09 Jun Detroit has few ways to prod District Detroit development
Detroit has few options to compel the powerful Ilitch family to complete the sprawling publicly subsidized District Detroit as it was first proposed five years ago.
That’s because the political leaders who approved the deals enabling the district failed to put effective accountability measures into the legislation and contracts.
“This is just another indication of how cities and states tend to be really crappy negotiators when they’re working sports development deals,” said New York-based journalist Neil deMause, co-author of the book “Field of Schemes” and a website focused on public funding for sports venues. “You need to be very careful when someone is promising something, that it’s contractual and not just in a press release. As we’ve seen in too many cities, it’s something Detroit and the state didn’t negotiate well when District Detroit was planned.”
There’s been a groundswell of criticism of the Ilitches because their Olympia Development real estate business got nearly $400 million to build Little Caesars Arena, which they promised would anchor up to 50 blocks of new housing, retail, restaurants and bars, offices and green spaces.
The arena was built on time, along with a few offices and parking garages. No housing. No parks. At least not yet. A few small third-party tenants have deals to move into the district.
It doesn’t much look like the vivid renderings of a bustling area that the Ilitches showed the public in 2014 — as the city was under state-led emergency financial control and in municipal bankruptcy — and promised to build concurrently for when the city-owned arena opened in 2017.
There’s been less criticism of the political and bureaucratic class that ultimately approved the deals and the money: former Gov. Rick Snyder and his hand-picked emergency manager for Detroit, Kevyn Orr; the City Council; leadership of the Detroit Economic Growth Corp. such as George Jackson; and state legislators.
Detroit City Councilwoman Raquel Castañeda-López — who was not made available for an interview — has led a recent political effort to achieve some accountability. She requested reports from the city’s Legislative Policy Division, Law Department and Downtown Development Authority to see what the city could do to ensure the Ilitches were living up to the various deals.
Turns out, there’s not much Detroit can do. At least not anything that would ensure the district will look like what was rolled out five years ago.
Instead, the accountability tools available to the city are limited to ensuring the empty Hotel Eddystone is redeveloped, and that the arena itself employs an agreed-upon number of city residents. There’s nothing in any of the deals that is either a carrot or stick to get the overall district completed.
Barring some new creative solution, that apparently will happen at the pleasure of the Ilitch family and the turns of market demand.
The Eddystone serves as an example of the wider issue with the district and the Ilitches’ checkered history of development projects. The hotel has been a lightning rod for Ilitch criticism because the family agreed to redevelop it into 96 apartments and commercial space as part of a deal not to demolish it alongside the adjacent Hotel Park Avenue that was razed in 2015. Instead, the Eddystone has languished undeveloped, windowless.
Last month, Olympia and DDA agreed to series of benchmarks in the planned $40.9 million redevelopment. If Olympia defaults on the pact, a $33 million performance bond will ensure that someone else can step in and complete the project, which is anticipated to ask for public financing, as developments and redevelopments in Detroit almost regularly do.
The deal to finish the hotel’s renovation is a step but won’t silence critics.
“I’m glad that there is an Eddystone agreement with teeth in it,” said Francis Grunow, chair of the Neighborhood Advisory Council for the District Detroit area. “However, Detroiters also deserve an overall district agreement with teeth. What (Olympia) sold the public to get now nearly $400 million in public money is far, far from reality.”
As for the arena jobs promise, it appears the DDA, which owns the arena, has not been asking for data from Olympia Development that would show whether it’s meeting certain requirements to which it agreed for hiring city residents and using city-based business or businesses owned by city residents.
An April report to the Detroit City Council says the DDA did not have data on: the number of Detroit residents working at the arena; the training and advancement opportunities provided to them; and Detroit businesses and businesses of Detroit residents bidding on arena contracts.
“In response to the DDA’s request, a meeting is being scheduled to review various employment/business participation and outreach efforts, as well as other matters set forth in the (agreement). Olympia Development looks forward to this meeting, which we expect to occur soon,” the company said in a statement.
