By Paula Gardner | PaulaGardner@mlive.com
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on February 04, 2016 at 5:30 AM, updated February 04, 2016 at 5:23 PM
DETROIT, MI — Ask anyone outside of Detroit what is changing in the city’s downtown, and the most obvious answers convey developments that make Michigan’s largest central business district appealing to the most casual visitor.
Midtown. Major new sporting venues. Maybe the riverfront.
Each was a player in what was touted as signs of Detroit’s rebirth a decade ago when Super Bowl XL was played on Ford Field in 2006. Today, each remains vital in the city’s momentum.
Yet, as Southeast Michigan looks to its future, the impact of all three of those elements continues to multiply as still more projects transform the city’s landscape.
Billions in investments are pouring into the 7.2 miles of Detroit described as its most vital, creating a district where more people live, more people work and more people see potential for profits than any Super Bowl visitor may have guessed could happen just a decade ago.
Factor that in between those times existed the Great Recession, the racketeering conviction of ex-Mayor Kwame Kilpatrick and the city’s bankruptcy — along with a state-imposed emergency manager — and the changes in Detroit may seem closer to a miracle than a series of well-placed business moves.
“I don’t think there’s a city in the world that’s doing what Detroit is doing right now,” said Peter Allen, who teaches real estate development for the Ross School at the University of Michigan.
Among the major projects:
The $1.2 billion plan by Olympia Development Co. to complete a new Red Wings arena near Woodward north of I-75 and create new office, housing, hotel and retail space in the blocks around it.
Up to $950 million estimated for future riverfront development, following the Detroit Riverfront Conservancy already counting $1.5 billion in investments that improve the district from Belle Isle to Hart Plaza.
An estimated $2.2 billion in property investment by Dan Gilbert’s Bedrock Real Estate since 2011.
The $137 million M-1 Rail construction under way on Woodward.
The $279 million renovation of Cobo Center, a 5-year, 3-phase process completed in 2015.
A series of smaller projects in Midtown — just north of downtown, near Wayne State — that follows an estimated $2 billion in investment, including new medical center buildings, from 2000-2015.
The numbers convey new economic metrics for Detroit’s downtown. Less tangible, but just as notable for Michigan, is how they’re changing daily experiences downtown, and how that, in turn, affects Detroit and its place as the hub of Southeast Michigan and the largest city in the state.
“There’s a dramatic change in daily life,” said Sandy Baruah, president and CEO of the Detroit Regional Chamber.
He recalled walking from his office at Woodward and Jefferson to Comerica Park five years ago: “It didn’t actually feel dangerous, but it was definitely a lonely walk. There was not a lot of street activity, not a lot of stores.
“Now it’s completely transformed.”
Bars, restaurants, stores and people — residents and downtown workers — create a new sense of place in the district.
As a business development tool, that’s “hugely important,” Baruah said.
Signs of progress
The Super Bowl came to Detroit at a time when the future for the city seemed to finally turn toward its potential as a development hub, a time when Kwame Kilpatrick was just starting his second term as mayor, a time when it finally seemed possible to welcome an intense media spotlight to a major event and not have it turn ugly.
“Ten years ago, we were all flying high here,” said Michael O’Callaghan, executive vice president and chief operating officer of the Detroit Metropolitan Visitors and Convention Bureau.
“Then, unfortunately, ’08 and ’09 came, and we bottomed out.”
One business sector that illustrates that wave is Detroit’s hotel industry.
Old rail lines are exposed on Woodward Ave. to be torn out as construction of the M-1 Rail Line moves north into Detroit’s Midtown Wednesday Dec. 31, 2014.
Tanya Moutzalias | MLive.com
Detroit has about 5,000 hotel rooms, O’Callaghan said, with only a few changes since a wave of rooms opened in 2008. Occupancy plummeted from about 60 percent during the Super Bowl to a depth of 47 percent during the recession.
Fast forward to 2015, and the industry is celebrating: occupancy climbed ahead of the Super Bowl era, reaching 66 percent. And the average daily rate is climbing, from $138 in 2014 to $147 in 2015.
And while the number of new rooms last year was limited to the 136 at Aloft Detroit in the David Whitney Building, that could be changing. Financing to build hotels is once again available; 22 hotels are in planning stages Metro Detroit, but that pace hasn’t yet reached Detroit.
Interest, however, is growing.
“I have developers calling me once or twice a week asking about the area around where the hockey arena is going to be built,” O’Callaghan said.
They’re also looking around Wayne State University, the medical center, and downtown, he said.
