Detroit-Area Developers Choose to ReuseMarch 31, 2017
All across metro Detroit, what’s old is new again.
Spurred by a rebounding economy, the region’s real estate development is in overdrive and taking a unique twist by bringing failed properties back to life.
“Our market right now is very hot,” said Cindy Ciura, principal of CC Consulting in Bloomfield Hills. “It’s attracting international, as well as national interest.” Residential, commercial and mixed-use developments are occurring in the city of Detroit, led by local urban revivalists Dan Gilbert, founder and chairman of Quicken Loans, and the Ilitch family. However, this development stretches into every suburban enclave across the tri-county area and beyond.
While the end of the Great Recession unleashed demand for new developments and cash to fund projects, it also shifted the approach of investors, experts say. Developers are wrestling with record-high construction costs because the recession forced many skilled tradesmen out of business, into retirement, or convinced their offspring to find other less-cyclical professions.
Prior to the downturn, developers were paying $75 per square foot to build. Today, it costs $125 per square foot or more, said Chris Brochert, partner and co-owner of Lormax Stern Development Co. in Bloomfield Hills.
“At the same time, inflation has not gone up, so very few can afford these high rents,” he added. To keep a lid on costs, developers have turned to adaptive reuse, where an existing site or building is renovated for purposes other than its original intention. Adaptive reuse is also attractive because it removes blighted properties from communities, encourages parallel real estate investment and, as a form of land conservation, it keeps undesirable urban sprawl in check.
However, adaptive reuse sometimes draws concerns over historical preservation, so developers, communities and governments must work hand-in-glove to succeed.
Government and Community Come Together
The story of Northland Center shopping mall in Southfield illustrates how blight can be erased, new development can be integrated into the community, and history can be preserved. Anchored by a four-story J.L. Hudson’s department store, Northland dominated Detroit shopping for 61 years until it became the victim of suburbanization and competition from newer destinations. It was shuttered in 2015 after falling into financial chaos. But instead of watching the 12-acre site decay, the city of Southfield bought the property for $2.4 million with the intention of spending up to $10 million to raze the mall and sell the land to a developer.
“The city purchased the property to protect, maintain and ultimately increase the property values for Southfield’s home and business owners,” said Southfield Mayor Kenson Siver. “We did not want Northland to become a vacant shopping center significantly blighting the community.”
But while the property has a bright future, an intricately choreographed dance paved the way. The city secured a loan to buy the land and has been conducting fundraisers to repay it. The mall contained a unique tunnel system, which was used for storage and deliveries, and Southfield has been stockpiling dirt at every opportunity to backfill it when it is razed.
Bids were put out for demolition costs and inspections revealed asbestos that must be remediated, a delicate project that should begin in May or June and take up to eight months to complete. An advisory firm was hired to determine the most appealing development contractor, and hundreds of thousands of dollars were raised to secure historically significant pieces of art from the mall.
Community feedback suggested saving the Hudson’s portion of the site for its historical significance and the goal is a mixed-use development. The city has seen preliminary cost estimates and an initial design, which was presented to council members in March. City officials said they would like to turn the site over to developers as soon as possible, but they want to be careful that it complements other projects underway.
“We’re trying to be fiscally responsible in the work we are doing and consistent with other work we’re doing around the city,” said Rochelle Freeman, director of business and economic development for Southfield.
A Much-Needed Facelift
On the region’s east side, Lormax Stern took over the dilapidated Macomb Mall in 2013. The firm renovated and modernized the interior and exteriors, and lured in popular retailers such as Dick’s Sporting Goods, Kohl’s, Old Navy and Sears.
“We brought it from the 1970s to 2015,” Brochert said. “It is now thriving with new tenants and is more appealing to people in the surrounding area.” Lormax Stern also worked its magic with a former Jacobson’s department store in Grosse Pointe. The 70,000-square-foot building was renovated for first-floor retail and is anchored by tenants such as gourmet grocer Trader Joe’s, and upscale clothiers Jos. A. Bank and LOFT. The second floor was dedicated to office space, while an adjoining parking deck was redone for convenience.
In downtown Birmingham, AF Jonna Development LLC of Bloomfield Hills took over the struggling Palladium Building, downsized its movie theater, and added office and residential space to complement restaurants. Brochert said the project saved an important corridor of the bustling city. “If that would have gone downhill, it would have been disastrous,” he said.
A few miles up the road in Bloomfield Hills, a $500 million mixed-use development called Bloomfield Park stalled in 2008, creating an 87-acre, post-apocalyptic scene of windowless concrete buildings and crumbling parking garages. But in 2015, Southfield-based developer Redico bought the rights to the site and $350 million of initial demolition work started last year.
Dale Watchowski, CEO of Redico, said Bloomfield Park typifies his firm’s strategy. “We’re focused on getting in and out within two years. We don’t want to get tied up in a long deal where the economy can turn on us,” he said. “A successful development requires good project management, and the process has to move quickly.”
James Amend is a senior editor at WardsAuto in Southfield.
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