  Detroitman Member Username: Detroitman Post Number: 991 Registered: 06-2004 Posted From: 72.236.177.50 |
Complex deals help projects pay off Creative financing, incentives drive Detroit development By Tom Henderson and Robert Ankeny 6:00 am, August 21, 2006 A sales trailer had not yet gone in, the ad campaign hadn’t begun, and none of the first 15 homes were near completion. But by early August, six homes in Morgan Waterfront Estates had sold, by word of mouth alone, at prices ranging from $580,000 to $880,000. Sterling Heights-based Morgan Development L.L.C. broke ground on the project, on the Detroit River next to the Detroit Edison Conner Creek plant on Detroit’s east side, five months ago. For years, city officials have talked of reclaiming the Detroit riverfront. Morgan Waterfront Estates is the latest proof that creative financing and tax incentives are helping to reshape the waterfront. Residential and commercial redevelopment across the city is being fueled by packaging a range of tax credits combined with Neighborhood Enterprise Zone millage abatements. The 43-acre Morgan project area, once a repository for pyramids of coal, is to include 43 single-family homes, ranging from 3,500 to 7,000 square feet, all with three-car garages, at prices from $450,000 to $1.2 million by the time construction on all three phases ends in three or four years, Also planned are 88 low-rise condominiums, to sell from $190,000 to $250,000 and 198 condos in a 23-story high rise, ranging from $425,000 to $1 million for a penthouse. Belle Isle sits to the south across the river. A deep-water, 1,400-foot inlet bisects the property, and will allow boat docks at 12 of the homes once a breakway is completed. The inlet is wide enough and deep enough that Great Lakes freighters once steamed in to dump their tons of coal. The two best lots, with water frontage and unfettered views of the island, will be developed last, and the developer hopes houses there will fetch $1.2 million or more each. Carnell Carter and Nathaniel Hall are two buyers. Both are Detroiters from the west side who said they decided to buy on the east side because of the lure of the water, and the lure of property-tax abatements. Hall and his wife, Shakeisha, “looked at the site plan, and we thought it would be a premier development,” Hall said. “All the amenities really mattered, and the tax abatement was a big part of it.” When asked why he decided to move into what was a much more expensive house than what he has now, Carter said he liked the amenities that came with the houses, the proximity to the river, the idea of being in a gated community, and that “there were a lot of tax incentives.” Both expect to move in before Christmas. NEZ abatements at Morgan Waterfront Estates were approved by city and state officials for the legal maximum of 12 years, reducing the city tax rate from 67 mills to 17 mills for home owners. For example, on a $600,000 house with a taxable value of $300,000, annual taxes would be around $5,100, rather than about $20,100. “The city has been just superb. I’ve been doing this 30 years and compared to some of the suburbs we work in, how can I say it? It’s one of the most talented, energetic staffs I’ve ever worked with,” said Dennis Nowak, vice president of project management for the Morgan Development. “If this was in the suburbs, I’d have figured two years from buying the land to getting the permits to starting construction. Here it took a year. And we could have got going in six months but we had to do the brownfield tax credits through the state,” he said. Other developments flourishing around the city also rely on other tax incentives and creative financing. Just one type of incentive, Detroit’s empowerment zone, accounted for $1.4 billion of the $3.9 billion in residential investments tallied by Comerica Bank in a 1994-2006 survey of Detroit developments. Some creative financing programs seek to bridge a “gap” between what conventional lenders and investors will put into a project, and what it costs to do the job, said David Blaszkiewicz, president of the Detroit Investment Fund. One example is a $20 million gap financing program for the Lower Woodward Initiative, to spur residential redevelopment of both rental apartments and for-sale condominiums downtown, Blaszkiewicz said. Funded by Detroit Renaissance Inc. and managed by the Investment Fund, the program’s gap-funded downtown projects include redevelopment of the Kales Building and Book Cadillac Hotel. Some of the boom is fueled by nonprofit community development corporations. Tim O’Brien, president of Pontiac-based O’Brien Construction Co. Inc., gives CDCs high marks for their work. “Detroit is not quite ready for traditional financing alone,” O’Brien said. “And the way CDCs are able to make their deals work is a testament to the need for creative financing.” O’Brien said he has been partnered in community development, especially in southwest Detroit, for some years. “A good portion of the jobs have tax-credit financing and two banks at