“There just isn’t a lot of real estate downtown on which you could build a hotel,” O’Callaghan said. “But there’s a lot of interest in downtown Detroit.”
That’s true in other consumer-facing sectors, too.
In 2015, downtown Detroit included:
378 restaurants, an increase of 77 from 2013.
81 outdoor dining spots, an increase of 32 from 2013.
352 retail stores, up 41 from 2013.
And, perhaps most notable as a sign of residential activity, seven grocery stores. One includes Whole Foods, which opened in 2013 in Midtown. Another grocery is reportedly sought for the Ilitch family development around the new Red Wings arena.
Those numbers are according to the “7.2 SQ MI” report commissioned by several advocacy groups, including the Downtown Detroit Partnership and Midtown Detroit Inc. It was written in 2013 to document changes in the 7.2 square-mile area roughly along Woodward Avenue from the riverfront to the New Center area, then it was updated in 2015.
The city’s restaurant scene grew in mass and quality to the point where it was named No. 3 on Zagat’s list of “next hot food cities” in 2015. However, one sign of change in Detroit is the ubiquitous Starbucks. The city had five Starbucks stores in 2006, which was 41 fewer than in San Jose, Calif, reported the Detroit News. Two years later, Starbucks closed three of the stores. It wasn’t until 2014 that another downtown store opened.
The Gilbert effect
Before Dan Gilbert bought 85 office buildings in and near downtown Detroit, he was considering the economic potential of the city. A year after Super Bowl XL, he opened the Bizdom business accelerator; two years later, he was investing in the M-1 Rail, the light-rail system connecting the riverfront to the New Center area, with stops in between. And then he announced that his Quicken Loans staff would move downtown to the Compuware Building.
Today, as Woodward Avenue makes room for construction of the $137 million streetcar, Gilbert is the signature property owner in downtown: His Bedrock Real Estate division has spent $2.2 billion on acquiring and renovating Detroit real estate, most of it downtown.
“He owns downtown,” Allen said of Gilbert.
“I don’t think there’s a city in the world that’s doing what Detroit is doing right now.” — Peter Allen, UM prof
Gilbert’s buying spree started in 2011, right after U.S. census data showed that Detroit had lost 25 percent of its population during the first decade of the new millennium.
Detroit’s daytime population — or number of people working in the city — saw a parallel drop.
Numbers from Bedrock show how Gilbert’s real estate influence is changing that: In 2015, according to the Bedrock website, 70 new tenants signed leases for a combined 1.3 million square feet of retail and office space. That is the largest year for Bedrock since its acquisitions began in 2011. Already in 2016, more new leases have been reported: Plante Moran, for example, will move 60 people from Southfield to an expanded office at One Campus Martius.
It all started, Allen said, with Gilbert moving the Quicken Loans staff to Detroit.
“He moved his people out of (Livonia) because he said, ‘I’m not going to be able to hire great people … at a driveable suburban location,'” Allen said.
Gilbert-owned companies now employ 15,000 people in Detroit.
“He wouldn’t have done that in the suburbs,” Allen said.
And it’s a message that is fueling other business moves to Detroit, Allen said: “All smart companies with intellectual capital are saying the urban core is where people want to be, whether they’re a creative class worker, a millennial, an empty nester.”
In 2006, Detroit had about 92,000 workers downtown, according to estimates. That grew to about 150,000 in 2015, according to the 7.2 SQ MI report.
Smaller landlords benefit from the moves, too. One is Stewart Beal, who bought the 25,920-square-foot, 8-story building at 277 Gratiot in Harmonie Park, on the western edge of Greektown, in 2008.
Beal estimates that nearly 20 tenants moved in and out of the space from 2008-2011.
“Then it all came together,” he said of the timing as downtown Detroit employment started to grow.
Rental rates may range from $18 to $22 per square foot in larger downtown Detroit buildings, comparing to $25 or more in downtown Ann Arbor and $30 or more in downtown Birmingham. Beal’s building is less — it could be as low as $12 per foot, depending on the floor and duration of the lease.
Despite the initial risk and fluctuations in tenants, Beal considers himself fortunate to have a piece of downtown real estate as the city heads toward more growth.
“Now people call me all the time, asking how to buy a building,” he said. But the market has changed: “You have to buy something on the outskirts (of downtown).”
The Detroit River led the city’s founders to the area that is now Hart Plaza and it fueled Detroit to its status as an industrial powerhouse. Today, it represents both collaboration and potential, as the nonprofit Detroit Riverfront Conservancy takes stock of its progress.
“The riverfront has undergone an incredible transformation,” said Mark Wallace, president and CEO. “We’ve delivered a real jewel to the people of this city and this state.”
