February 3, 2011 at 1:00 am

Detroit's Real Estate Bazaar: Day 1 of 2

Private landowners complicate reshaping of Detroit

Detroit's biggest land speculator
Detroit's biggest land speculator: Michael Kelly has acquired more than 1,000 properties in the city, leaving some people unhappy about his methods and intentions.

Detroit —Michael G. Kelly favors sweatshirts to suits, drives a Ford F-150 and filed for bankruptcy about a year ago claiming he had only $431 in his checking account.

He also controls more Detroit properties than any other private landowner.

The Grosse Pointe Woods investor has quietly spent two decades amassing 1,152 parcels in Detroit, city records show. Most are barren lots and empty buildings picked up for $500 or so apiece at tax foreclosure sales. The city says many are so dilapidated that Kelly's firms owe $100,000 from 139 blight violations since 2005.

"If you walked up to him on the street, you wouldn't know that he was a land baron," said Avery Williams, a city attorney. "He's a guy in blue jeans walking around looking like he's working on somebody's building."

Williams called Kelly a "scavenger" who preys on the "carrion" of Detroit, but the city soon may have no choice but to do business with him and other speculators. Kelly's companies have land in every corner, uniquely positioning him to be a player — or impediment — that could drive up the price of land in Mayor Dave Bing's Detroit Works Project to reshape the city.

Kelly acknowledged he has a reputation as a "bottom feeder," but said he has a vested interest in Detroit's comeback.

"People went out West speculating for gold. That's what it is. You need speculators. It's called investors," said Kelly, 47, who disputed city records showing he's Detroit's largest landowner but wouldn't disclose how many parcels he and his firms own.

Kelly is far from alone. A Detroit News investigation found more than 5,000 city parcels are owned by 10 private landowners and their companies. Most amassed portfolios buying inexpensive parcels by the dozen at tax sales and holding on to them until they can be sold for profit.

John Mogk, a Wayne State University law professor who studies land, said speculators threaten to "hold the city hostage" as Bing works to reinvent Detroit. In the next few months, the mayor could outline his plan to improve viable neighborhoods by abandoning desolate ones, offering incentives to residents to relocate and buying land from private owners.

No matter what he decides, Bing can expect lengthy and costly lawsuits from speculators, Mogk said.

They likely will sue the city for devaluing their land if Bing reduces services to under-populated neighborhoods. They'll hold out for more money and contest Detroit's offers in court if Bing offers property owners cash to move, Mogk said.

Kelly already has sued the city several times for similar reasons and, in a 2002 suit that was dismissed, a city attorney accused the investor of routinely buying land near proposed projects so he can demand top dollar.

Even Kelly's relatives said he'll drive a hard bargain.

"He is only loyal to the dollar and that's the only thing," said an estranged brother, Eric Kelly, who feuded with his brother in probate court over their mother's estate.

"He will find a loophole in loopholes."

Michael Kelly's attorney, Nicholas LeFevre, said the investor is easy to criticize because he buys foreclosed property and those who lose their land need someone to blame.

"Mr. Kelly is a diligent, honest and otherwise savvy businessman who has now-and-again prospered in the uniquely challenging environment of the city of Detroit," LeFevre wrote in an e-mail. "Rather than being praised for his diligence, he is condemned."

Kelly is affiliated with five companies that buy property, and his empire was in jeopardy in 2009.

In November 2009, he filed for bankruptcy claiming $800,000 in debts and listed as assets his interests in at least 830 parcels. The trustee overseeing the bankruptcy accused Kelly of hiding other properties, including a vacation home in Ontario.

His properties could have been sold to satisfy the debt, until a frequent business partner, Matt Tatarian, paid off Kelly's obligations in May.

Kelly has been buying properties ever since.

"I see him everywhere … trying to buy something or sell something," said retired Detroit developer Ken Roberts, who has done business with Kelly over the past 15 years.

"He works hard. He's on top of everything. He knows the game."

Forming a business model

Kelly is the "most impressive single speculator" in the city's recent history, said Margaret Dewar, a University of Michigan urban planning professor who has studied land in Detroit.

He got his start selling newspapers.

The St. Clair Shores native said he learned Detroit's streets by selling subscriptions to pay for college and was so successful he won a "carrier of the year" award.

With the help of his father, Kelly used his accounting degree and opened a wholesale tire business in 1988, state records show. In the early 1990s, he began buying real estate, becoming a fixture at tax-foreclosure auctions where bidding starts at $500.

The business model: Buy cheap and in bulk.

