David Stott Bldg downtown asking $1,8 Million

[davewindsor]

Thanks! The thing that sucked the most was the lack of communication from the new owner[[s). Everybody kept waiting to see if they were gonna write new leases or share bldg plans/intentions... nothing but a letter saying pack yo sh*t & get out! Well, not literally, but you get the picture...

Just curious. How much was your rent and how many square feet was your office unit?

[fryar]

But calm down with the granite countertops, stainless steel appliances, chandeliers, expensive bathroom sinks & showers... what is with all these rental units downtown being so luxurious? Who exactly are they expecting to move here?

Why, it's to let me know that "I've arrived," to welcome me to the big leagues.

FWIW, I think it's done because the cost of these things is relatively insignificant compared to the overall renovation cost, and to help overcome perceived stigma, to set a completely different tone. But I tend to agree with you, it's a little out of place.

"Why, dahling, it's lovely." Yep, that's my Detroit apartment.

[wolverine]

I Right now Woodward Lofts is asking $1000-$1750 for 750-1100 sq ft. You've gotta be kidding me! If they just cut back on the expensive fixtures and dropped the rent a few hundred bucks, I would go for them.

I can see $1000-1200/month rent as being very reasonable for 750-1100 sq ft, but $1750 is too damn high. [[for Detroit)

[davewindsor]

I can see $1000-1200/month rent as being very reasonable for 750-1100 sq ft, but $1750 is too damn high. [[for Detroit)

I can stay at the Corktown Inn for $68/night or the Book Cadillac for $320/night. Price ranges cater to different lifestyle market. Just because you think it's too high a price to live somewhere doesn't mean no one would live there. If you don't like it, don't rent it.

[esp1986]

I can see $1000-1200/month rent as being very reasonable for 750-1100 sq ft, but $1750 is too damn high. [[for Detroit)

Problem is, developers want their investment returned much sooner these days than ever before... unfortunately, most of the developments downtown are filling up, experiencing some of their highest occupancy rates ever, so this is what we are left with. And these are Lofts, no less. Apartments at the Fort Shelby start at $1600, and you actually get a bedroom.

[BrushStart]

Problem is, developers want their investment returned much sooner these days than ever before... unfortunately, most of the developments downtown are filling up, experiencing some of their highest occupancy rates ever, so this is what we are left with. And these are Lofts, no less. Apartments at the Fort Shelby start at $1600, and you actually get a bedroom.

I am very optimistic about downtown's residential population. Right now, it is improving, and I only expect it to continue to go up. Demand for residential space is high right now so prices are way up, even at my building where prices had been trending down for a few years. I don't know what it would cost to get the Stott updated and converted into residential, but at a listing price of 1.8, this building could likely be profitable if it offered smaller units in the $750-1,200 price range or larger, high-end units in the $1,200-2,500 price range. I don't expect to see this building on the market long- the price is almost a joke to a serious developer who plays with amounts well over 100 mil on any given project. 1.8 is a fly-speck sized investment, even if the developer needs some bank financing to do improvements.

[esp1986]

I am very optimistic about downtown's residential population. Right now, it is improving, and I only expect it to continue to go up. Demand for residential space is high right now so prices are way up, even at my building where prices had been trending down for a few years. I don't know what it would cost to get the Stott updated and converted into residential, but at a listing price of 1.8, this building could likely be profitable if it offered smaller units in the $750-1,200 price range or larger, high-end units in the $1,200-2,500 price range. I don't expect to see this building on the market long- the price is almost a joke to a serious developer who plays with amounts well over 100 mil on any given project. 1.8 is a fly-speck sized investment, even if the developer needs some bank financing to do improvements.

Well, unfortunately it won't happen anytime soon... there is no credit available for projects like this. The profit margins on these projects are slim to begin with, and any downward trend in demand would sink the project. Even with tax credits and historic preservation credits, etc., the cost and demand downtown have always made these risky projects, and the view of the banks hasn't changed, even with residential occupancy rates downtown reaching their limits and rents trending upward, it will be a hard sell to a bank in this market/economy.

