Bleak Prospects Delay Shopping-Center Project

By MAURA WEBBER SADOVI
January 30, 2008; Wall Street Journal

In Detroit, a city starved for retail options, plans for the first department-store-anchored shopping center since the 1990s look a little shaky.

Chicago-based General Growth Properties Inc., one of the country's largest mall owners and developers, says it had hoped to start construction last year on a 370,000-square-foot center on the Detroit side of Eight Mile Road, which separates the city from its wealthier suburbs. Now General Growth has pushed the planned construction start to the summer, citing the need for time to obtain the right mix of tenants.

Construction on a 370,000-square-foot shopping center in Detroit was supposed to begin last year.
The delay isn't surprising. There are few places where things look bleaker for retailers than in the Motor City, which was struggling to show signs of prosperity even during the recent period of national economic expansion.

By almost any economic yardstick that retailers use to decide where to open stores, the Detroit area's prospects don't measure up. The city's population has fallen roughly by half since 1950 to about 900,000. Despite pockets of wealth, the area continues to bleed jobs and people and its November unemployment rate of 7.2% was the highest of the 49 largest U.S. metropolitan areas, according to the Bureau of Labor Statistics. Additionally, home-foreclosure rates are sky-high. Average area office, retail and apartment rents are in decline or stagnant, according to Property & Portfolio Research Inc., a Boston-based real-estate research firm.

It also doesn't help that even previously fast-growing retailers like Starbucks Corp. are expected to be more discriminating about expanding nationwide this year, according to Michael Dee, national director of retail in Dallas for Grubb & Ellis, a real-estate services firm. The Detroit area's dwindling population, which stands now at about 4.6 million, is also a worry for retailers who typically chase locations with growing populations, he says. "Detroit is not going to be on top of the radar screen," says Mr. Dee, noting that leasing the Shoppes at Gateway Park will be challenging.

To be sure, Detroit has had some mixed success in its efforts to shore up a core that has been marred in past decades by empty storefronts and office buildings. The MGM Grand Detroit opened last year, the first casino in the city's central business district, and Quicken Loans announced late last year that it would move its headquarters and about 4,000 workers from suburban Livonia to downtown Detroit. At the same time, efforts to develop a museum to commemorate the city's Motown ties fizzled after the proponents were unable to raise the funds, says George Jackson, Detroit's chief development officer.

For its part, General Growth says it is up to the challenge of delivering Detroit's newest center. Lyneir Richardson, vice president of urban retail for General Growth, says it is working to persuade retailers to locate in the center. The 170,000 residents in a three-mile radius around the center have an average income of about $55,000, he says. Mr. Richardson says he has a letter of intent from J.C. Penney Co. to locate a store in the site, which would be the first department store for the city since the 1990s. "We have to overcome perceptions, misperceptions and bad information and show the opportunities," says Mr. Richardson. "There clearly is a void."

Can city withstand scandal's fallout?

Monday, January 28, 2008
Daniel Howes
The Detroti News

Whatever foibles emerged during his six years in office, Kwame Kilpatrick became a driving force behind Detroit's economic redevelopment efforts. His lobbying of would-be investors and strong-arming of city bureaucrats to move deals forward quickened momentum despite a chronically sick state economy.

But is the city's fledgling economic foundation, mostly focused in its downtown core, strong enough to move forward without the mayor in office? Yes and no, business and development insiders tell me privately.

As the scandal intensifies around text messages suggesting Kilpatrick and his chief of staff, Christine Beatty, lied about their affair in testimony for a whistleblower lawsuit brought by two Detroit Police officers, savvy business and community leaders already are mulling a future without Kilpatrick in the Manoogian Mansion because contingency planning is part of their jobs.

Kilpatrick "is the heavy for getting things done," a ranking business leader familiar with deal-making in Detroit tells me. "The problem you have in the city is that unless you can call hard balls and strikes with the unions and get things through the bureaucracy, you can't get things done. If not him, who?"

And how? Only in the past year or so has downtown Detroit begun to reap benefits from the aftershocks of Major League Baseball's All-Star Game and Super Bowl XL, with investor and city deal-makers capitalizing on the combination of positive momentum, clear direction and confidence in Kilpatrick & Co. to deliver as promised.

Reinvestment fragile
Until the sub-prime mortgage crisis essentially killed new-home construction, Detroit led the state in housing starts. MGM Grand and MotorCity Casino finished their permanent casinos in just the past few months. Renovations of the Pick-Fort Shelby and Book-Cadillac hotels got under way. Quicken Loans Inc. said it will move its headquarters from the suburbs.

Private foundations are funding new initiatives in Detroit. Business groups like the Detroit Regional Chamber and Detroit Renaissance are focusing more intensely on economic development, structural change in government and bridging regional barriers to cooperation.

They are partners in the kind of change Kilpatrick had been pushing before a mortal threat to his political viability emerged in the trove of text messages tapped out by him and Beatty on city-owned pagers. But Kilpatrick's career is not the only thing endangered by "Textgate."

The re-engagement in Detroit by foundations, business groups and investors is fragile, limited and dependent on the personalities of a relative few focused along the riverfront, the lower Woodward corridor, the entertainment district and midtown near Wayne State.

Lose a charismatic leader like Kilpatrick -- especially amid a housing recession of historic proportions, as well as chronic problems with schools, public services and population flight -- and the legitimate fear is that Detroit could lose what little momentum it has for projects already not well under way.

Mayor imperils momentum
Maybe. Most of the big projects that are the cornerstones of a "new" downtown Detroit didn't begin with his administration. From General Motors Corp.'s RenCen makeover and the casinos to new stadiums and Compuware Corp.'s headquarters, all were begun under his predecessor, Dennis Archer.

