Garage doors betray the original use of the 2,000- square-foot (185 sq m) tasting room at Two James Spirits. The distillery occupies a former taxi repair shop. (nick azzaro)

Garage doors betray the original use of the 2,000-square-foot (185 sq m) tasting room at Two James Spirits. The distillery occupies a former taxi repair shop. (Nick Azzaro)

Two James Spirits spent $250,000 on the makeover of the 12,000-square-foot (1,100 sq m) building. About half of the building space is used for spirit-making tanks and a still, along with room for 150 barrels. (andy mohr)

The founders of Two James Spirits spent $250,000 on the makeover of the 12,000-square-foot (1,100 sq m) building. About half of the building space is used for spirit-making tanks and a still, along with room for 150 barrels. (Andy Mohr)

Take a drive anywhere in Detroit and you will see them—abandoned, boarded-up, or windowless buildings. You see them along highways. You see them downtown. You see them on neighborhood corners. Thousands of these structures fill the city.

Yet, from this widespread state of decay, Detroit is emerging as a national leader in the adaptive use of commercial buildings. It is not just the redevelopment of former Class B or C office spaces into residential lofts, as has happened in so many cities. What is really flourishing in Detroit are innovative and even exotic reuses of long-vacant or historic structures.

Downtown’s historic David Whitney high rise was converted into apartments and hotel space. The public school district’s Burton International School was revived as a movie theater and nursery school. A giant Nabisco bakery reopened as a U-Haul moving and storage center. The Third Precinct police station was resurrected as artist studios for the 555 Non-Profit Gallery. A pawnshop was renovated into a restaurant keeping the former name, “Gold Cash Gold.” A Civil War veterans’ social club was restored as office space for creative ad firm Mindfield. Even a taxicab repair shop was rejuvenated as Two James Spirits distillery. The list goes on and on.

“It’d be hard to find a more vibrant market for adaptive use,” says Rayman Mohamed, who has studied reuse projects across the country as an associate urban planning professor at Wayne State University in Detroit. “These things have a ripple effect, and once they get started, they gain their own momentum.”

(andy mohr)

(Andy Mohr)

Detroit is hardly the only place where inventive and unusual building redevelopments are occurring. Closed automobile or parts plants have been turned into a dairy in rural Coopersville, Michigan, and into a nursing school for the University of Cincinnati’s Clermont College in Batavia, Ohio. Former prisons have been repurposed as artists’ live/work spaces in Jackson, Michigan, and as apartments in suburban Fairfax County, Virginia. And dead malls have been reconditioned for various purposes, including as churches in Lexington, Kentucky, and as medical complexes in Jackson, Mississippi.

But adaptive use is flourishing in Detroit because of a unique confluence of circumstances. With the hollowing out of the city—Detroit’s population was down to 700,000 in 2012 from a peak of 1.86 million in 1950—real estate hit bottom, providing cheap prices. Correspondingly, there was a glut of rundown buildings: a massive 2013 survey of Detroit properties found that 30 percent of all commercial structures were vacant or blighted. Then, as the economy recovered from the Great Recession, interest in urban living and walkability, which had been sweeping other parts of the country for years, finally revved up in Detroit and increasingly attracted the attention of developers.

“We were a little late to the game,” says James Van Dyke, vice president of development for the Roxbury Group, which turned the 100-year-old, 19-story David Whitney Building into apartments and a boutique hotel in 2014. “It was happening all over in other urban areas, but Detroiters had to reeducate themselves about what people do in cities because we hadn’t done it for three or four generations.”

Public/Private Partnerships

(andy mohr)

(Andy Mohr)

A combination of public and private initiatives provided the foundation for an invigorated investment climate. On the public side, partnerships spearheaded by the Detroit Economic Growth Corporation development umbrella agency had used the 2006 Super Bowl in Detroit as a catalyst to launch a downtown makeover by cleaning up parks, sprucing up building facades, and attracting new storefront businesses, among other things. On the private side, Quicken Loans chairman Dan Gilbert has single-handedly injected new life into downtown since 2010 by purchasing and updating more than 80 properties—at a cost of roughly $1.8 billion—and locating 13,000 of his employees there, then cajoling other companies to follow suit.

“All the people coming in now and redoing buildings are getting the headlines, but there were pioneers and a systematic plan that paved the way,” says George Jackson Jr., president of the Detroit Economic Growth Corporation from 2002 to 2014 and now a real estate developer who serves on the advisory board of ULI Michigan. “We had to create the environment that you’re seeing bearing fruit today.”

Of course, Detroit’s redevelopment momentum has had challenges. The city’s bankruptcy filing in 2013 unleashed a new wave of negative publicity, although some people saw it as a positive development, evidence of a government finally tackling its troubles. Also, Detroit had been depressed and losing population for so long that many banks would not consider financing any speculative real estate endeavor in the city. As a result, most adaptive use projects have had to cobble together a patchwork of financing, including city incentives and loans, federal loan guarantees, various government tax credits, private angel investors, plus collateral such as pledges against existing businesses or homes.