[bartock]

David Stott
David Whitney
David Broderick
Book Tower
United Artists
Free Press

There are, of course, others, but the point is downtown is saturated with potential developments and potential investments.

[Hypestyles]

...if this were converted to a residential building, where would folks with cars park?
...should pets be allowed?
...is the plumbing too aged? what would it take to renovate?
...would cell phones, Wi-Fi and similar devices have problems?
worst case scenario...what would it take to demolish this building?

[fryar]

...if this were converted to a residential building, where would folks with cars park?
...should pets be allowed?
...is the plumbing too aged? what would it take to renovate?
...would cell phones, Wi-Fi and similar devices have problems?
worst case scenario...what would it take to demolish this building?

-> Same place they park now...Greektown Casino
-> Why not allow pets? Depends on the landlord, I guess.
-> No idea.
-> I doubt that they would have problems. I always had good reception in downtown, and I lived in an ancient brick building [[smaller, but still)
-> No idea.

[spiritofdetroit]

As someone who just made the move downtown, I can tell you that the residential rental market is doing pretty well right now - especially for one-bedroom option s - as Crain's pointed out in an article a couple of weeks ago. The Pavillion and Washington Square are completely full, with Kales, Merchants Row, and Millender Center having very limited openings. I ended up at the Park Shelton, which also only had a handful of openings.

Whether or not the Stott would work for residential, I do not know, but there certainly appears to be a demand for mid-level rentals in the downtown/midtown area.

[Jason]

For parking I'd hope they'd make a deal with either the 1001 woodward garage, or the book cadillac's garage.

I'm guessing the building would have new plumbing.


The small floor size and height of the building would make it more expensive to renovate, so they would need to be expensive apartments or condos in order to make money. Also, if you think about the types of floor plans and views, as well as the location, even if it wasn't as expensive to renovate, they'd still be able to make luxury apartments there.

[Packman41]

BrushStart said: “I don't expect to see this building on the market long- the price is almost a joke to a serious developer who plays with amounts well over 100 mil on any given project. 1.8 is a fly-speck sized investment, even if the developer needs some bank financing to do improvements.”

Well, I hate to be the wet blanket here, but you would be buying a liability, rather than an asset. The metrics and assumptions that have been discussed on this thread are extremely naïve and woefully optimistic. Putting things in perspective, john Ferchill spent almost $200 million to renovate the Book Cadillac and the condos are not sold out yet. The 1001 WoodwardBuilding was supposed to be condos and now Jim Pappas is trying to reconfigure it as office space again as he thought residential was over in the CBD. He could have gone rental, but must have figured that office was the way to go. Here we are 2 years after he bought it and what has happened? Not much.

Anyway, onto the StottBuilding. LoopNet says it has 185,000 sq. ft., 35 floors and an average floor plate of 4000 sq.ft. Humm, the math does not work out on that, but we will go with it. Let’s make some assumptions:
· Divide each floor into 4 apartments of 900 sq.ft; - 400 sq.ft. will be needed for halls, common area, etc.
· Demo costs to tear out existing offices could be $25 per sq.ft. and pray to God you don’t find any asbestos as they did in the 1001 WoodwardBuilding.
· Construction costs will be about $75 per sq.ft. to complete the apartment build out
· Therefore total Hard Costs could be $100 per sq.ft. or $18,500,000 for the entire building. This would not include soft costs, such as legal fees, accounting fees, architectural fees or project management fees which could add another 25% to 35% to the cost to complete
· Rental rates would be $1200 per unit per month – that is $1.33 per square and the tenant pays all utilities except for water. Yeah, I now that is above the amount of rent you would like to pay, but bear with me on this.
· Now you’ve spent about $20 million to renovate the building so you you can expect and assessed valuation of $10 million. Let’s assume Detroit RE taxes are $75 per 1000 of assessed value, then you are looking at a tax bill of $750,000 per year. Now assume Sam Riddle or his replacement can get your taxes reduced by 33% - so assume taxes of only $500,000 per year.