Kilpatrick's first term, until last week more scandal-ridden than his second, was marked by big promises and little delivery. A new police headquarters in the Central Train Depot? Never happened. Several big-ticket rehabs of Cobo Center? Too expensive. A winnowed city payroll? Not until he won re-election without the city's powerful unions.

Outwardly, his second term was marked more by accomplishment on redevelopment, government restructuring and even neighborhood initiatives -- all now endangered because the mayor conducted an illicit affair with a subordinate and lied about it under oath.

A City Hall without Kilpatrick may come sooner than scheduled, should he resign, be recalled or indicted. But it won't come without a cost to the redevelopment of Detroit that depends as much on personality as it does on business to succeed.

City growth should go on, leaders say

Metro business, political officials look past scandal

January 25, 2008

By JOHN GALLAGHER and KATHLEEN GRAY
FREE PRESS STAFF WRITERS

The scandal involving Mayor Kwame Kilpatrick shouldn't blunt the city's revitalization efforts or ability to make deals happen, a cross-section of business, political and academic leaders said Thursday.

Dan Gilbert, founder and chairman of Quicken Loans, said the mayor's trouble did not in any way deter Quicken from proceeding "full steam ahead" with its plans to build a headquarters in downtown Detroit and relocate thousands of employees there.

"Our commitment is long term, and transcends any short-term event or challenge," Gilbert said in a statement. "This is a new era in Detroit history. We believe the leadership in business, government and the community will continue to spend their valuable time and energy on the mission at hand."

Wayne County Executive Robert Ficano wouldn't comment specifically on the mayor's troubles, but his office issued a statement saying ongoing projects, such as the expansion of Cobo Center, would be unaffected.

"We don't anticipate our working relationship to be hindered at all by this," said Ficano spokeswoman Vanessa Denha-Garmo. "We still have to run the county and the city still has to operate."

Robin Boyle, a professor of urban planning at Wayne State University, said many other cities have seen mayors in trouble even as redevelopment efforts continued.

"The biggest limiter is the state of the economy," he said.

William Crouchman, chairman of the Macomb County Board of Commissioners, said: "Our relationship with the City of Detroit is based on mutual things we have in common. It's not personal. No matter who the personalities are, if they were gone tomorrow, the issues remain the same."

But Oakland County Executive L. Brooks Patterson, who arrived home Thursday from a trade mission in India, said the last thing potential investors need to see on the front pages is a scandal.

"I don't believe it will have a direct impact on economic development," he said. "But Michigan certainly doesn't need another black eye. We're still in a long-term recession here."

Doug Rothwell, president of the corporate leadership group Detroit Renaissance, said economic development in Detroit has gained momentum in recent years under Kilpatrick's leadership despite economic headwinds.

"The charges leveled against the mayor are serious and the legal system will ultimately decide how they are to be resolved. But they should not be allowed to slow the economic progress we are making and I don't believe they will," Rothwell said in a statement.

In the past few years, downtown Detroit has enjoyed a resurgence that included the creation of permanent casinos, Comerica Park and Ford Field, Campus Martius, the Detroit RiverWalk, the new Compuware headquarters and many other projects in various stages of planning or construction.

One reason to think the scandal won't blunt Detroit's momentum is the depth of the team working on revitalization efforts.

The effort encompasses Detroit Renaissance, the civic group Downtown Detroit Partnership, the nonprofit Detroit Riverfront Conservancy and the quasi-public development arm of the city, the Detroit Economic Growth Corp.

Struggling housing market has Detroit's gems slashing prices

BIG-TIME BARGAINS

January 19, 2008

BY ZACHARY GORCHOW
FREE PRESS STAFF WRITER

How can you own a house worthy of a millionaire, at a price typical of your standard three-bedroom, two-bath bungalow?

It sounds too good to be true. But in fact, buyers can find scores of historic, large homes available for astonishing bargains -- some under $200,000 -- in beautiful Detroit neighborhoods, deals that real estate agents say haven't been this good in decades.

The listings are eye-popping, like the stunning six-bedroom, four-bath, 5,500-square-foot, 1923 colonial in the Boston-Edison neighborhood for $249,500 -- about $45 a square foot. Or the five-bedroom, three-bath, 2,700-square-foot colonial in the University District for $149,900.

If it's a Cape Cod you're eyeing, there's the seven-bedroom, three-and-a-half-bath, 4,650-square-foot home in Indian Village for $314,999.

But what frustrates real estate agents and owners is the struggle to sell such historic gems -- even at these prices. And some have slashed their asking prices by tens of thousands of dollars.

Like the 1916 Boston-Edison colonial of Jerry Berry's 91-year-old mother. He and his siblings grew up in the house.

With six bedrooms, three full bathrooms, two half bathrooms, 3,400 square feet and features such as beveled-glass French doors and crown molding, Berry said it's hard to believe it has been on the market more than a year. And he reduced the price from $190,000 to $175,000.

"All of us thought the house would just go right out easy," Berry said. "Seeing as how well maintained the house is, we thought someone would just jump on it."

The real estate market is sluggish everywhere in metro Detroit, and prices have plummeted.

But it's in Detroit where prices have dropped the most, said Ron Simpson, the outgoing president of the Detroit Association of Realtors and broker-owner of Southfield-based Century 21 Elegant Homes.

Buyers have long been able to get more house for their money in Detroit than most suburbs, but today's deals in the city are at "a whole new level," Simpson said.

"I've been doing this 30-some years," he said. "And the prices now are back to where they were 20-some years ago."

There are trade-offs, though.

While the homes are in some of Detroit's best neighborhoods, the areas have seen a spike in the number of foreclosed and abandoned homes, threatening the values of other houses.

