Detroit’s Downtown Development Authority board Wednesday approved nearly $50 million in funding for an ambitious $1.5 billion project to transform the District Detroit, signing off on the first of several public aid requests that will total nearly $800 million.
All told, the tax incentives requested by the Ilitch family’s Olympia Development of Michigan and billionaire real estate developer Stephen Ross’ Related Cos. would cover more than half of the projected initial cost to build a mixed-use development across a vast swath of underutilized downtown property near Little Caesars Arena and Comerica Park.
One critic called the amount of requests “obscene.” The developers are two of the nation’s wealthiest businessmen. Supporters, however, say public subsidies are critical to redeveloping a potentially critical piece of Detroit’s resurgence with affordable housing.
The green light from the full DDA board comes after its finance committee last week endorsed a trio of 34-year, 1% loans totaling $23.76 million to help cover hard construction costs for the development’s three residential projects with affordable housing. The board also approved a $25 million reimbursement to cover public infrastructure costs across the companies’ 10 planned developments. The DDA’s money comes from property taxes the DDA captures on new or redeveloped downtown buildings.
The proposed $1.5 billion joint venture between Ross and Ilitch family organization is a mixed-income and mixed-use development that is to include the construction of six buildings and the renovation of four buildings in the District Detroit straddling the north and south sides of I-75.
Plans call for 695 mixed-income residential units, 1.2 million square feet of commercial office space, 100,000 square feet of retail and 467 hotel rooms across the 10 properties.
More:District Detroit: $1.5 billion development to include housing, retail, offices, 2 hotels
The loan and the infrastructure reimbursement are among $797 million in public incentives the developers are seeking for the project. Those requests of governmental agencies include $616 million in transformational brownfield tax capture reimbursements over 35 years and $133 million in property tax abatements.
The project, announced in December, builds on plans for the Detroit Center for Innovation, a $250 million, three-building satellite campus for the University of Michigan in Ann Arbor, as well as other development in the area. Olympia is building the center in partnership with New York-based Related Companies, owned by Ross, a UM alumnus and benefactor, Detroit native and billionaire whose net worth is valued by Forbes at $11.6 billion.
Ross has pledged to donate $100 million toward the construction of the UM graduate campus in Detroit. The state Legislature in July committed $100 million in tax dollars.
All nine of the board members in attendance for the vote Wednesday were in favor of the loan program, while seven voted in favor of the infrastructure reimbursement. DDA board members Marvin Beatty and Steve Ogden voted no on the infrastructure reimbursement. No one from the public spoke during the meeting.
Ogden, who voted against the reimbursement for the public infrastructure, suggested that the amount be halved to $12.5 million.
“I want assurance when the next group comes, there’s money in the till,” said Ogden, a senior vice president of government affairs at Rocket Companies.
Ogden’s boss, mortgage mogul Dan Gilbert, owns multiple downtown properties and is building a new skyscraper at the site of the former Hudson’s building, which has relied on similar tax breaks and subsidies that the Ilitches and Ross are seeking from the city and state.
Glen Long, chief financial officer and executive vice president of administration for the Detroit Economic Growth Corp., said that Olympia Development of Michigan and Related Cos. would get about 40% of the available funding and that there are more funds available for other projects that would not be as large as this $1.5 billion venture. He said as the projects come online, taxable values for the development will rise.
“I understand the board’s concerns that we don’t want to sit here and give everything away to one developer, but I’m telling you that given the projections that we’ve made under conservative revenue projections, we’re not,” Long said.
The Ilitches, owners of the Red Wings and Tigers sports franchises and the Fox Theatre, have faced years of criticism after the opening of Little Caesars Arena in 2017, with some arguing their long-promised development in the 50-block District Detroit has been slow to materialize. Several of the parcels of land targeted for development are currently Ilitch-owned parking lots.
Theo Pride, a community organizer with Detroit People’s Platform, said the amount of public subsidy and tax breaks expected for the project are “quite obscene” as it’s more than half of the project cost.
“When you listen to the DEGC and their rationale they claim that the project simply cannot be profitable, it cannot be done without public financing, but yet you find plenty of companies who come into Detroit, Amazon being one, on Eight Mile. The old state fairground. They didn’t receive public subsidies,” Pride said. “They find out a way to make the project profitable and viable. I’m just skeptical about the methodology used, the tools used, the approach used to come up with that.”
