Putting a price tag on properties linked to Gilbert
Entities linked to Quicken Loans Inc. founder Dan Gilbert have spent $451 million to buy 62 properties in downtown Detroit since 2011, according to a Detroit News analysis of public records.
Dollar amounts haven’t been recorded publicly for another 11 downtown properties the various companies have purchased, including Gilbert’s biggest prize — Greektown Casino-Hotel.
Through Bedrock Detroit real estate unit and other affiliates, Gilbert has a stake in landmark skyscrapers, blocks of Woodward and at least 17,000 parking spaces. Gilbert is so closely identified with the downtown business district that the phrase “Gilbertville” has been used by both admirers and critics.
Gilbert and his companies have snapped up vacant or underutilized buildings at what developers contend are often bargain-basement prices. They have then spent hundreds of millions to overhaul them.
“Buying buildings ... that cheap is a very unique opportunity,” said Steve Morris, an adjunct professor of real estate finance at the University of Michigan Ross School of Business. He also is principal manager of Axis Advisors LLC, a development firm in Farmington Hills.
“He has the deep pockets to buy (properties), then quickly renovate. Beyond that, he and his team have the resources to find tenants,” Morris said. That’s a potent, uncommon combination of abilities, Morris and others who follow commercial development said.
Sale prices for many of the properties are not included in most public records, such as deeds. That is common practice for developers, who like to hide prices to keep competitors guessing. The $451 million is the total price paid by the various entities connected to Gilbert, which are often limited liability companies. The properties are listed on Bedrock’s website.
But not every public record is devoid of sale prices. The Detroit News relied mainly on city of Detroit property tax records to determine costs of acquisitions by Gilbert-affiliated companies.
In the case of two buildings, prices also were listed in the Wayne County Register of Deeds. In another case, the information was listed in the earnings report of a New York real estate investment firm and the official minutes of a public meeting by the Detroit Police and Retirement System board of directors. The New York real estate firm and the Detroit pension fund both had ownership in the property that was sold to a Gilbert entity.
It often takes months before selling prices appear in records, so not all Bedrock-Gilbert properties are included.
Bedrock will only say it has invested nearly $2.2 billion in acquiring and renovating its Detroit properties, and it doesn’t break down how much of the $2.2 billion is for properties outside downtown, including its Corktown data center and Brush Park housing development.
Range of purchase prices
Records show it is rare for Gilbert entities to pay more than $100 million for a property. City property tax records show he paid $142 million in late 2014 to buy One Campus Martius, the 15-story office building formerly known as the Compuware building.
In other deals, Gilbert companies paid $10 or less for empty city-owned land as part of development agreements for multi-million-dollar projects. One example is the Z — a new parking structure that zig-zags between the 1200 block of Library and the 1300 block of Broadway.
A Gilbert entity was given the city-owned property for $1. In exchange, a 1,287-space parking garage was built with walls adorned with murals by 27 international artists. Ground-floor retail tenants include Punch Bowl Social, Citizen Yoga, Nojo Kicks and 7 Greens — all new businesses to downtown.
Jim Ketai, CEO and managing partner of Bedrock Detroit, speaks about the company's first purchase, the M@dison building, and the more than 90 buildings they have bought since then in Detroit.
It’s not uncommon for the city of Detroit to make such deals with major developers. One example is the former Tiger Stadium site that’s being converted by another developer into a youth sports facility with a residential/retail component. The city agreed to transfer the land for $1.
Mainly, Gilbert-affiliated companies snapped up properties whose prices dropped severely during the Great Recession, or had stagnated through downtown’s decades-long decline.
Tax records show in 2012, a Gilbert entity paid $8.4 million for One Woodward, the 29-story skyscraper at the foot of Woodward that was designed by Minoru Yamasaki, who went on to create New York’s World Trade Center. The seller was a holding company created from the post-bankruptcy assets of Lehman Brothers, the financial services firm whose failure in 2008 played a major role in the global economic crisis. The purchase was a relative bargain: In 1997 the property formerly called the Michigan Consolidated Gas building had sold for $20 million.
The 2011 purchase of the First National Building, the Albert Kahn-designed structure on the southeast edge of Campus Martius, would appear to be an even better deal: $8.1 million was paid for the 25-story building. The same property had sold for $31.3 million in 1998, and for $28 million in 2005.
Many of the smaller buildings on Woodward — which once was the city and region’s main retail strip — were purchased for prices ranging from $2.7 million to less than $500,000.
Bedrock mum on specifics
Bedrock was provided a list of the sale prices collected by The News, but company officials declined to confirm or comment on specific amounts.
“The (purchase) price isn’t the most important part,” said James Ketai, CEO and managing partner of Bedrock Detroit, which he co-founded with Gilbert.
“A lot of these buildings have been these historic gems that we have had to bring back to life, and it’s very expensive to bring them back to life,” Ketai said in an interview at the M@dison building at 1555 Broadway in Grand Circus Park.