Olympia handily exceeded its commitment of 1,100 jobs at the new arena, which opened in 2017; the report says that in 2018 there were 143 full-time employees and 3,028 part-time employees, according to the DDA.
However, the report also says “much more information is needed to determine whether the commitment to providing Detroit residents jobs, training opportunities and contract opportunities for Detroit-based and Detroit resident owned businesses has been achieved.”
If Olympia did not meet the goals, the city and DDA have no recourse beyond compelling that the company meet them. In other words, it couldn’t sever the agreement or take back property.
The DDA declined to answer specific questions, instead sending a statement: “The Downtown Development Authority has been working with Olympia Development to track job performance results as well as other requirements of the (agreement). The DDA continues to schedule meetings with Olympia to review its employment plans, and to connect ODM with organizations that can grow the pipeline of trained and talented Detroiters.”
In addition, Olympia faces a looming deadline to submit a development plan to the DDA for a chunk of land at the northwest corner of Woodward Avenue and I-75 that has been proposed to become a hotel. To date, no development plan has been submitted. It remains fenced off, covered in a District Detroit scrim.
“We are currently working through timing and a development plan,” Olympia said in a statement.
Today, what’s been built by Olympia is a splendid arena (owned by the city, meaning it pays no property tax), some office space (including a new headquarters for Little Caesars), a few parking decks, a new business school for Wayne State University named after the family patriarch, the late Mike Ilitch, and some retail space.
The construction that has been done in the district fulfills an ancillary development deal Olympia and the city inked together.
Under that deal, the Ilitches would build, or cause to be built, at least $200 million in non-arena development. Its contractual obligation for ancillary development was exceeded because it built a couple of large parking garages, an office building attached to the arena for Google, and a new Little Caesars pizza chain headquarters that remains behind schedule.
The rest of the district is mostly surface parking lots that generate revenue for Olympia, which has become a focal point of criticism. Christopher Ilitch, president and CEO of Ilitch Holdings Inc., said last month that the surface parking lots are future development opportunities and that the city required 3,000 parking spaces within 1,000 feet of the arena as part of the development agreement.
The DDA has agreed that Olympia has met the $200 million threshold, which triggers a $74 million reimbursement for Olympia from the DDA that will be paid in coming decades.
The scrutiny from the public, politicians and local and national media has begun to produce responses from Olympia. Ilitch recently sat with Crain’s and the Detroit Free Press in brief interviews to say Olympia has bolstered its development staff and is reassessing the district’s master plan. He also conceded that the 2014 development timeline he unveiled was too aggressive, and said that a relationship with a housing development partner collapsed, which set the overall district housing effort back.
Additionally, Olympia recently held a groundbreaking on a new sports medicine institute for the Detroit Medical Center and a law firm.
Some of the previously announced commitments to the district include an M Den retail shop, Cuban-ispired restaurant Frita Batidos, Sahara Restaurant & Grill and Tin Roof music eatery.
One local expert observer isn’t surprised the district doesn’t look like what was proposed.
“It’s not uncommon for developer to overpromise,” said John Mogk, a Wayne State University law professor who specializes in urban land use. “When the city deals with a developer, Detroit or any other city, and the developer is asking for incentives, the city has to be on its guard.”
There’s growing sentiment that the city should have driven a harder bargain with the Ilitches, who claim more than $3 billion in annual revenue from their companies.
“(A development deal) has to be prepared in a way which legally you can hold the developer accountable for what they’re promising. You’re stuck with very general language that can be interpreted in several ways,” Mogk said. “The main leverage that you have are the promises that are enforceable in law.”
DeMause, the stadium subsidy critic, says the situation stems from a lack of knowledge. Arena developers often pay for studies that tout economic benefit of mixed-use projects tied to sports arenas, but there are decades of independent studies that show otherwise. Olympia paid for a report written by University of Michigan Professor Mark Rosentraub that estimated the mammoth arena project would create 8,300 construction jobs and 1,100 permanent jobs, along with $1.8 billion in economic impact for the city, region and state.
