things and ought to take steps to protect the fiduciary interest of the tax payer dollars.

If done properly, the only money that's wasted is the developer's and his/her investors.

The City of Detroit has bigger fish to fry than second guessing every developer's business plan.

[Fnemecek]

Fnemecek, I believe it is the role of government in the situation you posed to pick and choose developers. Subsequent to the ill-fated Cohen attempt to renovate the S-H, the City sent out RFPs on that building and the Kales. The properties were offered at $100,000 each subject to the approval of the City as to the satisfaction of the city's development criteria. I recall the $100M had to be submitted with a proposal. I do not believe anyone brought in my the preservationists ever stepped up to the plate with any cash, or a remotely feasible deal. I sure don't trust the City, or banks for that matter, or myself, to make reasonable real estate/development decisions every time, but somebody has to do it, and based on my experience, emotionally driven preservationists, prospective developers without any money, track record, or reasonably feasible development proposals, are the last people anyone should listen to or permit to make such decisions.

There's a funny thing about "prospective developers without any money", their plans tend to die of their own accord without any interference from anyone else.

As we debate whether or not the DEGC should have a role in deciding whether or not a developer gets a chance to invest in a given property, one has to remember that even the greatest of financial minds will make a bad call from time to time. When the DEGC decides to block a developer from investing in Detroit, we run the risk of turning away a proposal that might have actually worked.

In addition, we have to confront the inevitable fact that a developer who blocked will ultimately blame the City of Detroit for the fact that this project didn't happen - and they will share that blame with everyone. When other developers hear that Detroit isn't friendly to developers, and hear it often enough, they will eventually decide not to invest in Detroit.

And that does more damage to Detroit's economy than any unfinished renovation ever could.

[Fnemecek]

What has also been continuously ignored on this forum is that leaving a building in place and throwing money at it to mothball it diverts that money from other uses. There is a very limited amount of money the DDA and the City have to work with on building mothballing. From an economic development perspective it is a no-brainer when faced with two options.
1. Lend $300,000 to a company to create jobs, tax base and occupy a storefront in a building that you have already invested money
2. Reboard up some windows and keep the vacant building next to the vacant store front that remains vacant because you skipped option 1.

Here's the issue that continues to befuddle me: why is the DEGC/DDA even in the business of making direct loans to businesses?

Banks and the SBA already have a multitude of programs available to provide financing to start-ups and existing businesses. [[Hell, even my company got approved for a 7a loan.) Why duplicate it? Especially when doing so further strains our already limited resources?

[PQZ]

Drive by posting:

3WC - I agree somewhat in theory about the concept that you can build around the one or two holdouts. The difference between a 12 Mile / Telegraph site and a site in Brightmoor is at the end of the day, you can actually rent out the apartments at a price that makes the investment worth it. In Detroit, rents and sales values are so depressed that even clear cutting the land of vacant homes is not going to move the needle enough. Had your friend not been able to crack the $1.10 - $1.25 per foor per month rent range [[current upper limit in Detroit) I doubt he could have assemled the land.

Also see: Toolboxes comment about titles in Detroit. A local entrepreneur managed to get his hands on title balnmks from the state and gave away title to one parcel multiple times to muliple parties in exchange for debt forgiveness on drug deals.

FNemecek:
Cities charging a fee to developers for negotiating a deal on City owned property is not something I have ever heard of. And it certainly is not going to be welcomed when the property is likely to be sold for only a few dollars. You would want to file such fees under "Detroit isn't friendly to developers".

The DEGC does not "block developers from investing" in the City of Detroit. According to the man you should have befriended, John Ferchill, the DEGC is one of the most accommodating and hard working organizations he has ever encountered. The DDA /. DEGC will decline to negotiate further on a specific proposal on a specific City or DDA owned property if the deal does not make fiscal sense. And believe me, the Book Cadillac made NO sense for the first three years the DDA worked on it. Every city in Michigan does that. Every city in Michigan correctly retains the right to determine if they wish to engage in a proposal for their property.

The typical reasons for the DEGC / DDA declining to negotiate are typically around three deal points.

1. The developer will put no equity into the project. Whether its his money or someone elses. I don't think any city should engage with a developer not willing to have some sort of equity into the project. [This was the issue at the Statler. The developer you cozied up to wanted the City to take on all debt and the developer would get paid a large fee, whether the project worked or not]

2.] The projected revenue streams are not within reasonable parameters. This was the case at the Lafayette. Peebles last proforma they tried to work from showed per foot condo sales prices in the $370 - $4000 per foot range. The Book Cadillac was barely breaking $300 per foot on its most desirable units. And the Lafayette units were going to be much less desirable.

3.] The projected costs are not within reasonable parameters. Going off of newspaper reports of the last year, one of the last proposals for the Lafayette showed a per foot renovation cost of roughly $45 per foot. The Kales clocked in north of $119 per foot and was in similar condition. The Book Cadillac white boxing was north of $120 per foot. $65 per foot just about got you to white box the Vinton which was in far better shape. $75 to $125 per foot is the range for numerous redevelopment projects trhough out Midtown. Across the board that $45 per foot # for the Lafayette is a seriously flawed number with no [published] explanation of how it could be done for cheaper.

Those are the types of reasons the DDA declines to negotaite further. The DDA usually goes through several meetings to understand why and how the proposer arrived at their numbers and if they cannot explain, well, there ya go....

Point of clarification 1] A developer on a project like the Lafayette is only going to submit a brownfield application after they have secured a development agreement with the DDA.

Point of clarification 2] The DDA and DEGC work collaboratively with the SBA and many projects wind up with SBA loans. Most of the projects the DDA lends to through is Small Business loan programs and its Housing, Office, Retail program do not meet SBA criteria. Either the projects are too risky or it is something such as rental housing that the SBA will not lend for. The SBA is actually quite conservative on its risk tolerance. The DDA lends because no-one else will. Small Plates couldn't get the SBA to loan. They had to get the DDA. Ditto almost every new restaruant in the DDA area. If you like many of the bars I have seen you in, well, than the DDA beacuse the SBA sure as fuck wasn't lending to them.