least,” he said, with some having block grants and home-fund financing from the city of Detroit as well. “Once things are set up, it flows pretty well.” The nonprofit projects have shown private developers ways to succeed with for-profit developments, O’Brien said. Near Rio Vista apartments which O’Brien built six years ago for Co-op Services, is a project of duplex condominiums and row houses built by Burton Katzman. “Infrastructure was built using a block grant, but this was a market-rate project.” Fred Beal, of J.C. Beal Construction Co., is working as construction manager and a partner on renovation and restoration of the Broderick Tower for owner Michael Higgins. Beal said the project is being assembled as a historic tax-credit project. He said the 34-story office building at Woodward and Witherell is to have four floors of office and retail space, with about 127 apartment units on the floors above. “The tax-credit financing is very intricate stuff, but necessary,” Beal said. Most of the approvals for credits and abatements are at or near completion, Beal said. “Once the HUD-insured mortgage process is in place, we could close around Oct. 1.” He said the $30 million construction portion of the $42 million project should be completed by late 2008. Lynn Gandhi, a principal at Detroit-based Miller, Canfield, Paddock and Stone plc, said developers as well as tenants and owner-operators of rental property need comparable costs for urban and suburban buildings. Key issues are variations in parking and taxes, both property and income taxes, she said. “Those financial decisions drive destination choices, all other things being equal,” said Gandhi, who formerly was associate general counsel for Visteon Corp. and previously served as a senior tax attorney for CMS Energy Corp. “Lower property taxes can mean a certain reduction in rental cost, not only to residential but to commercial and retail, too,” she said. “And when you can make a multi/mixed-use project with restaurants and retail more attractive, then residential users want to be in, too.” The financing deals “are innately complex because no one single jurisdiction has the deep pockets to provide it all. So you see layering at the local, state and sometimes federal level,” she said. Gandhi sees the layering continuing. “As the U.S. and states see the need to keep urban centers, to retain and attract jobs and residents, they will work together or not have a chance,” she said. Morgan Development is owned by Jerome Morgan, who also owns Harbor Hill Marina a few blocks to the west, and recently closed on an 18-acre site on the river a few blocks to the east, along Lenox Street. The proposed name for an eventual development there is Lenox Waterfront Estates. Other nearby development projects include Jefferson Village, a partially done 350-home project behind the Jefferson Village shopping center just to the northwest; Shorepointe Village at Grayhaven, a completed, gated 51-home, 18-acre project on two canals and the river a few blocks to the east, where the most expensive homes have also broken the $1 million barrier; and Clairpointe Woods, a finished 42-home project adjacent to the planned Lenox Waterfront Estates. “The major developments are starting to connect the dots,” said Nowak, Associated Environmental Services L.L.C. of Bloomfield Hills coordinated for Morgan Waterfront Estates the various approvals required for the tax-increment financing that brownfield development is eligible for. The project required approval by the Detroit Brownfield Redevelopment Authority, the Michigan Economic Development Corp. and the Michigan Economic Growth Authority, according to AES President Nicholas Maloof. Under brownfield-development rules, the developer pays for site preparation and remediation and infrastructure improvements. Maloff said Morgan will be reimbursed about $11.6 million from property-tax collections and gets a $3.9 million single-business-tax credit for a total of $15.5 million in incentives. The SBT credit is based on 10 percent of the $39 million development cost. “Without brownfield tax credits, I couldn’t afford to do this,” Nowak said. http://www.crainsdetroit.com/a pps/pbcs.dll/article?AID=/2006 0821/SUB/60817008/-1/toc | ||
Motorcitymayor2026 Member Username: Motorcitymayor2026 Post Number: 1159 Registered: 10-2005 Posted From: 24.231.189.137 |
wow, this is really great news... I hadnt heard about the 23 story high rise either... Anyone have a rendering?? | ||
Itsjeff Member Username: Itsjeff Post Number: 6663 Registered: 10-2003 Posted From: 208.27.111.125 |
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Andylinn Member Username: Andylinn Post Number: 211 Registered: 04-2006 Posted From: 64.141.144.2 |
WOW! that DOES look good! that will really improve the waterfront. | ||
Thnk2mch Member Username: Thnk2mch Post Number: 276 Registered: 02-2006 Posted From: 71.65.11.152 |
Itsjeff, is that 1st floor retail, as it appears? | ||
Corktownmark Member Username: Corktownmark Post Number: 211 Registered: 12-2004 Posted From: 141.217.12.135 |