"It's scary, yes it is," said Maxine Jackson, 70, a Boston-Edison resident who lives down the street from Berry's mother. "It's like a giveaway. Something that you've had all your life."

And then there are the issues of property taxes and insurance, which typically are higher in Detroit than in the suburbs. There also is the cost of heating a large, older home, and the issues of struggling schools and a higher crime rate.

Jeff Packer, the real estate agent for Berry's mother's house, said trying to sell the property is an "uphill battle."

Put that house in Royal Oak, he said, and the home would sell for more than $300,000. He has yet to receive an offer.

"There's a lot of buyers out there who are too timid to buy in Detroit," he said. "If people can overcome that perception and see the reality of the area, it's a very nice area to live in."

One buyer considering the city is Dan Klinkert, 31, of Dearborn, who has looked closely at the Boston-Edison neighborhood, which runs along Chicago Boulevard on either side of the Lodge Freeway.

"The character is unparalleled of the homes," he said. "3,500-square-foot homes -- you're looking at half to a million dollars a lot of other places."

Bernadine Davis and Judith Womble are the agents trying to sell another stately home in Boston-Edison.

It needs some updating, particularly in the kitchen, they said. And the owner told them it cost $800 to heat the house during the coldest month last winter.

It has five bedrooms, four bathrooms and 4,500 square feet. The surrounding homes are striking, except for one critical problem -- a boarded-up residence two doors down.

After a year, the house still is sitting, despite a listing price of $214,900, down from $270,000.

Put that mansion in Birmingham or Farmington Hills, they said, and they would ask from $800,000 to $1 million for it.

"There is character in these houses you can't find anywhere else," Womble said.

Some neighborhoods have begun aggressively marketing themselves to potential buyers.

In the West Village on the city's east side, when residents learn of someone interested in buying a house in Detroit, they recruit them to their neighborhood by taking them on a one-on-one tour and introducing them to the neighbors, said Bill Swanson, 33, a West Village resident who has conducted some of the tours.

Four people have bought homes in the neighborhood in the last year thanks to this effort, Swanson said.

"Once you meet people and realize it's a great neighborhood, it makes buying in the neighborhood really easy," he said.

Indian Village is another prized area in Detroit. There, a seven-bedroom, six-bath, 7,187-square-foot colonial is listed for $349,995.

"A comparable house somewhere else would be millions," said Joy Santiago, the house's real estate agent. "It definitely should have gone by now. These are really good prices."

But the house has been on the market for more than six months and has been cut from its original $450,000 price tag.

"In Detroit, what's happened, anyone who has an interest in those homes has to appreciate the history behind them," said agent Cheryl Kachaturoff. "There's a lot of hidden treasures in our city."

Greektown mogul buys 1001 Woodward

Greektown's Papas lands troubled Campus Martius skyscraper, parking garage.

Wednesday, January 16, 2008
Robert Snell / The Detroit News

DETROIT -- Greektown mogul Dimitrios "Jim" Papas is buying the troubled 1001 Woodward skyscraper near Campus Martius Park and has purchased an attached 12-story parking garage.

Papas, who owns Pegasus Taverna restaurant and co-owns the Atheneum Suite Hotel, paid $5.4 million for the skyscraper Tuesday in a move that could revive a building seen as key to downtown redevelopment.

"I feel very strongly about downtown and have for the last 30 years," Papas said. "Hopefully after this little blip with the financial markets, Detroit will come back stronger."

The skyscraper became one of the most visible failures along the resurgent Woodward financial district last year after a company defaulted on a deal to turn the building into luxury condominiums. The Detroit News reported in October that a company headed by Warren-based developer Lorenzo Cavaliere and a related group owed more than $23 million in land contract payments and loans for the skyscraper and garage.

A Cavaliere company bought the skyscraper and owed more than $5.3 million to the Operating Engineers' Local 324 pension fund, according to court records.

On Tuesday, Papas said he paid the balance of the land contract and expects to own the skyscraper in a day or two.

A pension fund lawyer declined comment Tuesday.

"We want to see this and other buildings downtown redeveloped, and we hope that this is a step towards that," said Brian Holdwick, vice president of business and financial services for the Detroit Economic Growth Corp. "We look forward to seeing how it progresses."

The developments follow last week's unveiling of the $150 million Cadillac Centre project nearby. It is slated to fill an empty block east of Campus Martius with two 24-story towers that will feature 84 apartments or condominiums, a green "living" roof, a multiplex cinema, sports bar and 800 parking spaces.

Downtown real estate expert Mark Talley said a viable development at 1001 Woodward would help complete a circle of development around Campus Martius Park. "That potentially is a big deal," said Talley, a vice president with the commercial real estate firm Grubb & Ellis. "It's a big piece of what's happening downtown."

Papas is leaning toward developing office space in the 25-story building.

Papas said he purchased the mortgage on the 750-space parking garage Dec. 20 from Charter One Bank but declined to disclose the purchase price. Papas said the property could be transferred to another one of his companies soon.

Exclusive show gets high-end buyers in city, wows guests

January 14, 2008

BY KIMBERLY LIFTON
FREE PRESS SPECIAL WRITER

As cocktail waitresses passed lobster corn dogs and mini Kobe burgers around the MGM Grand's Ignite lounge before an exclusive showing of the Detroit auto show's Luxury Row, West Bloomfield Ferrari/Maserati dealer Jeffrey Cauley contemplated what it all meant for Detroit.

"This is very cool, unique," said Cauley, who brought some of his best customers downtown for the event called the Gallery, the first-ever preview of its kind at the North American International Auto Show.

"This will leave a postitive impression about Detroit," he said.