“People pushing deals have a lot of political clout. Elected officials are not experts in the sports industry or development finance. They usually don’t hire lawyers or consultants that can explain it to them why they need to toughen up the (contract) language. I have seen this over and over and over again. It comes down to not being very good negotiators and having no incentive to become better negotiators because there’s no accountability. Is anyone going to be thrown out of office?” deMause said. “We just don’t see that kind of tough negotiating as often as we should. If the goal of the arena was a catalyst or anchor for more development, get that in writing. See if it’s happened in the past in other cities.”
The emergency manager in charge of Detroit during the arena and district negotiations, Orr, or other officials along the way, could have demanded options of the land within the district, giving the city the right to take it back and sell it if Olympia didn’t development it within a certain time frame, deMause said.
“It would have been a reasonable thing to ask for. It’s not in the DNA of local officials to make demands, which is a huge problem,” he said.
The arena financing included special downtown property tax capture subsidies under an arrangement initially crafted at the state level and approved by the Legislature and signed by then-Gov. Rick Snyder in 2012. The venue initially was intended as a new home for the Ilitches’ Red Wings, and two years ago the Detroit Pistons opted to relocate to the building.
In July 2014, the Ilitches rolled out plans for the wider 50-block district of housing, retail and other development. The renderings showed a thriving city-within-a-city development.
The scheme was embraced by political leaders because the city was in dire financial straits and a massive downtown development was much-sought good news.
Detroit in March 2013 had came under the control of Orr, who approved the arena deal at the local level, and by July 2013 the city had entered municipal bankruptcy. Now with the Washington, D.C., office of law firm Jones Day, Orr didn’t respond to a voice mail and email messages seeking comment.
Mayor Mike Duggan took office in January 2014 and said he wasn’t part of the arena deal.
“The city and DDA are pursuing everything that is legally enforceable relative to the arena project. The emergency manager had approved the basic arena project in 2013 before the mayor’s election and, in 2014, excluded the mayor from any participation in negotiations on the arena contracts,” said Alexis Wiley, Duggan’s chief of staff, via email. “The EM-approved contracts and land transfer failed to include requirements or enforceable provisions for development outside the arena.”
During last week’s Mackinac Policy Conference, Duggan told The Detroit News columnist Nolan Finley that neighborhood development, not District Detroit progress, is his top priority.
Mogk chalked up the Olympia deals now under fire to a political keenness for good news.
“The city was most anxious to see this progress begun, whatever the outcome might be,” Mogk said. “You had an emergency manager that’s not accountable to the public but wanting to demonstrate that on his watch that important steps were being taken to position the city to come out of bankruptcy in a very positive way.”
Unreturned messages were also left for Saunteel Jenkins, who was president of the City Council during the arena and district roll-outs and now is CEO of The Heat and Warmth Fund nonprofit in Detroit.
Current Gov. Gretchen Whitmer was a state senator from East Lansing when the Legislature voted on the arena financing plan in 2012. She voted against it. Her office declined to comment when asked about accountability for the District Detroit.
Jackson, who served as head of the DEGC for 13 years, declined comment several weeks ago and did not return a voicemail seeking comment Friday morning. After leaving the DEGC in early 2014 after Duggan took office and went on to start a real estate development and consulting firm, Ventra, which was hired to work on multifamily development for Olympia. The two companies have since parted ways.
Mogk said a project like the district probably should take at least a decade to develop into what the public was led to believe would happen far sooner. He added that the development after five years is less than expected, though.
“I’m surprised more hasn’t been done. I’m not surprised it’s not yet completed. I’m surprised that some of the expanded development isn’t under way,” he said. “I understand why the community is so disappointed; they had a right to expect more would be done, given the size of the public investment.”