Detroit’s Developers Unfazed by Bankruptcy

The people behind Motown's private boom are hopeful the Chapter 9 filing will increase its commercial appeal

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Dan Gilbert, chairman of Rock Ventures and Quicken Loans, speaks at Techonomy Detroit on Sept. 12, 2012

As soon as emergency manager Kevyn Orr filed the papers for Detroit’s historic Chapter 9 bankruptcy, Detroiters wondered whether the move would hinder the city’s flurry of development projects. The answer came almost immediately.

On July 22, less than a week after Detroit became the largest municipal failure in U.S. history, St. Louis developer McCormack Baron Salazar announced a $60 million project to build five blocks of townhouses and shops on the city’s riverfront.

Two days later, the Michigan Strategic Fund approved a plan to sell private activity bonds for a $450 million arena that the Ilitch family, owners of the Major League Baseball Tigers and National Hockey League Red Wings, wants to build north of downtown.

(MORE: Motor City Meltdown: Long Road Ahead for Detroit’s Record Bankruptcy)

Meanwhile, work goes on at the intersection of Cass and Grand River avenues, where two brothers and their business partner are renovating the long-abandoned GAR Building (short for Grand Army of the Republic), a massive stone castle that served as a clubhouse for Civil War veterans.

Still, the bankruptcy case has shone a harsh spotlight once more on Detroit’s vacant lots, abandoned homes, subpar civil services and other emblems of the city’s long decay. Although officials are hopeful it will conclude by the end of next year, legal experts warn the process could take longer. But for the people behind the city’s private-development boom, the filing is no impediment. If anything, they’re optimistic it will increase Detroit’s commercial appeal.

Dan Gilbert, a billionaire developer who is one of the city’s largest private landowners and a leading evangelist for its economic revival, thinks the bankruptcy may prove to be good for business.

“If you have a medium- or long-term view of the city, that looming doom and gloom of bankruptcy and the public relations that goes along with it was always there,” says Gilbert, the owner of Quicken Loans, Rock Ventures and the NBA’s Cleveland Cavaliers. With the filing, “that chilling effect gets removed. I just become more optimistic now that we get through it all.”

(MORE: Surprising Solutions for a Bankrupt City)

Gilbert has snapped up 7.6 million sq. ft. (706,000 sq m) of office space in 30 buildings downtown, envisioning a lively corridor along Woodward Avenue north of the Detroit River with housing, retail and commercial space. It’s those sorts of investments that, no matter the city’s financial distress, have led to “a major demand for quality residential and quality commercial in the city of Detroit,” says Dan Austin, the author of two books on Detroit architecture. “Bankers know that, and where there is money to be made, there are loans to be had.”

That was definitely the case for Tom and David Carlton, partners with Sean Emery in the redevelopment of the GAR.

Once its renovation is complete next year, the building will house Mindfield, the developers’ film and media production company with clients such as Toyota, Google and Hyundai, as well as other office and restaurant space. The building has been vacant since 1982 save for occasional use, a fate it shared with dozens of structures across the city.

One of those was the group’s first renovation project, the former Good Life Housekeeping Building. They bought the 30,000-sq.-ft. (2,790 sq m) building in 1992 for $100,000, eventually creating some of Detroit’s first loft apartments in 1998.

The project remained self-funded for years, until a lender stepped in just as the project was opening. Even then, there was skepticism about whether Detroiters, whose idea of downtown living was mainly secure high-rises, would take to lofts.

“People thought we were crazy,” David Carlton says.

(MORE: Pittsburgh’s Lessons for Detroit)

Through the years, the brothers had often eaten at a diner across from the vacant GAR, and wondered whether it ever might go on the market. It did in 2006, but the sales process dragged on. Finally, the group acquired the GAR from the city for $220,000 in 2011, after a deal with the Ilitches fell through.

Unlike the skepticism they faced from banks last time, three lenders offered to finance the GAR project, which has cost $1 million thus far. No public funds have been involved, although they expect to receive some state and federal tax credits.

“The biggest difference between now and then is that you can point to things,” says Tom Carlton. “You can take a bank to lunch and they can look around and say, ‘Where are all these people from?’”

“It was such a reversal of consideration, compared with what we faced last time,” David Carlton adds.

Soon after work began, the group received a welcome-to-the-neighborhood message from DTE Energy, whose gated office complex sits a block to the west. Now, DTE is joining in the development craze.

It has snapped up a shuttered Salvation Army building and another parcel nearby, hoping to create a park to build on the fledgling neighborhood revival that the GAR Building kicked off. The utility is also among Detroit companies offering incentives for employees to live downtown.

Further north from Gilbert’s developments on Woodward, the Detroit Medical Center, the city’s largest private employer, has spurred the development of the Midtown area, home to Wayne State University and the city’s cultural center. The city’s first Whole Foods store, which opened this spring, bustled with business one afternoon this week, and signs already direct motorists to its overflow parking lot.

(MORE: Detroit: As the Governor Moves to Take Control, Residents Wonder What’s Next)

Austin thinks Gilbert’s aggressiveness has lit a competitive fire among city developers, large and small. “Dan Gilbert has done more to inspire development and investment in the city than anyone else in my lifetime,” says Austin, 32.

But much of the development is centered downtown and the closest-in neighborhoods, with a bit more in parts of the city that border the suburbs. For instance, a Meijer grocery superstore that opened on July 25 is close to Ferndale, an arty community on Detroit’s northern edge.

While habitable downtown residential and retail space is at a premium, renovation elsewhere is episodic. Some blocks within yards of downtown boast new housing and neighborhood shops; others are bleak and desolate. With crime prevalent, and police response time glacial (it takes almost an hour on average for a patrol car to arrive, even in emergencies), many new places rely on private security, like the guard at the entrance to Whole Foods’ parking lot. Detroit police, meanwhile, have set up a minipost inside the gas station at the new Meijer store.

“Most other cities have practiced something called urban planning,” Austin says. “Detroit is more of a Jackson Pollock approach, where you throw something wherever you can.”

— With reporting by Josh Sanburn / New York City