Now we will do the math:

Income:
Gross Income: $1200 X 4 units X 35 floors X 12 months = $2,016,000
Deduct Vacancy and Collection Loss of 8.0% $ 161,280
Effective Gross Income: $1,854,720

Deduct Expenses:
Real Estate Taxes $500,000
Insurance: $ 50,000
Management Staff, Legal and Accounting $ --FREE--
Maintenance, Security, Trash Collection @ $3 per sq. ft $555,000
Total Expenses $1,105,000

Net Operating Income: $ 749,720

Return On Investment: [[NOI/ Total Cost) 3.7%

Nobody would take on this challenge for that kind of return. And we have not even discussed mortgage financing. Now you now why the EDC is willing to give away land for FREE to build things such as Cadillac Square Apartments and that fizzled real fast.

Without a LOT of freebies, tax breaks, and other subsidies from the city taxpayers, then this building will sit for a long time.

[rsa.313]

excellent breakdown packman! just to add my $.02: $100 per square foot for renovation costs is pretty optimistic, IMO. i think it'd be safer to assume $150. the big part left out of your equation is building infrastructure. converting office space into residential will quadruple the amount of HVAC, plumbing, electrical, etc. from what's there currently. i'm sure even what is there will need updating and/or replacing.

then let's think about the exterior. the brick would probably need tuck pointing [[needs to happen around every 100 years or so) and power washing. it would also need all new windows; the existing are probably the original single pane ones that will leak energy like a sieve.

the elevators would need a lot of attention. assuming they are still in good working order, they would at least need updating. i think it would be safe to assume $1 million to update all six on the low end, and $1 million a piece if they need to be replaced.

all that i have mentioned, in addition to packman's estimates, are all base costs. these base costs are assuming that the building is only "old and dirty" or, in other words, "perfect for an old building." there are many many other un foreseen issues that can lurk in a 100 year old skyscraper that could easily double, triple, or quadruple your base costs.

i think a very ballpark figure that would be reasonable is $40-$50 million in renovations. if memory serves, putting together all of these costs together in a per square foot basis on the book cadillac came to around $375 per square foot. granted the two spaces are completely different, but that would come out to $70 million in renovations, which wouldn't surprise me.

now the good news are the historical tax credits, which would amount to 45% of renovation costs. and you might be able to get brownfield credits for abatement, which would help. but it's a lot of work and time for these credits and would dictate that the building be rental for a minimum of 5 years [[like the kales, lofts at woodward, merchants row, etc.).

[marcwigle]

If I had an extra two mil hanging around and was seriously looking at spending that kind of money on a house/mansion in the Detroit area, I would jump at the chance to own the Stott... even I was the only resident. I'd put in whatever it took to get one elevator running and convert the top two or three floors into one helluva living unit and live my days out watching over the rest of you schmucks walking around down below. ;-) Seriously... wouldn't that be a great place to live if you afford to do it??

[Packman41]

To RSA.313: Yes, I knew $100 PSF was very low and only included finishing the apartment units and would NOT pay for exterior repairs, elevator upgrades or ANY kind of upgrades to the dated infrastructure. Even with my original, unrealistically low renovation estimates it still does not make economic sense. I would not be surprised at a cost of $350 PSF or $64.75 million to retro fit the Stott.

OK, so you get a 45% historic tax credit for the total cost and that means you have to come up with $35.6 million out of your own pocket. You are still going to earn only about $750,000 a year on that $35.6 million “investment” – and that was with unrealistically low operating expenses.

Again, if it was so easy everyone would be converting all the old buildings in the CBD to apartments.

To MarcWigle: Good luck. I’ll wave up to you every time I pass the DavidStottBuilding.

[Ocean2026]

I think Packman's is a fair one but we are really guessing at the renovation costs. Assuming only an 8% vacancy rate is optimistic, but we don't have a clue what renovation costs are until the realtor lets all the local posters go inside and have a look.

After all by starting this post I did loopnet, the local realtor and the owners a big favor, although it wasn't my intention.