Mogk compared the strategy to playing the lottery. Some of Kelly's parcels hit big when the city or other developers need his land for projects. If not, the initial investment is usually so low that losses are minimized.

Between 2006 and 2009, Kelly and Tatarian bought 556 parcels at the Wayne County tax auction, working the room with a small entourage and a laptop.

Kelly bought land necessary for other projects, in between plots owned by the city, nonprofits and other prominent owners. His companies own nine parcels in the footprint of a proposed second bridge linking Detroit and Windsor and 80 parcels near the Coleman A. Young International Airport, the site of efforts to increase a buffer near runways.

Kelly said he out-bids "hundreds, possibly thousands" of other investors for his land.

"A scavenger is not a successful bidder in a competitive field," Kelly said.

Kelly has "made significant money" over the past 20 years selling land to the city for several projects, from housing developments to sewers and parks, said Robbin Millard, who until his retirement in 2008 assembled land for the city.

In 2004, records show Kelly bought a parcel for $675,000 and sold it the same day to Second Ebenezer Church for $1.5 million for its new building off Interstate 75. LeFevre said Kelly held the property for years and invested "hundreds of thousands" of dollars before recording the deed.

In 2000, Kelly bought a beauty supply shop and tire business on Livernois for $225,000 and, again, sold it the same day for $515,000. In 2007, he sold a lot on East Seven Mile for $235,000 that he bought from the county for $38,000 a year before.

Last summer, the city paid Kelly $37,000 for a run-down, two-story colonial and a tiny house nearby on Montlieu that he bought at a county tax auction for $500 apiece in 2008.

Through his attorney, Kelly said the profit is exaggerated because he had to pay taxes and other fees before selling them to the city for the buffer around the airport.

Detroit has first dibs at the auction, and it's unclear why officials didn't buy the parcels first. The city even kicked in $2,200 for moving expenses to Kelly's company for the houses.

"You leave the door open, he's going to take advantage of it," Roberts said.

At an October auction, Kelly paid $5,000 for seven tax-foreclosed properties in the neighborhood that the city likely will need to complete the buffer. Again, Detroit officials could have bought the properties first, but didn't.

Knack for spotting winners

In more than a dozen lawsuits, Kelly and his companies are accused of taking advantage of property owners. But even they acknowledge Kelly has a knack for spotting winners, sometimes no bigger than a putting green, in a sea of losers at tax sales.

In 2009, auto supplier Bridgewater Interiors sued a Kelly company that bought a small parcel in the middle of its facility that mistakenly went to the county for unpaid taxes. Kelly paid $95,000 and wanted $2 million, said Carl Rashid, an attorney for Bridgewater Interiors. When the firm wouldn't pay, Kelly started eviction proceedings, Rashid said.

The company sued and eventually got the property back because of the county's mistake.

"It was brilliant on his part," Rashid said. "When you go to the tax sales they just list the parcels.

"How was he able to determine the parcel went right through the facility?"

Kelly's attorney, LeFevre, denied seeking $2 million.

Jimmy Way, general manager of The Pretty Woman Lounge strip club near Seven Mile and Van Dyke, said he'll never forget his dealings with Kelly.

One of Kelly's companies paid $1,100 in 2006 at the county tax sale for a sliver of land that ran down the middle of Way's parking lot outside the club's front door. Way had used it for years, with the neighboring business owner's blessing, but didn't realize it went up for sale for unpaid taxes in 2006 after the neighbor died, he said.

A representative from Kelly's company wanted $35,000. Way said he wouldn't pay, and one day showed up to work to find a bulldozer had dug up the small stretch of asphalt and his guardhouse on the strip of land was filled with manure.

Way eventually paid Kelly's company $19,000. The legal fees cost Way another $30,000.

"He makes his living preying like a damn leech on other people," Way said.

Kelly said Way used "our property" for more than two years and made "vast sums of (money) from his adult entertainment business" without "compensating us."

Many go to foreclosure

Kelly and his attorney said more attention should be focused on the county's mistakes at tax sales and not legitimate land deals — like his.

Kelly said he pays taxes on his properties when they are realistically assessed. But Kelly said the city often assesses his vacant lots as if they still have livable houses on them. He and Tatarian last year appealed to the state to lower assessments on nearly 475 properties.

Kelly blamed city officials for Detroit's glut of vacant land and said the city should sell nearly 40,000 of the properties it owns since they don't generate taxes.

"You would immediately raise money for the deficit," Kelly said. "We pay taxes. We contribute revenue to the city."