The idea for a luxury pre-showing -- featuring a strolling dinner and cocktail party, an art walk, wine and spirits -- and, of course, high-end vehicles -- came from Detroit Auto Dealers Association Executive Director Rod Alberts. DADA wanted to create a new type of excitement for the show.

Each of the six luxury groups -- Bentley, Lamborghini, Maserati, Maybach, Ferrari and Rolls-Royce -- were asked to submit 25 names to DADA, which sent out invitations in etched glass to luxury car owners and prospective owners. Some invitations also were mailed out to American Express customers who charged more than $250,000 last year.

Classic car collector Troy Breidenach, 38, who owns a contract packaging company south of Toledo, Ohio, drove to Detroit for the day as a guest of American Express. He hadn't been to the city for awhile and said he liked what he saw at the MGM and at Cobo Center.

"I love cars, and this is fantastic," he said. "I'm really glad Detroit is host to this event. It seems like the city is coming back."

By the time doors to Ignite opened a little after 6 p.m., the guest list had grown from an anticipated 300 people to nearly 550. And event planners from Clear!Blue in Birmingham and Motivational Marketing Inc. of Southfield rushed to accommodate the overflow.

"The invitation just blew me away," said Ferrari owner Kim Woody, a Detroit-area prototype stamping auto supplier who was invited by Cauley. "I am a huge Detroit fan, and I am glad to see everything coming together here."

Raymond and Joan Antos of Orchard Lake, who purchased a Bentley convertible last month, were impressed by the event and the rebirth they saw in the City of Detroit.

"If I were 40, I'd buy a condo downtown because in 20 years, it will be turned around and will be the most dynamic city in America," said Richard Antos, a retired auto parts manufacturer.

While no national celebrities were spotted in the crowd at the MGM -- though some anticipated late arrivals -- Detroit notables such as designer Dominique Pangborn, Compuware Chief Executive Officer Peter Karmanos and former Tower Automotive Chief Executive Officer Kathleen Ligocki mixed with the out-of-town car lovers.

Meanwhile, MGM Executive Chef William McIlroy made sure the menu offered something for everyone's palate.

"This is a decadent evening," he said.

The menu included slow-roasted Kobe rib eye, shaved black winter truffles, seared foie gras with a cognac demi as well as Alaskan king crab, jumbo shrimp and scallops, mussels and lobster.

At 8 p.m., the guests started their journeys via coach to a back entrance at Cobo, where they walked through Luxury Row. Some snapped photos using cell phones. Others chatted with executives of the various companies.

Red Wings favorite Chris Chelios was in the crowd, along with Lions linebacker Paris Lenon, who was excited that he got to meet retired boxer Tommy Hearns.

Robert Porcher, retired Detroit Lions defensive end and now a partner in Seldom Blues restaurant and nightclub, already has his dream car: a 2003 Aston Martin. But he did not rule out a future purchase and enjoyed the special treatment.

"Detroit is back," he said. "I don't want to hear any more talk about Detroit coming back. Detroit is back."

Detroit reaches for the skyscraper

$150M Cadillac Centre envisions shops, residences

Thursday, January 10, 2008
Louis Aguilar / The Detroit News

DETROIT -- The decades-long quest to bring major retailers back downtown received an encouraging boost Wednesday with the formal launch of a $150 million skyscraper project planned for the heart of the city.

Cadillac Centre, intended to fill an empty city-owned block east of Campus Martius Park, aims to be a new downtown architectural icon, according to the developers and city officials.

The center is a sleek, modernistic vision -- two 24-story towers of sculpted glass and metal that will hold 84 apartments or condominiums, a green "living" roof, a multiplex cinema, sports bar and 800 parking spaces.

Perhaps the center's most audacious goal is the space reserved for major retail: 130,000 square feet, along with another 25,000 square feet for boutiques and specialty shops.

During the official unveiling Wednesday at Detroit Mayor Kwame Kilpatrick's office, developer Alex Dembitzer talked as if luring national retail chains to Detroit was commonplace.

"We are talking to a number of national retailers and . a number have approached us," said Dembitzer, principal and managing partner of Northern Group Inc., the New York group behind the project. "We have no concern."

While it was far too soon to name names, Dembitzer said the project will attract "a combination of what people want and need" in Detroit. The retailers they are talking to include "multi-state operations, global-type companies. The kind of things you see in the suburbs, or some you don't see in the suburbs but want to see."

Dembitzer added: "We believe in the future of Detroit."

Downtown a retail desert

The current Detroit is a city famous for being a "have not" when it comes to retail. Until late 2006, there were more Starbucks coffee shops at Detroit Metro Airport than within the entire city, which still boasts a population of 918,000, according to U.S. Census estimates.

The city is home to only two multi-screen movie theaters and only one big-box retailer -- a Home Depot perched on the edge of the town at Seven Mile Road. The number of national grocery stores is so far below average that it's become a major political issue.

But city officials and downtown real estate analysts contend Detroit's urban core finally is ready to lure national retailers.

"For the last five or six years, Detroit's downtown has had the most remarkable turnaround in the country," said Christopher Leinberger, who directs the University of Michigan's real estate graduate studies program and is a visiting fellow at the Brookings Institution think tank in Washington.

He added that several research surveys show there is enough population and density downtown to attract big-box retailers. "There is pent-up demand for it. Yes, this can work."

Detroit's 'Rockefeller Center'

The Cadillac Centre project got its official start Wednesday morning, when the board of the Downtown Development Authority approved the development agreement with Northern Group.

The agreement gives the developer a year and a half to determine whether it's feasible to build the project on a city-owned block known as the Monroe Block. Groundbreaking would take place in September 2009 and the project would open late 2011.

