District Detroit project wins nearly $615M in tax incentives from state board

Michigan’s economic development board on Tuesday approved a nearly $615 million transformational brownfield plan for the $1.5 billion District Detroit development by Olympia Development and The Related Cos.

The Michigan Strategic Fund board approved the plan that includes the following state and local property tax captures: the local and school property tax capture of $213 million, with state tax capture limited to $167 million; a maximum of $11.4 million in construction period tax capture revenues; a maximum of $38.1 million in construction period sales and use tax exemptions and a maximum of $352.3 million in income tax capture revenues and withholding tax capture revenues post-construction.

“Without this support, these projects will not move forward,” Andrew Cantor, president of Related Michigan, said during the Michigan Strategic Fund board meeting Tuesday. “And we very much look forward to completing these projects in partnership with you.”

Following the vote, Cantor and Keith Bradford, president of Olympia Development of Michigan and The District Detroit, released a joint statement thanking the local, state and community partners who they said "have informed and supported this important milestone in realizing our shared vision for the future of The District Detroit and the catalytic economic impact that this development will have for Detroit and Michigan."

The developers said the projects will build on the city’s history as a hub of innovation.

Olympia Development and The Related Cos. plan a project involving 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 10 properties in and near downtown Detroit.

The request before the state board Tuesday came after Detroit City Council approved in an 8-1 vote last month the transformational brownfield redevelopment plan. City Council President Mary Sheffield opposed the plan. The council also approved last month a $167 million community benefits agreement as well as other elements related to the project.

The request was part of $800 million the developer requested in local and state tax incentives and reimbursements. The developers will seek additional local support for the projects through PA 210 and Neighborhood Enterprise Zone tax abatements, with the total value of the abatements across all properties estimated at $133.3 million. The project has already secured up to $49 million in financing with the City of Detroit Downtown Development Authority for infrastructure expenses. The DDA also authorized $23.8 million in forgivable loans to fund the affordable housing portion of the mixed-income developments.

The state has awarded two other transformational brownfield plans since the program began in 2017. They are Bedrock’s four-project package (which includes the Hudson's site redevelopment) approved in 2018 and valued at $618.1 million and Paper City Development LLC’s redevelopment of an abandoned historic paper mill into a mixed-use space including hotel and residential space in the Village of Vicksburg approved in 2019 and valued at $30 million.

The approval Tuesday was a critical step in bringing the District Detroit project to fruition, officials have said. According to an MEDC briefing memo, a third-party analysis by SB Friedman concluded that the project needed the $615 million in transformational brownfield plan assistance.

Erik Gordon, a professor at the University of Michigan's Ross School of Business, said the approval Tuesday shows that despite Detroit's progress, it still is a city where major developments need government incentives.  

"Developers are building projects that are bigger and more expensive than the Detroit market will support, and they have trouble getting enough funding without some form of government subsidies," he said. "Detroit can't attract these projects unless it subsidizes them with tax incentives. Without those subsidies, there would be a lot less development in the city."

According to an MEDC briefing memo, SB Friedman’s independent underwriting analysis concluded that the $615 million in transformational brownfield plan assistance was required based on criteria including an assessment of how much traditional debt the project should be able to support/attract, developer and consultant fees limited to 4% of the total development cost of the project, and minimum owner equity investment of 20% of total development costs.

The District Detroit plan includes:

2200 Woodward — The construction of a 16-story mixed-use tower containing first-floor retail and office space on the upper floors. The project will share underground parking with 2250 Woodward.

2250 Woodward — The new construction of a 20-story mixed-use tower containing first-floor retail and residential units on the upper floors.

2211 Woodward — Renovation of the Fox Office Building into a hotel.

2300 Woodward — The construction of a five-story mixed-use building containing first-floor retail and office space on the upper floors.

2305 Woodward or 2300 Cass — The construction of a 22-story mixed-use building containing first-floor retail and office space on the upper floors.

2455 Woodward — The construction of a 14-story mixed-use building containing first-floor retail and hotel space on the upper floors.

408 Temple — The renovation of the 11-story historic Fort Wayne Hotel into an 11-story mixed-used building with first-floor retail and residential units on the upper floors.

Not everyone was convinced of the need for subsidies. The majority of the more than two dozen Detroit residents who spoke during public comment at Tuesday's meetings opposed incentives for the project. Some traveled by bus to Lansing to express their opinion in person before the strategic fund board.

Among those in opposition was Detroiter Gwendolyn Peoples.

“The investment in the District Detroit is a bad use of tax dollars,” she said. “There are no guarantees that the District Detroit project will deliver on all the promises that they've made. As an advocate, my neighbors and I don't believe there will be 12,000 construction jobs nor will there be 6,000 post construction jobs. The job numbers are always higher than the reality.”

Theo Pride, an organizer with activist nonprofit Detroit People's Platform, questioned the need for additional office space in the District Detroit plan.

“Best case scenario is that they pull tenants from existing office space, thus creating no new jobs or no new income tax revenue, but allowing Olympia and Related to make their money via rents.”

Pride also questioned Olympia’s track record with receiving incentives in the past, using as an example the Detroit Life Building that received brownfield approval from the city of Detroit in 2007. The city council recently approved terminating that previous brownfield plan in favor of this latest project.  

“They sat on this property for years and years and years tying up crucial incentive money for redevelopment and development that could have been used somewhere else, could have been used in the neighborhoods in Detroit, could have been used on majority-Black Detroit, but was not,” Pride said. “In this way Olympia has not created growth or prosperity. They have stunted growth and continue to stunt growth.”

cwilliams@detroitnews.com

Twitter: @CWilliams_DN