Someone call them and suggest an "Open house [[with refreshments ) on the 35th floor.

Maybe we can all chip in a form a corporation to own it. That's my two cents but if we were to buy it - I could put in more than double that amount.

[mikefmich]

I worked in this bldg for the Richards Co. in early 1969. Parking was never a problem......I got a tx almost every day. lol

Office spaces are small, I felt the place was outdated for 1969. Today it would take a near total interior gutting to get things on par.

http://www.detroityes.com/mb/showthread.php?t=3792

[BrushStart]

BrushStart said: “I don't expect to see this building on the market long- the price is almost a joke to a serious developer who plays with amounts well over 100 mil on any given project. 1.8 is a fly-speck sized investment, even if the developer needs some bank financing to do improvements.”

Well, I hate to be the wet blanket here, but you would be buying a liability, rather than an asset. The metrics and assumptions that have been discussed on this thread are extremely naïve and woefully optimistic. Putting things in perspective, john Ferchill spent almost $200 million to renovate the Book Cadillac and the condos are not sold out yet. The 1001 WoodwardBuilding was supposed to be condos and now Jim Pappas is trying to reconfigure it as office space again as he thought residential was over in the CBD. He could have gone rental, but must have figured that office was the way to go. Here we are 2 years after he bought it and what has happened? Not much.

Anyway, onto the StottBuilding. LoopNet says it has 185,000 sq. ft., 35 floors and an average floor plate of 4000 sq.ft. Humm, the math does not work out on that, but we will go with it. Let’s make some assumptions:
· Divide each floor into 4 apartments of 900 sq.ft; - 400 sq.ft. will be needed for halls, common area, etc.
· Demo costs to tear out existing offices could be $25 per sq.ft. and pray to God you don’t find any asbestos as they did in the 1001 WoodwardBuilding.
· Construction costs will be about $75 per sq.ft. to complete the apartment build out
· Therefore total Hard Costs could be $100 per sq.ft. or $18,500,000 for the entire building. This would not include soft costs, such as legal fees, accounting fees, architectural fees or project management fees which could add another 25% to 35% to the cost to complete
· Rental rates would be $1200 per unit per month – that is $1.33 per square and the tenant pays all utilities except for water. Yeah, I now that is above the amount of rent you would like to pay, but bear with me on this.
· Now you’ve spent about $20 million to renovate the building so you you can expect and assessed valuation of $10 million. Let’s assume Detroit RE taxes are $75 per 1000 of assessed value, then you are looking at a tax bill of $750,000 per year. Now assume Sam Riddle or his replacement can get your taxes reduced by 33% - so assume taxes of only $500,000 per year.

Now we will do the math:

Income:
Gross Income: $1200 X 4 units X 35 floors X 12 months = $2,016,000
Deduct Vacancy and Collection Loss of 8.0% $ 161,280
Effective Gross Income: $1,854,720

Deduct Expenses:
Real Estate Taxes $500,000
Insurance: $ 50,000
Management Staff, Legal and Accounting $ --FREE--
Maintenance, Security, Trash Collection @ $3 per sq. ft $555,000
Total Expenses $1,105,000

Net Operating Income: $ 749,720

Return On Investment: [[NOI/ Total Cost) 3.7%

Nobody would take on this challenge for that kind of return. And we have not even discussed mortgage financing. Now you now why the EDC is willing to give away land for FREE to build things such as Cadillac Square Apartments and that fizzled real fast.

Without a LOT of freebies, tax breaks, and other subsidies from the city taxpayers, then this building will sit for a long time.

3.7% on a real estate investment is considered a reasonable return. Plus, the cost of renovations/improvements is not entirely lost, the developer greatly improves the value of the building and the property around it. If the demand is there [[as it seems to be), the building we be purchased and renovated. It is certainly cheaper to redevelop Stott than it would be to erect a new 35-floor skyscraper from scratch. Ferchill's project with Book Cadillac was far more expensive, and he is still looking for new projects at the right price. It takes a savvy developer, with knowledge of available credits, but redeveloping Stott as residential space is definitely feasible, and likely a good investment for the right person.