With passage of the development agreement, the city agreed to sell the 1.95-acre parcel to Northern Group for $1 once the group secures financing. Northern Group intends to invest up to $25 million of its own money, according to city economic development officials. The rest will come from private financers.

At a news conference later in the day, Mayor Kilpatrick hailed the project as the next step in the "revolutionary transformation of the next Detroit." The project's architect, Anthony Caradonna, said the Cadillac Centre will be Detroit's "Rockefeller Center," referring to the famed New York building and public space.

In another move to attract national retailers, Kilpatrick noted that a Wayne County Renaissance Zone program is being created to provide tax breaks for new stores.

While the news conference was upbeat, Mayor Kilpatrick acknowledged the difficulties of revitalizing downtown retail. "Everything that we do in the city of Detroit presents challenges. We just overcome them. We have never had a wide open paved road."

State's economy diversifies, forecaster says

January 9, 2008

By KATHERINE YUNG
FREE PRESS BUSINESS WRITER

If the national economy gets the flu, it's no longer the case that Michigan's economy will automatically catch pneumonia.

That's the prognosis from Dana Johnson, Comerica Inc.'s chief economist.

The state's economy is diversifying and becoming less cyclical, which means it won't suffer from national recessions as much as it did in previous decades, he said Tuesday during a forecast meeting held by the Howell Chamber of Commerce at the Crystal Gardens-Livingston in Howell.

"Michigan's economy is less cyclically sensitive," Johnson said. "We are developing a more diversified economy, but it's obviously an incredibly painful process to get there."

The uncertain direction of the national economy has emerged as one of the clouds hanging over Michigan's economic prospects this year. If the country enters a recession, the lack of economic growth could hinder the state's ability to emerge from its four-year recession.

Johnson said a national downturn could send Michigan's already sky-high unemployment rate even higher. But the increase will be less than during previous recessions because the state's economy is not as dependent on the auto industry as in the past.

Only 4% of the state's labor force works directly for automakers or their suppliers, he noted. That's down from 7% many years ago.

But Johnson warned that 2008 could be another tough year for Michigan.

Comerica relocated its headquarters from Detroit to Dallas last year, but remains Michigan's second-largest bank measured by deposits.

Detroit's automakers continue to lose domestic market share, accounting for 50.9% of U.S. light-vehicle sales in 2007, compared with 53.6% in 2006.

The woes in the auto industry resulted last year in a 1.7% decline in jobs statewide, the sharpest drop since 2003. The situation led more than 90,000 residents to flee in 2007.

Nationally, the outlook is more positive. But falling home prices and rising crude oil prices will hurt consumer spending, the main driver of the economy, Johnson said.

On the positive side, the trade deficit has dropped by 10% over the past 12 months, thanks to a cheaper U.S. dollar. The shrinking deficit has offset 95% of the drag from the slowdown in homebuilding over the past four quarters, he said.

For now, Johnson predicts sluggish national growth in the range of 1% to 1.5%.

But he admits, "It's almost a coin toss whether we have slow growth or no growth at all."

As Detroit project arises, others falter

Tuesday, January 8, 2008

Louis Aguilar / The Detroit News

As Detroit Mayor Kwame Kilpatrick prepares to unveil plans for a new $150 million downtown skyscraper complex Wednesday, several high-profile downtown projects already face substantial setbacks.

Faced with the ongoing credit crunch sparked by the subprime mortgage crisis and the sluggish local and national economy, backers of some downtown deals are clamping down on projects, amping up the terms for their money.

In one case, developers have turned to the city for more than $6 million in bonds to keep their project moving ahead.

Many downtown real estate analysts say the proposed Cadillac Centre project to be announced Wednesday can be built -- as long as the developers can convince national retailers to set up shop in downtown Detroit. According to city officials, the necessary retailers haven't been lined up yet.

"That is the question I have -- who are the national retailers that will come in?" said Mark Talley, a vice president in the downtown office of commercial real estate firm Grubb & Ellis. "That's how I see them getting the financing."

The ambitious project by New York-based Northern Group Inc. is planned for a location east of Campus Martius Park. It could include 84 rental apartments, a six-screen movie complex, 25,000 square feet of space for smaller boutique retail and a 100,000-square-foot space for a larger retailer, according to the developer. Plans also call for a public park. Groundbreaking could occur in fall 2009.

Northern Group officials were not available Monday, but a press conference is planned for Wednesday. The Northern Group has announced that financing is in place, but only said the money will come from private sources. Many Detroit real estate experts say they believe the money will come only after the developers secure national retailers for the project.

Some projects thrive

Several ambitious downtown projects are thriving, including the renovation of the historic Book-Cadillac Hotel, the long-shuttered Fort Shelby Hotel and a complete makeover for the former Pontchartrain Hotel. Those are in addition to the visible and expensive new hotels, restaurants, parking and other amenities that have opened or are in the works for the MGM Grand Casino, the MotorCity Casino and additions to the Greektown Casino.

But just as these hotel projects, long on the books, are debuting, several high-profile downtown condo projects are faltering. Bankers hit by the global lending crisis are suddenly asking for tougher terms.

Take the Watermark Detroit, one of three major condominium developments city boosters hope will transform the once-blighted Detroit riverfront into another jewel in downtown's revival.

The $60 million project on the city's east riverfront is slated for a 2.2-acre site between the St. Aubin Marina and the Chene Park amphitheater that once housed concrete silos. Plans for the Watermark include apartments, town homes and condos priced from $400,000 to $1.2 million. It's been delayed because the banks now insist that more than 60 percent of the 112 residential units be pre-sold before the project continues, Detroit Economic Growth Corp. (DEGC) officials said. Originally, the banks were asking for 25 percent of the units to be sold.