“We couldn’t attract traditional forms of capital without finding myriad other subsidies to make the projects pencil out,” says Malik Goodwin, a former Detroit Economic Growth Corporation vice president and now a real estate development consultant. “We had to be highly innovative.”

In terms of land mass, Detroit is a small city; of the 24 U.S. municipalities with at least 600,000 residents, Detroit is the fourth smallest, at 139 square miles (360 sq km). And the city’s hottest corridors for redevelopment cover a sliver of that small land mass, just 7.2 square miles (19 sq km). This encompasses the traditional downtown along with adjoining neighborhood districts such as Midtown, Corktown, and Woodbridge. “The 7.2,” as it is called, houses the major institutions and attractions in the city, from sports stadiums to Wayne State University, from clusters of art galleries to collections of architecturally significant buildings, and that is where market rates have the best potential to support investment.

 Two James founders Peter Bailey and David Landrum selected the building because of its location on a main thoroughfare near downtown Detroit, but the neighborhood remains transitional, with plenty of abandoned buildings (top right). The distillery’s 500-gallon (1,900 l), 15-foot-tall (4.6 m) copper still is from Kentucky. (nick azzaro)

Two James founders Peter Bailey and David Landrum selected the building because of its location on a main thoroughfare near downtown Detroit, but the neighborhood remains transitional, with plenty of abandoned buildings (top right). The distillery’s 500-gallon (1,900 liters), 15-foot-tall (4.6 m) copper still is from Kentucky. (Nick Azzaro)

Within this “greater downtown” area, 3,012 new or renovated housing units were developed from 2010 to 2014, an increase of roughly 16 percent, according to a 2015 downtown trends report prepared by the Hudson-Webber Foundation, an institution dedicated to improving the vitality and quality of life in Detroit. Similarly, the report noted a 13 percent jump in retail establishments in that area from 2013 to early 2015.

Significant new projects, especially adaptive uses, seem to be unveiled every few weeks. In a span of several weeks earlier this year, for example, Detroit officials announced a deal with developers to convert the graffiti-covered Brewster-Wheeler Recreation Center, where boxing great Joe Louis once trained, into a restaurant and new community center, and a team of developers including basketball great Earvin “Magic” Johnson announced a mixed-use redevelopment that incorporates some of the historic buildings at the old Michigan State Fairgrounds.

Such adaptive use projects offer a multitude of benefits. According to a forthcoming review of adaptive use literature prepared by Wayne State University urban planning professors and funded by U-Haul, projects tend to mitigate blight, increase surrounding property values, and reduce greenhouse gases associated with demolition and new construction. Moreover, the report pointed out that “there is a modest but growing body of evidence that ROI [return on investment] from adaptive use is generally higher than ROI for new construction” because of higher occupancy rates and rents, plus the underestimated value of goodwill.

Certainly, Detroit’s recent experience appears to demonstrate this, too. Three projects in particular offer some lessons in how to make adaptive use work.

Overcoming Reputation

A few blocks from the Two James distillery near downtown Detroit, brothers Phil and Ryan Cooley spent almost five years putting together a development team and financing to transform a former pawnshop into a farm-to-table restaurant that kept the pawnshop’s name, “Gold Cash Gold.” Paying homage to its gritty neighborhood and heritage, the developers repainted the exterior the way it used to look, with the pawnshop’s advertising. (e.e. berger)

A few blocks from the Two James distillery near downtown Detroit, brothers Phil and Ryan Cooley spent almost five years putting together a development team and financing to transform a former pawnshop into a farm-to-table restaurant that kept the pawnshop’s name, “Gold Cash Gold.” Paying homage to its gritty neighborhood and heritage, the developers repainted the exterior the way it used to look, with the pawnshop’s advertising. (E.E. Berger)

Brothers Phil and Ryan Cooley grew up near Detroit, but moved out of Michigan after college and experienced firsthand the buzz of urban living in places like New York and Chicago, respectively.

“That [buzz] wasn’t happening in Detroit, so we didn’t think it was too much of a risk to come back and make it happen in Detroit,” Ryan Cooley says.

In the early 2000s, they borrowed money from family and friends and bought a vacant Corktown building on one of the few blocks near downtown that was still entirely intact, with no fires or demolitions. They opened Slow’s Bar-B-Q, and it quickly became a Detroit institution.

That success did not make future ventures any easier, though. Their second restaurant idea, part of a mixed-use project with six apartments above it, took nearly five years to form a development team and create a financing package. Part of the struggle stemmed from the history of their chosen building. It had been a pawnshop for decades—Sam’s Loan Office and then Gold Cash Gold—and had been the site of several robberies with police shoot-outs and killings. Finally, the Cooleys worked with agencies of the Detroit Economic Growth Corporation to secure three loans and one grant, with 20 percent equity participation, for a $2.2 million project.

