Hey everyone,
Detroit’s office market is in rough shape. Instead of steadily recovering since the lows of the pandemic, the metro area had its worst quarter over the last three years as vacancies continued to rise.
Detroit developers are nonetheless pressing ahead with office-centric plans, expecting to add nearly 1.5 million square feet of high-end office space over the next few years. Will they be able to find enough tenants?
In related news, the pot of money that made these projects possible just got bigger after a series of bills were signed into law this week.
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The Dirt
>>Transforming the rules: Gov. Gretchen Whitmer signed into law reforms to the state’s controversial “transformational brownfield” incentives, which provides massive tax breaks to developers, to make it easier to access funds and by raising program caps. So far, only three projects have gotten funding through the 2017 law, including four Bedrock developments and District Detroit downtown. The new legislation doubles the cap on total tax captures to $1.6 billion and requires around 35% of approved projects to be in municipalities with less than 100,000 residents. It also allows developers to capture more kinds of taxes, not just income taxes. The goal is to encourage more housing and entertainment developments, beyond the big office projects incentivized by the current version of the law. (Crain’s Detroit Business)
>>Back to virtual, sorta: The 36th District Court in Detroit will once again allow parties to attend virtually for eviction cases starting July 31, but only for the first hearing. Subsequent hearings will be in person. Last month, the court required everyone to attend all hearings in person. A statement from the court said there has not been a noticeable change in the rate of default judgments — when a party is absent at their court date — since the change. But housing activists and lawyers demanded the return of virtual hearings, saying they are more accessible to low-income tenants and legal aid workers. (Detroit Free Press)
>>Dreams crushed: The Board of Zoning Appeals has ended developer Murray Wikol’s bid to build a concrete crushing facility on a site in Core City, for good. Detroit’s Buildings, Safety Engineering and Environmental Department denied a permit for the project in December after facing rock-solid community resistance. Wikol appealed to the board and successfully asked it to adjourn the first two hearings. His attorneys tried to do the same at Monday’s meeting, but when the board refused, no representative spoke up to make a case on his behalf. Meanwhile, more than a hundred residents attended and 34 people spoke in opposition to the project. Wikol said he may build a concrete crusher elsewhere in the city. Residents say they will continue to fight Wikol’s illegal use of the Core City site. (Detroit Documenters, Detroit Free Press, BridgeDetroit)
>>Development news quick-hitters: Developers broke ground on a $7.3 million project in the North End called “The Beauton.” The 29 apartments will go to tenants making between 50-120% of the area median income and include 10 “micro unit” apartments… Construction began last month on a $2.5 million connection between the Riverfront Towers and the future Ralph C. Wilson Jr. Centennial Park. The park is expected to open in late 2024… Target Corp. is targeting the old State Fairgrounds to build a distribution center that would sit next to Amazon’s recently finished distribution facility. Owners the Sterling Group had to demolish a historic structure to clear the site. (BridgeDetroit, Detroit Free Press, Detroit News)
Dig This
Will developers’ gamble on office space work?
Like many office markets throughout the country, Detroit’s is in a slump. Hybrid work policies have become the new normal, causing numerous companies to downsize their office footprint.
Detroit’s biggest developers are betting — or hoping — on a different outcome as they charge ahead with their major office projects. The Hudson’s site and the District Detroit are set to add hundreds of thousands of square feet of office space, expected to cost some of the highest rental rates in the city.
Dig Deeper
10 years later
Tuesday was the 10-year anniversary of Detroit’s bankruptcy. It’s worth taking a moment to reflect on just how monumental an event it was, even if its ultimate outcomes are difficult to measure.
Detroit was $18 billion in debt and unable to deliver adequate services to its residents because of its immense obligations towards pensions for former city workers. A 10-year reprieve on contributions to pensions and a recent $826 million in pandemic relief funds have helped the city build a budget surplus and improve city services. Detroit’s credit rating has steadily gone up and the city has seen substantially more investment. The streetlights work!
On the other hand, Detroit had its autonomy ripped away by an emergency manager through a law many say is illegitimate. City services are much better, but holes persist, including spotty bus service. Blight and trash remain a problem in some neighborhoods despite aggressive spending from the city. The city continues to lose population. And pensioners are still bitter that their benefits got slashed and have to make up the difference. Even Mayor Mike Duggan was ambivalent about the bankruptcy. “In some ways it helped, and in some ways it hurt,” he told the Detroit News.
The city also gave away a number of properties to creditors. Many of these high-value sites are seeing development, like at the old Joe Louis Arena site.
Nearly every local and some national publications had takes on the anniversary. Some of them (we’re looking at you New York Times) were vapid or uninformative.
What are you reflecting on as the city hits the 10-year mark? Do you think the bankruptcy was a good thing? Let me know by replying to this email.
Coming Down
Bye bye Y
An old YMCA building on East Jefferson Avenue will likely soon be demolished. City officials asked City Council to approve it for demolition at a cost of about $2 million last week.
The Hannan Memorial YMCA has been on the chopping block for years. The nonprofit Women’s Justice Center has owned the 80,000-square-foot building for almost two decades but has failed to do any renovation work. Its roof caved in at some point in the last few years, and the city said redeveloping the building is no longer feasible. The city sued the nonprofit in 2020.
The building opened in 1927. Detroiturbex writes that it was part of a plan to build seven Y’s in the city. It’s been abandoned since 1999.