The M@dison was Bedrock’s first downtown purchase. It bought the five-story structure for $1.4 million in January 2011. The same building had sold for $1.2 million in 2005.
“It was a shell, basically,” Ketai said. The company installed new plumbing, heating, elevators and bathrooms. It cleaned the exterior and overhauled interiors for an “industrial chic” look. It added a 135-seat auditorium and a rooftop terrace overlooking Comerica Park and Ford Field. The building is now 100 percent occupied, with signature tenants including Detroit Venture Partners, Skidmore Studio, Microsoft and Twitter.
Casino officials have said in the past that the price paid for Greektown Casino-Hotel — which included business operations in addition to the casino property, hotel, parking garage and surface lots — was between $500 million and $600 million.
Ketai would not discuss terms of Greektown Casino-Hotel, of which a Gilbert entity became sole owner in 2013. But he said that transaction is different from other acquisitions: “That was a whole business that was purchased.” In all other instances, the deals were about buying properties, not the businesses inside the buildings, he said.
Three years ago, Gilbert’s Bedrock acquired 1001 Woodward, a 23-story building and 730-space parking garage, for $32.3 million. It was purchased from Dimitrios “Jim” Papas, a longtime Detroit developer who was an original investor in Greektown Casino-Hotel.
Papas paid $5.5 million for 1001 Woodward and the parking garage in 2008. He bought the property from owners slammed by the Great Recession and who were behind on their mortgage. The building was vacant when Papas bought it and he poured millions into infrastructure — mainly the mechanical systems.
“Gilbert’s people approached me out of the blue, I didn’t have the building on the market,” Papas said. “They were tough negotiators. We haggled, like you always haggle over price, but it is a very fair deal.
“Dan Gilbert and his team struck me as smart; a good plan and the ability to pull it off. And they continued to fix up the building, like they do with their other properties,” Papas said. The building is now 97.5 percent occupied.
Another of Gilbert’s prizes is One Detroit Center at 500 Woodward, now called Ally Detroit Center. In April 2015, Gilbert said the amount Bedrock and the building’s main tenant — Ally Financial — would invest in the landmark skyscraper would eventually make it a $200 million-plus deal.
In 2007, the building sold for $195 million. The sale was just recorded in Detroit property tax records this month: $100 for a Class-A office building needing little renovation and a 2,000-space parking garage. City officials said that amount means the Gilbert entity publicly recorded the transaction fee for the deal and not the purchase price of the property.
The amount paid for the property was $94 million. iStar Financial Inc. owned 90 percent of the building, according to its 2015 first quarter earnings. iStar also keeps getting some rent from the property for 99 years, according to the earnings report. iStar CEO Jay Sugarman said the deal was a “prime example” of “capturing full value for the landmark property” according to the earnings report.
The Detroit Police and Fire System, which is also headquartered there, sold its 10 percent share in the building. The pension board received cash and long-term discounts on rent, spokesman Bruce Babiarz said.
Landmark relocation in ’10
When Gilbert moved the headquarters of Quicken Loans from Livonia to downtown Detroit in 2010, the central business district was struggling with blight. That year, The Detroit News counted 48 empty structures with at least 10,000 square feet of floor space. Since then, at least 31 of those buildings have been renovated and become occupied, are being fixed up, or have plans to be brought back to life.
Now Gilbert and Bedrock are a major downtown force. The occupancy rate for downtown apartments is about 98 percent. Both residential and commercial rents continue to climb: Rents for downtown apartments averaged about $1.25 per square foot five years ago; now it’s closer to $2 per square foot. Since 2010, rents for retail and office space have gone from $8 to $12 per square foot to about $30.
“The gap between (downtown Detroit) and the suburbs is narrowing,” reversing a 20-year trend, said Andrew Batson, the research manager for JLL, a commercial real estate service firm headquartered in Chicago with operations in Detroit.
Batson warned that Gilbert and Bedrock’s influence could be troublesome in the future: “With one entity controlling the majority of the urban office market the question remains, what impact will one voice and vision have on the overall market? As it stands, the trends remain positive.”
A former Bedrock official recently told the real estate website Curbed Detroit that downtown rents may be climbing too high, too fast to be sustained. Eric Larson told the website that Gilbert and company are setting rates — for office and retail — that are “necessary to support the level of investment he has made.”
Ketai counters that rents were low for years, and even now remain bargains compared to other major cities.
Others praise what Gilbert and his companies have accomplished.
“Dan Gilbert has become synonymous with the transformation of downtown Detroit,” Wayne State University President M. Roy Wilson said at a March event in which Gilbert spoke to a packed auditorium.
Gilbert told the crowd that Quicken moved downtown to continue to attract young talent. “I (would) always say to myself: If we just come down here and just be in two buildings, we might as well be in the suburbs,” Gilbert said when asked why he and Bedrock started to amass downtown property.
“If we are going for this, we are going to do as much as we can. Let’s make as much impact as we can. It was one of the best decisions we ever made.”