But Dewar, the urban planning professor, tracked tax foreclosure purchases of one of Kelly's companies in 2002 and 2003. By 2007, one-third had fallen to foreclosure for nonpayment of taxes, Dewar said. In Michigan, properties return to counties if taxes aren't paid for three consecutive years.

Kelly disputed the report. But he wouldn't answer questions about it beyond a statement saying taxes in Detroit "pose a dilemma" for investors because tax bills often exceed the worth of properties.

Absentee owners at issue

Detroit's empty land — nearly a third of the city by some estimates — has allowed investors like Kelly to buy cheap properties in bulk, do nothing to improve them and wait for a payday, said Mogk, the Wayne State professor.

"Speculators engaged in these practices combine the worst qualities of the day trader in the stock market and the greed-driven bankers on Wall Street," Mogk said.

"They are placing bets that their minimal investments can reap enormous gains and easily offset their occasional losses."

The payday could come after Bing announces which neighborhoods will be targeted for downsizing with the Detroit Works Project, said Williams, the city attorney.

"The minute they start announcing, 'This is where we are going' … it means it is probably going to be more costly," he said. "These guys are out there, and they have been alerted, and they are waiting on you."

Detroit's last major attempt to assemble and sell land ended disastrously 10 years ago after then-Mayor Dennis Archer announced he wanted to acquire land in Rivertown for three casinos.

The city borrowed $150 million to buy the land. After Archer's announcement, values skyrocketed, making it impossible to acquire enough property. The plan died, killing a funky neighborhood and sparking years of lawsuits.

Dan Kildee, an expert on revitalization who leads the Flint-based Center for Community Progress, said Bing could increase code enforcement on speculators, issue fines and foreclose if they don't pay.

But Russ Harding, director of the Mackinac Center's Property Rights Network, said the city should treat landowners no different than residents — buy them out or be prepared to fight them in court.

"I can't believe that these guys — if they picked the properties up for next to nothing and Mayor Bing makes a reasonable offer — that they won't come to the table," Harding said.

'They left us hanging'

Waiting for a solution are folks like Mildred Halliburton. She has lived in a bungalow for 30 years, not far from the airport, and is surrounded by empty lots owned by Kelly, other speculators or the city.

Recently, the 62-year-old stood on her porch and counted the occupied houses on her street.

There are six.

The neighborhood has become a wasteland in part because mayors have said for years they want to expand the airport. Nothing happened. Neighbors left. Investors swooped in.

"They kind of left us hanging," Halliburton said. "A lot of people just got tired of waiting and just left. … It's too deserted."

cmacdonald@detnews.com

Detroit News Staff Writer Mike Wilkinson contributed.

For more information

The city of Detroit, nonprofits, foundations and think tanks have begun studying ways Detroit could downsize to reflect its shrinking population. Here are other resources about land use in the city:
The Detroit Works Project: Mayor Dave Bing’s signature initiative, a plan that should emerge this year and could include offering incentives for residents to relocate from under-populated neighborhoods.
City of Detroit: The city plans to use federal funds to demolish 10,000 structures by the end of Bing’s four-year term in 2013.
Next Detroit Neighborhood Initiative: A nonprofit working to revitalize and redevelop six neighborhoods — the Northend; Brightmoor; Seven Mile and Livernois; Osborn Community; East English Village; and Grand River/Greenfield.
The Kresge Foundation: A Troy-based foundation that has donated resources and staffers to Bing’s Detroit Works Project.
The Detroit Data Collaborative: A study released last year that found nearly a third of Detroit is vacant. An online tool allows residents to research the condition of homes and vacancy rates of neighborhoods.
Detroit Vacant Property Campaign: A coalition of community groups and nonprofits whose website contains numerous studies on vacant lots and home ownership.
Community Development Advocates of Detroit: A study released last year that advocates dividing the city into 11 development categories and ensuring plans include no "winners" and "losers."
The American Institute of Architects: A 2008 report that advocates the creation of "urban villages" throughout the city that would be surrounded by undeveloped "opportunity areas" and green belts.

Michael G. Kelly of Grosse Pointe Woods spent two decades amassing nearly 1,200 parcels in Detroit, many near future development sites such as the proposed second Detroit-Windsor bridge. / David Coates / The Detroit News
Bimini Properties II also paid $500 at a tax auction for this house at ... (David Coates / The Detroit News)
Bimini Properties II bought this boarded-up child care center at 3388 14th ... (Ricardo Thomas / The Detroit News)
Kelly keeps a low profile and would not pose for a photograph. Here he is ... (David Coates / The Detroit News)