Grayhaven broke one million for a single family house in Detroit. North corktown and other subsidized type housing continues to be built. This is a very diverse development environment in the city of Detroit. | ||
Thejesus Member Username: Thejesus Post Number: 251 Registered: 06-2006 Posted From: 24.169.224.43 |
Awesome stuff! Thanks for posting that article... One thing I wonder about though is if whether Detroit is ready for a development of 43 single-family homes ranging from $450,000 to $1.2 million... The demographic of people who could afford to spend that much on a house may have reservations about the current state of the Detroit school systems, which may be a turn off as far as raising kids in the D... | ||
Itsjeff Member Username: Itsjeff Post Number: 6665 Registered: 10-2003 Posted From: 208.27.111.125 |
You're about to find out. | ||
Ndavies Member Username: Ndavies Post Number: 2117 Registered: 10-2003 Posted From: 129.9.163.233 |
Anyone earning enough to afford a $450,000 to $1.2M home, won't worry about the schools. They will find their kids the best education available. They won't be losing any sleep over the cost of private school. The state of DPS only limits the middle to lower income levels. Wealthy people have choices. | ||
Bvos Member Username: Bvos Post Number: 1863 Registered: 10-2003 Posted From: 134.215.223.211 |
I'm pretty certain that folks who can afford a $1 million + home don't worry about public schools. There's a great collection of private schools in Detroit as well as Grosse Pointe within easy commuting distance of this development. That said, the $1 million mark does seem to be a magical ceiling in the city. You see a few homes in Indian Village and Palmer Woods approaching that figure, but never quite confident enough to just ask for the cool million. I think the tax breaks on this project may help put them over the $1 million mark. | ||
Thejesus Member Username: Thejesus Post Number: 252 Registered: 06-2006 Posted From: 24.169.224.43 |
Ndavies: That's one possibiity, and I thought about that, but 450k-1.2m isn't that outrageous for a new family home anymore, and I expect that most of the homes will be at the lower end of that range...We're not talking about the super rich here...not everyone in that demographic can send their kids to private school without noticing a dent in their bank account, and while private school is an option, the idea of raising kids in a somewhat isolated community that's far away from where they go to school might turn off some prospective buyers...I hope it doesn't, but either way, it looks like we're going to get to see how it plays out. (Message edited by thejesus on August 21, 2006) | ||
Ndavies Member Username: Ndavies Post Number: 2118 Registered: 10-2003 Posted From: 129.9.163.233 |
Sorry TheJesus, you're looking at these too much from your world. There are many people in this world who don't subscribe to the 2 parent, 2 kid family. In a market of over 4 million people there is bound to be a small group of people that will snap up these waterview homes at that price. Families with public school kids will gravitate to Grosse Point and Grosse Ile. However there are plenty of singles and childless couple who can and will buy these. Just like the downtown loft and near in condos have created a stable market catering to these childless families, so will these riverfront locations. They will either go to families who already have their kids in private school, have no intention of having kids or are empty nesters. Once again the school system will be irrelavent to these buyers. | ||
Thejesus Member Username: Thejesus Post Number: 254 Registered: 06-2006 Posted From: 24.169.224.43 |
Actually, I come from a 1 parent, 2 kid family, but good guess... I know what you are saying, and I'm not suggesting that these homes will go unsold...I'm just wondering if the development company is going to get 450k-1.2m for them that they expect... I'm sure they've done their market research, but they are also sailing uncharted territory here...if these homes sell in that range, that would be terrific...but I could see it going either way | ||
Lmichigan Member Username: Lmichigan Post Number: 4199 Registered: 10-2003 Posted From: 67.177.81.18 |
"Also planned are 88 low-rise condominiums, to sell from $190,000 to $250,000 and 198 condos in a 23-story high rise, ranging from $425,000 to $1 million for a penthouse." What's this about a 23-story high-rise? | ||
Thejesus Member Username: Thejesus Post Number: 256 Registered: 06-2006 Posted From: 24.169.224.43 |
LM: I'm guessing it will be something like what Harbortown has, except theirs is 19 floors. http://www.detroiturbanliving. com/images/listing_photos/43_h arbortown_ext_2_web.jpg | ||
Lmichigan Member Username: Lmichigan Post Number: 4201 Registered: 10-2003 Posted From: 67.177.81.18 |
I figure that, too, but I hadn't heard anything about this project. And, it would be the first residential high-rise/skyscraper along the riverfront this far east. |