The conversion faced plenty of complications. The third floor had been filled with barbed wire to stop thieves who had been breaking in through the roof to steal from the pawnshop. The second-floor windows had been filled in with concrete blocks. The Cooleys ended up rebuilding all the rooms and adding bathrooms and a kitchen. As a unique urban touch, they repainted the exterior with the pawnshop’s previous advertising signage, which proclaimed “pawnbroker” and “buy gold” and sported a giant dollar sign. All six apartments were rented before the renovation was complete, and the 80-seat restaurant opened in December.

(e.e. berger)

(E.E. Berger)

“There are so many vacant buildings here, and the prices were so inexpensive, that the finances [for rehab] have made more sense than new construction,” Ryan Cooley says.

Down the street from the Cooleys’ block, Peter Bailey and David Landrum have a similar story. They went to college in Michigan, left to work elsewhere, then came back. Their dream was to open a distillery to take advantage of the burgeoning craft spirits movement.

They needed a warehouse-type building with open spaces and tall ceilings. They had lots of vacant buildings to pick from, and chose a former taxi repair shop on a major thoroughfare in Corktown because of the redevelopment momentum there provided by the Cooleys and others. But the single-story, 12,000-square-foot (1,115 sq m) structure had a leaky roof and limited utilities, and required some environmental cleanup. “It had good bones, but that’s about it,” Bailey says.

Bailey and Landrum, working with the building’s owner, spent $250,000 upgrading electric, water, and gas utilities and rebuilding the entire interior. Now the space is filled with eight 500-gallon (1,900 l) tanks, including a still from Kentucky and fermenters, along with more than 100 barrels and a tasting room. In 2013, Two James Spirits began producing vodka, gin, bourbon, and blended whiskey, and sales have already doubled from that first year.

“We could never build a custom building this great and unique in this day and age,” Bailey says.

A few miles from Corktown, in the heart of downtown Detroit, sits one of the city’s more historic and iconic edifices. It is the 115-year-old, five-story Grand Army of the Republic (GAR) building, designed in stone in the Richardson Romanesque style with turrets, battlements, and parapets, resembling a castle. Built for the organization of Union veterans from the Civil War, it hosted social activities for those veterans and later for successor organizations of the veterans’ children.

The interior of the former pawnshop was completely gutted, and the first-floor restaurant was designed with glass squares, adding colorful accents. (e.e. berger)

The interior of the former pawnshop was completely gutted, and the first-floor restaurant was designed with glass squares, adding colorful accents. (E.E. Berger)

The city of Detroit eventually took possession of the building and closed it in 1982, boarding up the windows. The building sat like that for nearly a quarter century until the city formally asked for restoration proposals from developers. However, the city could not find any developers willing to start work.

In swooped brothers David and Tom Carleton, owners and directors of a small advertising and video production company called Mindfield. They saw the GAR building as a unique way to wow their clients. The Carletons approached their company’s bank, only to be told that the bank had no interest in backing any real estate deal in downtown Detroit. The brothers finally found a bank outside the city that would do it, but they had to put up their other Detroit property and their Florida condo as collateral.

They closed on the building in 2011, spent a year sealing the exterior, and then carefully restored the interior to historic preservation standards while replacing all mechanical equipment and adding modern technology capabilities. Mindfield moved its offices to the top floors earlier this year, and two restaurants took over the first floor.

“All our client meetings now start with a tour,” says Tom Carleton. “Every building projects an image, and this building starts to tell our story. It tells them we’re a cutting-edge company. When people realize what we’ve gone through to make our office, they’re pretty confident in our creative abilities.”

Rising Rents

With all the redevelopment and adaptive use activity, market rental rates have been rising, providing a new incentive for further investment. At the bottom of the city’s real estate market, for instance, apartments rented for just 60 cents per square foot ($6.46 per sq m). But recent projects are getting $2 per square foot ($21.53 per sq m), which makes traditional lenders more willing to finance projects.

“Right now, if you can open an apartment in Detroit, you can sell [prospective renters] on the idea of renting downtown,” says Brian Rebain, architectural director at the locally based Kraemer Design Group, which worked on the David Whitney Building redevelopment.

In recent years, out-of-town speculators have been buying up properties in a modern-day land rush. But redevelopment in Detroit still requires mavericks—creative risk-takers like the Cooleys, the Carletons, Burton, and Landrum. Or Joel Landy.

Landy is an auto mechanic–turned–community developer who has bought vacated public schools and converted them into new uses including lofts, a movie theater, and musicians’ practice spaces. Why does he choose schools? They are strong buildings with thick walls, and generally are located in the center of a neighborhood. It took some trial and error for him to turn a profit, though. To Landy, the key to success is having imagination.

“I had so many banks say, ‘It’s a one-use building,’ but it’s not,” Landy says. He offers this lesson: “Don’t think about it as a school. Think about it as building space. Build a new world inside and make it special.”

Jeffrey Spivak, a senior market analyst in suburban Kansas City, Missouri, is an award-winning writer specializing in real estate development, infrastructure, and demographic trends.