Cost to build Little Caesars Arena rises $105M

Louis Aguilar
The Detroit News

Detroit — The cost to build Little Caesars Arena has risen by $105 million to $732.6 million, according to Detroit officials. It’s unclear if any of the increase is because of a possible move by the Detroit Pistons to share the venue with the Detroit Red Wings.

The revised estimate released by the city’s Downtown Development Authority doesn’t mean there have been massive cost overruns, development authority officials say. Nor does it mean the city or taxpayers are on the hook for additional expenses.

The increase is mainly because of more specific prices paid for such things as materials, permits, design refinements, subcontractor agreements and other costs that were expected to rise in building the state-of-the-art venue, officials said. Construction began last year, and the venue is slated to open next fall.

“The increases represent enhancements or changes that our private partner, Olympia Development of Michigan, will be paying for — as they are required to do under our contract,” said Moddie Turay, executive vice president for real estate for the Detroit Economic Growth Corporation — which administers the Downtown Development Authority — in a written statement Thursday.

Olympia Development is the development arm of the Ilitch family, whose holdings include the Red Wings, Little Caesars pizza, MotorCity Casino Hotel and other Detroit property.

The new venue being built in Midtown is owned by the city’s Downtown Development Authority. Olympia Development is in charge of constructing the arena and will manage it after its opening in September. The $732.6 million revised estimate was released because the board of directors of the development authority needs to approve major construction costs.

“What we are really seeing here is how public support of a transformational project is already leveraging more private investment than originally promised,” Turay said. “Every new dollar invested by Olympia also creates potential new opportunities for Detroit-based subcontractors and Detroit residents.”

The revised estimate reflects updated “soft costs,” such as amounts signed with various subcontractors, material prices, permit fees, insurance and a host of other details, according to city documents.

The amount also includes costs for some city-owned land for a parking garage and a park — all of which are part of the arena. The total includes about $10.6 million in “construction change directives” and “design refinements,” according to the development authority’s documents.

A construction-change directive means the contractor must perform additional work at the request of the owner. There is no further explanation on what changes were requested at the arena.

Olympia Development is responsible for added “soft costs.”

Back in 2014, the original estimate to build the arena was $450 million. Funding included $250 million in bonds backed by taxpayer money. The Ilitches backed the other $200 million bond. The $250 million bond is the extent of taxpayer funding so far.

Last year, Olympia Development officials said the estimated construction costs to build Little Caesars Arena had jumped to $627.5 million because of major upgrades. They said at the time $627.5 million might not be the ultimate cost as they continued to explore changes.

Representatives for the Ilitches’ Olympia Development of Michigan declined comment on the revised amount other than they will continue to use the $627.5 million figure, which is the amount signed with the main contractor overseeing the construction. Olympia Development adds up various costs differently than the city and doesn’t include the “soft costs” that are in the city’s total.

It also separates costs of associated structures and land from the actual arena. Earlier this year, Olympia Development said it would spend an additional $196 million for office and retail space and a parking garage surrounding the arena. That brings Olympia’s estimate to build the arena and related structures to $823.5 million. The company will be responsible for those added costs.

Neither the city nor Olympia would publicly comment on whether the new total provided by the city has anything to do with changes that would have to be made if the Pistons move their home court from the Palace of Auburn Hills.

Last week, the owner of the Pistons said the team was “getting close” on a deal to move the NBA franchise. Tom Gores hedged a bit on a deadline, but he added it was “fair” to say that discussions are aiming for the Pistons to play at Little Caesars Arena next season.

The lure of downtown and what’s good for the franchise are motivating factors, he said.

“There is a lot going on down there. If you look at it, you can get the Lions, the Tigers, the Red Wings. There is a lot of activity,” Gores said.

The Little Caesars venue will have a “deconstructed” design with a glass-roofed concourse. That concourse, or atrium, will circle the arena and provide a street-like walkway with storefronts. The design also means other key elements of arena operations, such as a ticket office or team store, are developed outside the traditional venue structure.

Ancillary shops and restaurants will be open even when the arena isn’t being used for hockey or events. The arena sits in the middle of nearly 13 acres, located west of Woodward and east of Clifford, with Henry to the south and Sproat to the north.

The total bill for the arena and its associated structures will top $1 billion when the $336 million in interest for the bonds — to be paid by the Ilitches — is included.

The Barclays Center in Brooklyn, home to the NHL’s New York Islanders and the NBA’s Brooklyn Nets, cost $1 billion to build when it was completed in 2012. And renovations to Manhattan’s Madison Square Garden, home to the NHL’s New York Rangers and NBA’s New York Knicks, cost $1.1 billion when it was finished three years ago.