"It's a very different world from a year ago," said George Jackson, president of the DEGC, the quasi-public city agency that promotes city development. "It's tougher and tougher to satisfy the banks on getting projects done. They keep changing the level to unprecedented highs."

The Watermark is led by former Pistons star and Detroit business leader Dave Bing but it has city and state backing, including millions in tax abatements. In response to the bank's new demands, the city approved at least $6.1 million in bonds for the Watermark, which will be issued once the project is completed, said Art Papapanos, a DEGC vice president.

"The national housing situation is impacting many projects both private and public," Papapanos said. "It's not a Detroit issue. We don't see a threat for the project."

Another east riverfront project is the @water from developer Dwight Belyue, featuring $1.5 million penthouses. Pronounced "Atwater," the first phase of the $250 million project was supposed to break ground last summer. Instead, developers are seeking more investors after banks increased the required level of pre-sales to more than 60 percent, Belyue said.

Also along the water, plans by General Motors Corp. to build luxury riverfront condos on six acres east of the automaker's Renaissance Center headquarters also have been delayed as it deals with the national credit crunch.

Cadillac plan's pluses

Still, the proposed Cadillac Centre project has several advantages, real estate experts said.

"The major one is it is not attempting to sell condominiums, so it will not be as directly impacted by the subprime fallout," said Frank Fountain, a Chrysler LLC senior vice president of external affairs involved in major downtown projects.

"You have to step back and say this is another example where national investors see a long-term investment in Detroit, regardless of the short-term economic situation," he said. "The national phenomenon of the credit crunch doesn't erase the solid work we've done in the city."

Another factor in the Cadillac Centre's favor is that developers Northern Group are "extremely sound financially," said the DEGC's Jackson. The Northern Group also owns the Penobscot, First National and Cadillac Tower building in Detroit and is refurbishing the Alden Park Towers on the riverfront.

Still, the builders will have to lure retailers downtown despite Michigan's sinking economy and high unemployment, and as some economists forecast a good chance the U.S. will slide into a recession, weakening the retail outlook.

"It is a tough situation out there," Jackson said, "but it doesn't mean we lack the resources and skills to know how to deal with it."

The Cadillac Centre will be a test to see if downtown Detroit is ready to grab a national retailer, said Talley of Grubb & Ellis.

"That's been a longtime goal and it's going to be very interesting," Talley said. "The national economy is slowing and that poses yet another challenge. But you've got a lot of very good talented people who want it to happen. I'm excited to see it and I'm not even part of the deal."

Mayor focuses on revitalization

Concentrated effort brings projects to life

January 6, 2008

By JOHN GALLAGHER
FREE PRESS BUSINESS WRITER

High atop the Book-Cadillac Hotel, Mayor Kwame Kilpatrick took in the sweeping vistas of the Detroit cityscape Friday and reflected on his hopes for his city.

"People have been telling us to die for 50 years," he said. "And we just won't die. And I think it's a group of mayors, political leaders, business leaders, philanthropic leaders who came together and did something extraordinary by saying, 'We're here to stay, we're sticking our flag in the ground, and let's keep moving together.' "

This day, Kilpatrick could feel good about the future. He and private developers were close to announcing the new $150-million Cadillac Centre project on the Monroe Block parcel downtown. Besides providing a financial boost for downtown, the project boasts an innovative architectural design that could provide Detroit with a new postcard image to rival the Renaissance Center.

Michigan's weak economy and the national housing slump have blunted some of Detroit's revitalization efforts. The delays pain Kilpatrick, but he says he is determined not to let setbacks defeat him.

"Whatever we're doing, our mind-set is we have to keep the momentum going," he said. "If it's not going 60 miles an hour like it was at one point, then we can't idle down to zero, we have to go back to 40. That's my mind-set. It's us against the world, and let's get it done, let's keep it moving."

The city's revitalization effort has benefited from many things, from a national trend toward urban living to the creation of special tax credits in recent years that help finance many projects.

Then, too, Detroit's 300th anniversary in 2001 and hosting Super Bowl XL in 2006 led to renewed cooperation among civic and corporate leaders.

Robin Boyle, a professor of urban planning at Wayne State University, called the progress "the culmination of concentrated resources, concentrated political investment, concentrated skill, concentrated attention."

The deal team

At the heart of the effort is Kilpatrick and what's called his deal team, headed by George Jackson, president of the Detroit Economic Growth Corp., the quasi-public agency that handles day-to-day negotiations on many deals, including the Cadillac Centre project.

In this complex web of deal-making and negotiation, the mayor serves as a sort of heavy artillery, brought in at key moments, Jackson said.

"He lets us do our job, but when we need him, he's there to step in a very decisive way," Jackson said. "We love for him to get involved because he's a damn good salesman, and he does it with a lot of enthusiasm and vigor."

One such moment came during the final stages of negotiations for the $185-million deal to renovate the Book-Cadillac Hotel, expected to reopen this fall. John Ferchill, the Cleveland-based developer heading the project, said some of financing required state and federal officials to approve them. When those officials balked, Kilpatrick stepped in to lobby them.

"The mayor was willing to go to the wall with the various people he needed to," Ferchill said last week. "The unprecedented cooperation, really led by the mayor, is the reason that deal got done, as much as anything else."

Dan Gilbert, founder and chairman of Quicken Loans, is another fan. After lengthy negotiations with the mayor and his team, Gilbert announced in November he will move his headquarters from the suburbs to a downtown site in a few years.

"Mayor Kilpatrick simply gets it," Gilbert said last week. "Unlike a typical politician, he is about the what, not the who. He is a man committed to reviving the city, and through his own hands-on hard work, passion and interaction with key people in the business world, he and his staff are creating an environment and culture that will turn our city into a special place that only very few people are willing and daring to visualize today."

