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."
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."
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