Founded in 2003, the conservancy facilitated 3.5 miles of river-edge public access from Joe Louis Arena east to Belle Isle. Along the way, cement plants were relocated, security centers were established, and private property owners made upgrades, including General Motors. About $1.55 billion is improvements along or near the riverfront took place from 2003-13, according to a conservancy study.
In this June 23, 2014, photo, a beach scene is displayed at Campus Martius in Detroit. Campus Martius is a 1.6-acre park where the historic Woodward and Michigan avenues converge. It opened in 2004 after several years of plans and more than $20 million in donations.
Carlos Osorio | AP Photo
While some of that work took place before Super Bowl XL, the most visible work took shape starting about five years ago. Today, the public access aspects of the riverfront host events and attracts about 3 million annual visitors, according to the most recent data available. Those visitors accounted for $43 million in spending in 2013.
The work is raising value across the riverfront for private investment, too, Wallace said.
“(The improvements) unlocked a tremendous amount of potential for the east riverfront,” he said. “We’re looking for that park space to be a catalyst for development of some of the vacant property in this riverfront district.”
Some riverfront property, like the Stroh River Place, utilizes historic buildings. But as land use there shifts from industrial and parking, other opportunities are created.
“Midtown has largely emerged on the strength of historic renovation projects,” Wallace said. “The riverfront is going to emerge on a really diverse series of changes (that include) historic redevelopment and new construction.”
One of those projects is Orleans Landing, a $65 million mixed-use project by St. Louis-based McCormack Baron Salazar. It broke ground in October, five years after plans were initiated. It will bring 270 apartments and a 10,000-square-foot retail center to an area of about 4 square blocks.
Developers have faced hurdles in Detroit. Rents remain lower than the national average, Wallace notes; at the same time, construction costs are about the same as other U.S. locations, and the cost of land is high for that mix. It still takes creativity to make a project work.
But with the Orleans Landing project and the nearby Waters Edge apartments, the stage is better set for more development, Wallace said. That includes giving comparable financial figures to support lending. If the riverfront property reaches its potential, it could generate up to $950 million more in new development.
“Early (projects) are the most difficult to accomplish,” he said. “It’ll be great for us to have two that future developers can look to.”
The propulsion of downtown into an economic driver isn’t happening without neighborhood attention by the city of Detroit. That’s a big change from Super Bowl XL, when the city tried to masquerade the blight between Metro Airport and Ford Field.
Yet the city faces many challenges in coming years. While some call for a 100,000-person population increase in the 7.2 square miles, overall city population forecasts from the SouthEast Michigan Council of Governments projects that the 655,847 population, counted in July 2015, will fall to 614,969 by 2040.
Among those numbers are a population of 77,584 who were unemployed in 2010; 259,730 were adults not in the labor force. About 31 percent of Detroit’s households lived in poverty in 2010.
The quality of the Detroit Public Schools remains a concern, even among those who move to the city without children but look ahead to their own futures as parents. Mass transit also remains an issue as more people move to downtown; the Regional Transit Authority seeks a regional transit tax in November to fund improvements, which experts said should fuel more downtown residents and employees.
And finding value in available downtown real estate — along with the potential to borrow money to fund projects — will keep the attention of potential investors. That’s not an issue for the Ilitch family or Gilbert, both of whom have billion-dollar personal fortunes, according to Forbes. But the investor who wants to purchase with borrowed money and make improvements before heading to market will need appraisals that support that.
Meanwhile, attracting more jobs to downtown is likely as still-empty buildings are remodeled into viable office space, experts said, given the pace of demand.
So far, many of the business moves into downtown have been “intermural moves,” Baruah notes, with offices moving from Detroit’s suburbs to the city center. And those moves, he said, “don’t change the fundamental economic outlook for our region, they just change commuting patterns.”
At the riverfront conservancy, Wallace said he continues to consider funding. As a nonprofit, “we’re always seeking to enhance our financial viability.”
The conservancy also is considering its role not just on development, but on who has access to its public spaces. Rental rates near the river start at about $1,000 for a one-bedroom; they’re still less in many Midtown locations. Yet in between, downtown rents can reach $3,000 or more for a two-bedroom unit.
That conveys the potential for gentrification pressures for surrounding neighborhoods.
“The riverwalk is one of the most diverse gathering places in the city and state,” Wallace said. “We want to make sure that everyone now coming to the river with their kids keeps coming.”
Paula Gardner covers Michigan business issues for MLive.com. She can be reached by email or follow her on Twitter.
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