$150-million complex planned for downtown

Cadillac Centre to include residential, retail and entertainment space

January 6, 2008

By JOHN GALLAGHER
FREE PRESS BUSINESS WRITER

Mayor Kwame Kilpatrick and private developers are days away from announcing a blockbuster new residential, retail and entertainment center in the heart of Detroit, a project aimed at pumping up downtown's 24-hour buzz and international interest in the city.

The $150-million Cadillac Centre, plans for which were disclosed exclusively to the Free Press, would rise on a parcel known as the Monroe Block, a surface parking lot just east of Woodward Avenue and Campus Martius Park near the Compuware headquarters.

Financing is lined up, and the schedule calls for breaking ground in fall 2009, with tenants moving in late 2011.

The announcement follows by just weeks a decision by Quicken Loans to relocate its headquarters and 4,000 employees from Livonia to downtown Detroit, a move that could be completed at about the same time as Cadillac Centre.

With a striking design that could become a new architectural icon for the city, Cadillac Centre would include two, 24-story apartment towers connected by a 12-story link that would house a six-screen movie theater, health club and spa, restaurants and stores.

Northern Group Inc., a New York-based real estate company that already owns the Penobscot, First National and Cadillac Tower skyscrapers, would build and own the project. Alex Dembitzer, principal and managing partner of the Northern Group, said the ambitious development would help create the lively downtown that city planners have been trying to promote for years.

"We believe in the future of Detroit," Dembitzer said. "We are creating a unique complex that will not only revitalize downtown Detroit living, shopping and entertainment, but will also stir the imagination and excitement about Detroit's future and what we believe it will become in the 21st Century."

Kilpatrick echoed that.

"Detroit is in the midst of the most revolutionary transformation in its history, and Cadillac Centre will help to continue our city's resurgence by bringing a new level of exciting living, shopping and entertainment options to the heart of downtown," he said.

Kilpatrick and Dembitzer have scheduled a news conference for 11 a.m. Wednesday at the Coleman A. Young Municipal Center to discuss the project.

A resident of New York, Dembitzer buys and develops real estate throughout the United States. He also builds in Israel, Europe and Africa through development subsidiaries.

Dembitzer began buying and renovating real estate in 1985 in the New York garment district. His portfolio holds more than 10 million square feet of commercial real estate and includes approximately 5,000 apartment units.

He received his bachelor's of science degree from New York University. Prior to his real estate career, he operated a chain of more than 20 high-fashion and discount clothing stores.

Aiming for a landmark

Architect Anthony Caradonna, a professor at Pratt Institute in New York who spends roughly half of each year teaching and designing in Italy, crafted the curvy modernistic design, which would be among the most daring built in Detroit since the Renaissance Center in the mid-1970s.

Caradonna said in a telephone interview that he took inspiration from both the Renaissance Center and from landmark urban destinations, including Rockefeller Center in New York. He spent several days in Detroit researching the city to map out his design.

"Detroit had these amazing tall buildings with these amazingly beautifully designed and ornamented and three-dimensionally vibrant interior spaces," he said. "It's really about raising this piece that fits into this really important puzzle of downtown, linking the spaces around it."

Unlike many other recent projects, Cadillac Centre will ask for no city tax abatements, Dembitzer said. A Wayne County Renaissance Zone program likely will be used to attract national retailers. Northern Group will pay for the project out of its own private sources, he added, and full financing has already been arranged.

The project is the latest in a string of new developments built or announced downtown in recent years. Those include the three permanent casino-hotels and the redevelopment of the long-dormant Book-Cadillac and Fort Shelby hotels. In November, Dan Gilbert, founder and chairman of Quicken Loans, announced he would move his company's headquarters and about 4,000 employees from the suburbs to a yet-to-be-determined downtown site.

Changing the cityscape

If fully realized, Cadillac Centre could rival any of the other recent projects for its impact on the city. Among other advantages, it would complete the circle of buildings around Campus Martius Park in a way city planners have desired for many years.

The project would include 84 apartments, plus a 30,000-square-foot market, more than 100,000 square feet of major retail space, a 14,400-square-foot health club and spa, a 40,000-square-foot public park with water features, more than 25,000 square feet of boutiques and specialty shops, and 800 parking spaces.

Cadillac Centre would be topped off with a 22,000-square-foot so-called living roof that would collect and filter rain water and help control energy consumption.

Although tenants still have to be found for all of the space, city officials are confident that Northern Group has the experience and financial power to make it happen.

Founded more than 20 years ago in New York, Northern Group acquires and transforms obsolete buildings and neighborhoods in undervalued markets. Besides New York and Detroit, the firm owns properties in Louisville, Ky., Los Angeles, Pittsburgh, Philadelphia and Memphis, Tenn. It also is a major investor in an Israel-based construction company that builds projects internationally.

Northern Group also owns and is refurbishing the historic 400-unit Alden Park Towers residential apartments on East Jefferson near Belle Isle.

In Detroit's history, the 2-acre Monroe Block site was best known for a row of Civil War-era commercial buildings that were demolished by the city in early 1990. The parcel has been used mostly for parking since then.

Restaurant row or reheated leftovers?

Entrepreneurs have big plans for stretch of Woodward but some have been down that road before

Saturday, January 5, 2008
Louis Aguilar / The Detroit News

A stretch of Woodward Avenue that's home to the Majestic Theatre complex, the new Museum of Contemporary Art Detroit and upscale restaurants such as The Whitney always seems to be on the verge of becoming something -- either a great destination spot or another failed attempt to overcome Detroit blight.

