Eric Means stands atop a terrace inside the building at 33 John R Street, with downtown Detroit in the background. Means is part of a group of investors who recently agreed to fix up the building. (Jose Juarez / Special to The Detroit News)
Detroit —In August 2009, there were 48 big empty buildings downtown. Walk through the city’s central business district today and it’s hard to believe there were that many just five years ago.
Eleven of those buildings are now occupied. Another 20 are being renovated or have been bought with plans for redevelopment. Four have been demolished. That means 13 of those original 48 are still languishing, waiting for someone to devise a strategy to revive them or, in a few instances, possibly tear them down.
Clearly, momentum is going in the right direction. But it’s still too soon to know how much of a turnaround it portends, say several developers and commercial real estate analysts.
“We’ve made significant progress, but we are just getting started,” said Jim Ketai, CEO and co-founder of Bedrock Real Estates Services. Five years ago, Quicken Loans Inc. founder Dan Gilbert and Bedrock Real Estate Services didn’t control an inch of downtown property.
Now they own more than 60 properties, totaling more than 9 million square feet. Bedrock alone has renovated four of the once-empty buildings and is doing major fix-ups to another five.
Five years ago, the tough economy seemed to halt much of the progress downtown had made since 2000. At the time, more than $500 million had been invested in projects such as the restored Kales Building and the Lofts at Merchants Row, helping to attract 4,000 mostly young, college-educated residents downtown. The long-dormant Book Cadillac and Fort Shelby buildings had gone through stunning renovations, reborn as attractive hotels and high-end residences.
Then the global recession, tight credit and retrenchment of Detroit’s auto industry slammed Michigan and downtown. By 2009, many commercial developers said the number of empty buildings was rising at an alarming rate.
That year, The Detroit News inventoried the number of vacant structures that were at least five stories or 10,000 square feet. That’s the size at which developers say major bank loans and tax credits are needed to revive them. The count focused on the central business district, which is bordered by the Lodge Freeway to the west, 1-75 to the north, 1-375 to the east and the Detroit River to the south.
At that time, analysts and developers predicted it would take several years to stop the negative momentum. Some wondered whether many downtown office buildings had outlived their purpose. No one predicted such a quick turnaround.
The trend goes much further than Gilbert’s Bedrock. Many small investors are involved. So are longtime Detroit corporations such as General Motors, Blue Cross/Blue Shield and DTE Energy. The latter companies may have not filled empty buildings, but they boosted their investments and in some cases relocated staff downtown.
Some of the still-empty buildings are on the verge of new life, such as the $82.5 million renovation of the stately David Whitney Building into a boutique hotel and high-end rental apartments, which are two red-hot sectors downtown.
Another is the $3.5 million restoration of the Civil War-era Grand Army of the Republic, G.A.R., building — an iconic, castle-like structure now owned by a trio of small investors.
“Believe it or not, not too many people told us we were crazy when we bought the building,” in 2011, said David Carleton, one of three owners of the G.A.R., as he stood amid the ongoing $3.5 million renovation of the building at the corner of Grand River and Cass.
Downtown boosters and politicians say the central business district is now a shining success. A tougher critic is Peter McGrath, a research analyst for the commercial real estate firm Colliers International. McGrath crunches data like office vacancy rates and rent per square foot to determine trends.
But even the tough critic is cautiously optimistic. Data shows a strong rebound. Five years ago, the office vacancy rate for downtown was a bleak 27.8 percent. The latest data shows the rate is now at 16.8 percent, the lowest it’s been in at least a decade.
The improving downtown office space market began with Blue Cross/Blue Shield, DTE Energy and Quicken Loans Inc. in 2011. Combined, the companies leased more than 750,000 square feet. In 2012, Title Source, Chrysler, PricewaterhouseCoopers, Metro-West Appraisal Co. and Agency 720 followed suit, leasing just under a half million square feet combined.
Last year, ad agency Lowe Campbell Ewald relocated its headquarters from Warren to the Ford Field office complex, bringing more than 500 workers downtown.
Research from another commercial real estate firm shows the vacancy rate in downtown Detroit’s most prized office buildings fell to 11.5 percent last year from 26 percent three years ago, according to a report by Jones Lang LaSalle, a commercial real estate company.
Analyst McGrath says another reason for the rebound is many developers found a new use for downtown older buildings. “Older office buildings became obsolete,” he said.
“The floor plates are often too small for modern tenants. They got a new lease on life as brand new, upmarket apartment buildings. The conversions are also good for the office market as a whole — taking excess capacity out of the market,” McGrath said.
Many of those buildings, such as the Broderick Tower and the David Whitney building, have become a mix of retail and residential. The David Whitney will also become home to the Aloft Hotel.
Eric Means is part of a group of investors who recently agreed to fix up the city-owned Metropolitan Building, 33 John R, as they continue to work with the city to get a development deal. Many point to that deal as a sign how eager some investors want a piece of the downtown action.
Downtown’s struggle with empty buildings isn’t over. At least three buildings have become vacant since 2009. And it’s too soon to tell how many development plans will become reality.
But G.A.R. building owner Carleton knows how things can quickly change. He owns the building with his brother, Tom Carleton, and Sean Emery. The three are partners in the downtown media firm Mindfield Inc. on Library Street, a small street that’s seen plenty of new development.
Huge planned developments now surround the G.A.R building. Across the street on Grand River, DTE Energy bought and razed three buildings and is planning to create a big, open green space. Just to the north on Cass is the edge of the $650 million, 45-block “entertainment district” that will be anchored by the new home ice for the Detroit Red Wings.
“Downtown has always provided great opportunities for us,” he said. “In bigger markets, there is no way a business our size would have been able to do something like this,” referring to the renovation.