In mid-20th-century America, Detroit led the nation in technology, design, and manufacturing, spawning an automotive culture that influenced the entire world. In one of his World War II–era fireside chats, President Franklin Roosevelt called Detroit “the great arsenal of democracy.”
The city that grew up around the automobile industry and related businesses—in war and in peace—was composed of thriving neighborhoods and a world-class 20th-century architectural landscape. Sadly, many buildings and landmarks have been lost in recent decades, casualties of tough economies, changing times, and shortfalls in planning.
What is not widely known is how Detroit is deftly adapting to 21st-century urban renewal, implementing viable development strategies fueled by a complex combination of federal, state, and local funding sources, loan programs, tax credits, and foundation grants. Accelerated progress in this realm has the potential to position the city as a model of ingenuity for the new century: what is strategically succeeding for Detroit could lead metropolitan areas across the country in restoring urban communities.
It is not that these labyrinthine, layered transactions are not happening in other cities and states. But in the case of Detroit, gazing into the economic abyss before other places gave developers a head start on mastering the new realities of project finance in an era when banks are no longer lending. When banks were lending, getting projects funded was much simpler—a relatively straight line from point A to point B. Now, piecing together financing seems to require an advanced mathematics degree and no small measure of steely determination.
Detroit developers have had more experience—and have become more skillful—at optimizing the available tool chest of interlocking tax credits, incentives, bridge loans, and gap financing. This creative method of packaging funding has likely been viewed as an outlier by developers elsewhere, especially when times were good. In Detroit, this alternative practice is in the mainstream, and has been since the 1990s.
The good news is that there are great historic buildings and neighborhoods of a world-class city to preserve. “The authenticity of Detroit’s architecture—and the absence of a cookie-cutter feeling to so many of its neighborhoods—is a factor that is attracting young people to the city to be part of its renaissance,” says Michael Poris, principal and cofounder of the local architecture and planning firm McIntosh Poris Associates. “It’s happening right now through the work of talented people with passion for Detroit and the vision to see it through. Entrepreneurs, developers, agencies, foundations, and lenders are assembling funding packages, and architects, engineers, and skilled trades are building innovative projects.”
One project with which McIntosh Poris Associates is currently involved—with Quinn Evans Architects of Ann Arbor, Michigan—and being fueled by just such a layered transactions package is the Woodward Garden block development. The project will be anchored by new market-rate apartments, mixed-use office and retail buildings, and the historic Woodward Garden Theater—which is being renovated and expanded—as well as a recently completed parking garage.
This block, near Wayne State University, was one of the neglected and undeveloped stretches of the Woodward Avenue corridor. North of the central business district, it is a key element in creating a vibrant neighborhood that is a gateway to midtown Detroit. The developer, Woodward SA-PK LLC, acquired the entire block, parcel by parcel, over the past decade. The ground floor of the apartment complex and commercial building will also house restaurant and retail spaces to engage the community in the revitalized block.
Despite perceptions to the contrary, demand for residential space in this area has increased in recent years, driven in large part by staff and students of Wayne State University, which is making the transition from a commuter-based school to a more urban one with an increased population of residential students. Further demand comes from the nearby Detroit Medical Center. The Woodward Garden apartments are also intended to serve recent college graduates, young urbanites and professionals, and emerging members of the next generation of Detroit’s creative class. It has 60 units, with an emphasis on one-bedroom apartments.
The layered financing for the Woodward Garden block development project includes a guaranteed federal loan under U.S. Department of Housing and Urban Development (HUD) Section 108, the loan guarantee provision of the Community Development Block Grant (CDBG) program. CDBG is one of the longest continuously run programs at HUD, and its goal is to facilitate resources that address a broad spectrum of community development needs. Through Section 108, HUD loans are backstopped by future block grant dollars.
Another piece of the funding puzzle comes into play when the project’s entire HUD Section 108 loan gets run through the New Market Tax Credits (NMTC) program. Administered by the U.S. Treasury Department’s Community Development Financial Institutions Fund (CDFI Fund), the NMTC program allows taxpayers a credit against federal income taxes for qualified equity investments in designated community development entities (CDEs). This should yield an additional tax savings of 20 to 25 cents on the dollar.