And 2008 brings a new round of entrepreneurs with big plans to set up restaurants, nightclubs and other retail operations in the same buildings where many others have failed.

Several of the projects have received millions of dollars in promised tax credits and, in one case, a $19 million federal block grant. Still, the recent credit crunch is causing some financial institutions to give pause before investing in the Woodward projects.

"If this was Royal Oak, this would have taken us a year to get these projects going. But this is Detroit," said Greg Jedda, owner of Union Street restaurant and bar, which has survived for 22 years and counting on the Woodward strip between Wayne State University and Max M. Fisher Music Center, home of the Detroit Symphony Orchestra.

"We flip-flop between big positives and negatives. It's like being in a wild relationship," Jedda said.

For now, the seven-block strip is simultaneously bustling and abandoned, with hipsters and middle-class professionals sharing the neighborhood with more than a few aggressive panhandlers. Many investors are working hard to make 2008 the year the strip becomes almost totally gentrified -- if they can convince bankers and sometimes even landlords that they are the ones who can succeed.

All told, five deals are in the works. Another may be revived.

• In the early part of this year, one developer should know whether his six-year attempt to buy an entire block of buildings between Alexandrine and Selden will succeed. The block once housed the Blue Moon bar and is home to an historic theater last used to screen X-rated movies. The city already has granted the project a $21-million loan.

• By end of January the owner of Vicente's Cuban Cuisine downtown should know whether he finally comes to terms on a lease of a building on the corner of Canfield where three other restaurants have failed. The last was Agave, which abruptly shut two years ago in a rent dispute.

• Also by end of this month, the family behind Fishbone's restaurants and The Atheneum hotel in Greektown should know what kind of eatery they will open in what is now the 13th Precinct of the Detroit Police Department. It won't be a Fishbone's. The Gatzoros family bought the building for $1 million in April.

• The influential University Cultural Center Association, a nonprofit development group, is also in the act. Last year, the group completed its purchase of an empty corner on Willis and seeks to finalize $7 million in funding to construct a building of rental units and retail and commercial space.

• Jedda spent two years trying to buy the building that takes up much of his block between Willis and Canfield. His effort has stalled, he admits, but he still seeks a partner to make it reality.

More than one person has told the entrepreneurs they are crazy. The economy is too weak, they have been told. Detroit is still too distressed, and the strip has a checkered past.

The entrepreneurs say they've heard all it before.

"If the economy scared us and we listened to all the people through the years who told us we were crazy to run businesses in Detroit, we wouldn't have opened a single business," said Maria Gatzoros, matriarch of the family business. "We've been in Detroit for many, many years.

"We have believed in that area of Woodward since my husband and I were students at Wayne State," Gatzoros said. "There's too much going on from the renovation of the Detroit Arts Institute to the new things downtown to ignore it."

A cauldron of development

The seven-block stretch of Woodward was a busy place indeed during 2007. The Whitney, the elegant restaurant in a 113-year mansion, was purchased and renovated by former Chrysler executive Arthur "Bud" Leibler.

Next door, Wayne State University ventured into a private partnership with a developer and began construction of South University Village, a $36-million development that includes 130-rental units and 26,000-square-feet of retail, which may include a restaurant. And the former car dealership that is the new museum of Contemporary Art enjoyed its first full year, drawing an estimated 25,000 visitors and adding a cafe.

That's more than enough activity to convince Vince Vasquez, owner of the downtown Cuban restaurant Vicente's, to open Café Barcelona in the former Agave space. The cafe would serve Spanish tapas and include a nightclub. Vasquez already has secured more than $300,000 for the venture and has architectural drawings. Now, after months of negotiations, he just has to convince building owner Eliot Charlip to finally offer him a lease, he said.

"You just got to believe you can do it. And, I know it. I'm telling you, I know it," Vasquez said.

Vasquez said if he can't reach a lease agreement with Charlip, he hopes to set up in the former Blue Moon site, which is part of the most ambitious plan on the strip.

Detroit native George Stewart has spent six years on the plan for the 3500 block of Woodward. Stewart hopes to restore the theater, built in 1912, to a live performance venue with a capacity of 700 to 1,000. He hopes to renovate 25,000 square feet of retail and commercial space that likely would include a restaurant, and build a parking garage.

His project has been awarded $2.2 million in state brownfield tax credits for redeveloping a possibly contaminated site, and $19 million in federal block grant money. Now, the final hurdle is the banks, he said.

"I had hoped to finally close on everything in December," Stewart said. "It's been a great challenge. I've been carrying the costs for some of these buildings that I already own, but we're still above water."

Union Street owner Jedda has gone through hoops in his effort to buy much of his block. He obtained city and state approval for tax breaks. But he was stymied after some of the credits awarded to his deal were later cancelled because they would have gone toward buying out a liquor store. The rules of the tax break forbid the purchase of businesses with a certain amount of sales in booze, Jedda said.

Survival begins with hope

If any of the plans do not pan out, it won't shake Joe Zainea's faith. His family has believed in the Woodward strip since 1946 when his father bought the Garden Bowl. Over the years, they've continued to expand and now the Majestic Theatre Center is a mix of a bowling alley, bars, music venues and food. They have plans to add a rooftop deck this year.

Zainea admits it's a "tough area for many," he said. "Sometimes the property owners think they're the stars of the show when it's really the businesses who have leased the property and doing all the work. Sometimes it's been people who opened restaurants and thought it was going be all fun and ego. And it is fun and ego, sometimes, but, to be a real restaurateur it takes an incredible amount of work and perseverance.

"Will everything pan out? I hope so. But if not, you regroup and live to fight another day. That's how you survive in Detroit."