The loan program under the DDA’s Housing, Office, Retail Development and Absorption Fund is a new financing tool the agency has said will help residential developers offer more discounted rents for lower-income Detroiters in the downtown area.
The loans for the Ilitch and Ross organizations would be as follows: a maximum of $10.9 million based on 40% of the hard construction costs to complete 58 affordable units in a 287-unit development at 2250 Woodward Ave.; a maximum of $8.8 million based on 40% of hard construction costs to complete 54 affordable units in a 261-unit development at 2505 Cass Ave., and a maximum of $4.06 million based on 40% of the hard construction costs to complete 27 affordable units in a 131-unit development.
Interest will accrue and be deferred for 48 months following the loan closing, according to a DEGC document. For every year that at least 50% of the affordable units are occupied by existing Detroiters — defined as someone who has been a city resident for at least three years prior to living in the apartment — 1/30th of the original principal loan amount after the 49th month would be forgiven. The developer would have to verify the occupant’s status as an existing Detroiter.
Pride said he doesn’t think the Ilitches or Ross should receive a benevolent tag for their affordable housing efforts.
“They are receiving a very nice DDA loan to do so,” he said. “They can go nowhere in the country and receive those types of terms in terms of the loan they’re getting to get to that level of affordability. In my opinion, it really makes sense for them.”
Beatty, a longtime executive at Greektown Casino, raised concerns Wednesday that lessening the resident requirement from an initially proposed five years to three years would open the pool to too many candidates, reducing the opportunity for long-term residents.
Officials said the requirement was reduced to make the application process easier for lower-income residents who might have trouble providing documentation for five years, such as tax returns or utility bills.
“I don’t know who we’re trying to protect, or trying to do whatever for, by reducing the number,” Beatty said. “People still have a tough time keeping three years’ worth of tax returns as they would five years. I don’t get what we’re trying to accomplish here… My concern is that it lets so many people in at the bottom, which potentially precludes those at the top by years of residence.”
Rian English Barnhill, vice president of government and community affairs of Olympia Development of Michigan, said she was thankful for the board’s support Wednesday. She said the approval was critical for the residential component of the project.
“This is how we are able to get the lower affordability,” she said.
A ‘shared vision’ for downtown
The areas where the proposed projects would be constructed generate approximately $250,000 in annual revenues for the city and include a pair of parking lots that are currently tax-exempt. If the projects come to fruition, the city could gain $751 million in tax revenue over 35 years, officials have said.
When complete, the project will support more than 6,000 jobs and generate more than $500 million in wages annually in the city, officials have said. The development will create 12,000 temporary construction-related jobs and generate more than $800 million in wages.
Andrew Cantor, president of Related Michigan, called the effort an exciting public-private partnership.
“It highlights the importance of deeply affordable housing and mixed-income residential that we’re planning to build as part of it,” he said.
Cantor said Related Cos. has done numerous developments in other cities with a 50% affordability component. He said they’ve had conversations with the city and DEGC for months about what that would look like for the developments planned for Detroit.
“They shared our vision,” he said.
In advance of the vote, on Tuesday Detroit Mayor Mike Duggan touted the program during the Detroit Policy Conference. He said the loan program helps to provide affordable housing units to residents who have seen rent increases in recent years.
Duggan pointed out that the market rate rent in a new apartment in District Detroit would be about $2,400 for a one-bedroom unit.
“For somebody who makes half the area’s median income, $30,000, it would take their entire salary to pay for that rent,” Duggan said Tuesday. “Which means you’re going to create a bastion of wealthy folks in one area and it will be as far as I’m concerned economically segregated, if not racially segregated.”
Duggan said that with the funding from the downtown tax capture, lower-income residents will be able to afford the same units for $840 a month.
“It’s going to be $840 a month and they’re going to be on the same floors with the same finishes as everybody else,” he said. “Because I believe Detroit is a place where a doctor who works at Henry Ford Hospital should be able to be in the same neighborhood as the Henry Ford Hospital worker who’s working in the cafeteria or pushing the wheelchairs. That’s what a city is about. People of different incomes and different backgrounds living together.”