[Packman41]

To Ocean2026: Yes, the cost estimates to renovate the building are highly speculative. So, lets look at it another way and review the rental income stream.

Like you I believe an 8% vacancy factor is optimistic. Also optimistic are the FREE managagement fees [[usually 5.0% of gross income) legal and audit/accounting. The rent is also optimistic at $1200 per month. I read earlier people saying they would pay $900 a month for an apartment - that would be about $1.00 PSF per month in my example. That means the Net Operating Income of $750,000 is highly optimistic on all accounts.

Most real estate investors would want a 15% to 20% return on their investment over time. But, let's find a naive guy that will accept only a 10% return. That means he should only invest a total of $7.5 million on the DSB. If it costs $1.8 to buy, then you only have $5.7 million budgeted to renovate the building. Obviously, that is not enough money to do any real renovation work.

However, if you can get the owners to open up the top floor for an Open House, then I'll be right there. At the end of the school day at Cass Tech I used to catch the eastbound Vernor bus at the front of the DSB at Griswold and State.

[Ocean2026]

Well let's let our imagination run wild. I think the top floors where it looks like there's a deck all around could be worth a million each assuming even a decent recovery. 4000 sq ft - quiet and 360 degree views- that can't be too much of a stretch.

Say the bldg would actually sell for $1.5 million - sell 70 "raffle tickets" at $37,000 each and draw lots for the right to own a half floor. Those who win one of those top floors would have to agree to put in an extra $37,000 [[ or sell to another raffle holder). The extra money would go to fixing up the elevators and common areas and each would be responsible for their own half floor.

Once again not knowing the renovation costs hurts- but I'd pay #37k for a 2000 sq foot condo with large windows and yeah if got one of the upper floors I'd kick in an extra $35k if I had it.

[wolverine]

Agreed, esp1986. It's unfortunate the cost to get these buildings redeveloped drive rents up so high.

I can stay at the Corktown Inn for $68/night or the Book Cadillac for $320/night. Price ranges cater to different lifestyle market. Just because you think it's too high a price to live somewhere doesn't mean no one would live there. If you don't like it, don't rent it.

Well believe me, if I lived in Detroit, I'd be paying for that $1750 /month apartment only because I personally love downtown Detroit. But many people don't see it that way. They would say to me "why the hell would you pay that to live in Detroit." They have a point when comparing rental prices in other cities in even better downtown buildings

[marcwigle]

Yeah well, I still say that if someone had a spare 2 mil buying the Stott building as their home would be great. Forget the return on investment, just buy the place, fix up the top two or three floors and live there for 20-30 years... then let the grandkids worry about what to do with it. It's probably going to sit there for another 20-30 years anyway. ;-)

[fryar]

Yeah well, I still say that if someone had a spare 2 mil buying the Stott building as their home would be great. Forget the return on investment, just buy the place, fix up the top two or three floors and live there for 20-30 years... then let the grandkids worry about what to do with it. It's probably going to sit there for another 20-30 years anyway. ;-)

I think so as well. You could fix it up as needed to indulge your various personal projects or for the tenants you do get/have [[in order to offset your maintenance, insurance and other operating costs), and wait with a wholesale renovation until the timing is more appropriate. To me, it's a great idea. 20 or 30 years from now, it could well be more valuable real estate. Sheesh, even if you're not all the way up top because you've already got a tenant up there, it'd be pretty cool...

Ideas like that may be why folks like you and I don't have 2 million dollars to spend on our residences.

[fryar]

Well believe me, if I lived in Detroit, I'd be paying for that $1750 /month apartment only because I personally love downtown Detroit.

It does almost seem like you'd have to love that tower in particular, for that kind of price. The Lofts of Merchant Row are advertising ~$1000 per month rents for close to 900 sf on CL, not counting the rent credit of up to $175 for utilities they give you. I understand that's a pretty different space, but you're talking about basically spending twice that.