Because of the blighted nature of the block, the project also met the criteria for brownfield tax incentives. Generally, investors see about 12.5 percent savings in Michigan business tax (MBT) credits on eligible expenditures. The program also releases the developers from liabilities related to any contamination existing before the start of mitigation.
Federal historic preservation tax credits will be part of the equation as well. Submissions are in process now related to the landmark Woodward Garden Theater, opened as a vaudeville house in 1912. The venue was designed by C. Howard Crane, who also did Detroit’s historic Fox Theatre. Woodward Garden was Crane’s first neighborhood theater and one of Detroit’s largest outside of downtown. It later evolved into a movie house, a rock music club in the 1960s, and an adults-only theater before closing in the 1980s.
Quinn Evans Architects is the architecture firm of record for the historic preservation of the theater, and McIntosh Poris Associates is the design architect for what will be a state-of-the-art performance and multimedia-equipped space. Poris and his team are also enlarging the lobby with an atrium adjacent to the theater that will span its entire three-story height.
The apartments, being designed from the ground up by McIntosh Poris Associates, will connect to a parking deck that will serve all the businesses on the block. The firm is also exploring the use of geothermal heating and cooling for the apartment building. If such a system is incorporated into the plan, the project stands a good chance of qualifying for federal renewable energy tax credits.
In assembling layered financing for the Woodward Garden block redevelopment, the developers are working with Zachary & Associates, a development finance and planning consulting firm that helps put all the financing pieces together in a way that generates maximum value. The firm then strategizes on how to structure the remaining debt with gap and bridge solutions, and often facilitates the process.
There is also close collaboration with the Detroit Economic Growth Corporation (DEGC), a private nonprofit entity that works with the city of Detroit on financial and development assistance. In addition to helping developers leverage private investment, DEGC assists in facilitating all the state-based programs and tax credit incentives.
The Woodward Garden block development also stands to benefit from the Detroit Department of Transportation’s Woodward Light Rail plan, which—on top of an existing $125 million in locally generated private and public funds—in January 2010 received a $25 million federal grant under the American Recovery and Reinvestment Act’s TIGER (Transportation Investment Generating Economic Recovery) program to help move it along; it was one of only two Michigan projects to win such funding. The Woodward Light Rail project represents Detroit’s first rail-based public transit venture in more than three decades. The first phase of the plan calls for track along Woodward Avenue, beginning downtown and heading north to 8 Mile Road, and including stops near the Woodward Garden Theater.
Poris says it has been his experience that with each successive project, team members and stakeholders hone skills and efficiency in making complex projects work. He has also noticed an uptick in philanthropic grants from foundations to help jump-start development projects—and fill gaps left by missing banks—and is optimistic that the success of these hybrid financing packages will continue to present new possibilities and opportunities to turn Detroit around.
In particular, Poris has high hopes that layered financing will be instrumental in saving more historic structures because of the inherent value of historic tax credits, which go a long way toward getting development funded. Combined, national and state historic tax credits are a valuable asset that can finance as much as 40 percent of a qualifying project.
“The city of Detroit holds a number of properties in the downtown area,” says Malik Goodwin, DEGC vice president, project management. “We work with [the city] and with the Detroit Downtown Development Authority [DDA] on encouraging economic development. On many occasions we take a look at a property and see what it would take to mothball it—save it for later in the event that a developer is interested. A mothball program might include putting a new roof on a building or generally stabilizing it from experiencing additional damage or causing public safety issues.”
Poris and his firm are currently working with the DDA and the DEGC on a project to install solar-powered lighting and to complete facade improvements on six historic downtown commercial buildings. All are in locally designated historic districts, and one, the Harmonie Club, is on the National Register of Historic Places. The project will help the structures better contribute to the streetscape and be more appealing to neighborhood pedestrians—as well as to potential developers.
Goodwin says the six-building lighting and facade improvement program underway is being implemented by the DDA and overseen by the DEGC, with funding from the DDA and the Michigan Economic Development Corporation. Future redevelopment projects involving the properties might qualify for historic tax credits if the buildings are eligible, and DEGC financial incentive programs could also be considered.
“Detroit offers low-cost land, buildings, and housing. There are fine universities that produce young people with great ideas, and mechanisms to fund projects to restore urban communities and channel Detroit’s strengths into a new urban paradigm,” says Poris.
