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Another week, another massive development project announced in Detroit.
The amount of money being spent on new construction in Detroit is unprecedented in recent history. The bill for several new mega-projects is estimated to come in at more than $5 billion.
The amount being spent by taxpayers to fund these projects is sizable, too. But do the benefits to the city and its residents match what is being offered in return?
Last week, Henry Ford Health said it would partner with Michigan State University and billionaire Tom Gores on a $2.5 billion development near New Center.
That announcement comes on the heels of the Detroit Regional Convention Facility Authority, which oversees Huntington Place, saying it will partner with developer Sterling Group to build a hotel and expand the downtown convention center at a cost of at least $300 million.
There’s more. The Detroit Brownfield Redevelopment Authority last week approved $616 million in tax incentives for the $1.5 billion project in District Detroit being developed by Olympia Development of Michigan and Related Cos. (The subsidies still need to be voted on by the Detroit City Council and Michigan Strategic Fund.)
Don’t forget the Hudson’s site development being built at an estimated cost of $1.4 billion, which received a $60 million tax break from city council over the summer.
Billionaires are spearheading many of the developments in question. There’s the aforementioned Gores, owner of the Detroit Pistons and the private equity firm Platinum Equity; the Ilitch family, owner of the Detroit Tigers, Red Wings and Little Caesars pizza chain; Stephen Ross, a global real estate developer and owner of the Miami Dolphins; and Dan Gilbert, owner of Rocket Mortgage and the Cleveland Cavaliers.
The three mega-projects in the works are said to bring a variety of amenities to the greater downtown area, including retail, residential, office space, hotels and a new hospital. There will be temporary and permanent jobs created as part construction and operation of these facilities. They’ll be built mostly on underused properties, increasing density and vibrancy to parts of Detroit.
But the public is being asked to pitch in tax dollars for these projects while the scale and scope of benefits is unclear. The Henry Ford Health development team said it would ask for public incentives but hasn’t yet stated an amount.
The District Detroit development is close to securing subsidies for more than half the total project cost of nearly $800 million, including the Transformational Brownfield Plan subsidy worth $616 million. Bedrock Detroit already received the same tax subsidy worth $618 million across four projects, including the Hudson’s site.
How do the subsidies work?
These incredibly wealthy developers are asking taxpayers to subsidize substantial portions of their developments, but in many cases they don’t have to ask directly. Instead, they can appeal to governmental funds and authorities run by business friendly boards.
The Downtown Development Authority (DDA), whose board is appointed by the mayor, approves loans and grants to developments downtown. Much of its funding comes through tax capture, which takes away revenue that would otherwise go to schools, libraries and other essential services.
The Michigan Strategic Fund (MSF) does similar work at the state level with a majority of the board appointed by the governor.
The Detroit Brownfield Redevelopment Authority (DRBA), whose board is also appointed by the mayor, approves brownfield plans funded by capturing increases in taxes on the development over time.
The most valuable of these subsidies, the Transformational Brownfield, has to be approved by the DRBA, MSF and Detroit City Council.
Sometimes developers are able to get money with almost no scrutiny whatsoever. Stephen Ross, chairman of Related Cos., secured a $100 million earmark in the state budget for the Detroit Center for Innovation, another planned downtown building being developed with the University of Michigan.
What are the proposed benefits?
District Detroit developers said they’re spending $167 million on benefits — including affordable housing, hiring of local contractors and bus shelter improvements — as part of the community benefits process mandated by the city.
But that number is misleading. Much of it was allocated before negotiations with residents even began.
The $23.8 million that will go towards 139 affordable units in District Detroit was required as part of a loan provided by the DDA — the developers wouldn’t have gotten the loan without those units. Bedrock secured its $60 million tax break on the basis that it would include more affordable housing in its buildings. But it was already in compliance with this “stricter” agreement.
The developers have projected that these projects will create thousands of jobs. But that number may be inflated, too.
Part of their claims include jobs associated with businesses locating their offices in the new buildings. But economists have questioned the logic of this calculation, since they’re likely to be businesses relocating from other offices in the city or region. They won’t have created new jobs, only shuffled around existing ones.
The projections are also based on the assumption that the buildings will fill up with tenants. District Detroit developers are banking on a large bounceback in the city’s office market by the time its three buildings totaling 1.2 million square feet of office space are online in a few years. Hudson’s will add an additional 400,000 square feet of office space.
Detroit’s office market, however, hasn’t recovered anywhere close to its pre-pandemic levels with businesses downsizing their office space. Daily downtown workforce was still at 47% of its pre-pandemic level as of December 2022. Vacancy rates at offices downtown actually went up last year.
Bedrock may fall well short of the claim in its transformational brownfield application that it would create 7,332 jobs by the middle of the decade. An analysis by University of Michigan economists estimated that only 3,345 jobs would be created by 2026.
Not all the benefits are hot air. District Detroit developers have committed $12 million towards programs and areas identified by the Neighborhood Advisory Council (NAC), which would make it the largest benefits deal in the city to date. A vote on a benefits package is expected to take place at the council’s next meeting on Feb. 21.
It’s still too early to evaluate Henry Ford Health’s development, especially since we don’t know how much the public will pay for it.
The Huntington Place development is a different kind of project altogether. It’s looking to largely attract convention guests and tourists to the city by expanding the convention center and building an on-site hotel. It’s also looking to create a more holistic riverfront by connecting existing street infrastructure to new greenways being built along the river.
The project is going to be funded through bonds issued by the authority managing Huntington Place and probably developer equity. Huntington Place is already heavily funded by taxpayers, including a tax on liquor and hotels, and the reliability of that funding allows them to get the bonds they need to cover the rest of the project.
The amount of money being spent in Detroit is truly staggering. If completed, these projects will transform large parts of downtown and New Center. But the ultimate benefits for residents are much more mixed.
What happens if promises are broken?
Developers are rarely held accountable for not meeting benchmarks stipulated in their proposals or agreements.
The Ilitches are perhaps the most notorious example. The DDA provided the Ilitches with $324 million in tax subsidies to build Little Caesars Arena. It also got an additional $74 million after spending $200 million in ancillary development in the area. The projects that qualified for those other investments were two parking decks, the Little Caesars headquarters and an office for Google attached to the arena. Meanwhile, the family has been heavily criticized for sitting on property and building surface parking lots.
Bedrock got its transformational brownfield for four projects, but one of them, the Monroe Blocks, have been stalled since “breaking ground” in 2018. The company has until the end of the month to submit updated plans.