Bedrock's Hudson site moves to next phase with arrival of cranes
Detroit — Despite the COVID-19 pandemic's hit on the commercial real estate market, Bedrock's mixed-used 1.3-million-square-foot project on the site of the former Hudson's department store is moving forward, with cranes expected at the site Monday to allow construction finally to rise beyond the giant hole on Woodard.
The next phase of construction comes after the project was stopped for 45 days from March to May because of the coronavirus outbreak. Bedrock now expects to have the block portion of the site —the flat structure located beside the high-rise tower — completed by the end of 2023. But the developer is still evaluating the extent of delays caused by the pandemic on the entirety of the project.
"The team is ecstatic that we are on to the next phase," said Joe Guziewicz, vice president of construction at Bedrock. "It's pretty boring for most of the people of Detroit to see us toiling in a hole for the last year and half. It’s a pretty big deal because now they will start to see things coming out of the hole and starting to build up."
Construction resumes during a sudden recession with no clear end, and at a time when companies are examining whether some of their office workers might continue working home permanently.
Peter Allen, a lecturer in urban and regional planning at the University of Michigan’s Taubman College of Architecture and Urban Planning, cautions: "Anyone who can, should stop all new construction plans until the 'new normal' is clear."
"Smart developers will sit back for a year or more, remain very cash-strong and liquid and watch for a new normal," he said.
Bedrock, founded and controlled by billionaire businessman Dan Gilbert, whose Quicken Loans mortgage lending business this week filed to go public, broke ground on the project in late 2017. Plans call for a hotel and residential, office and retail space. Bedrock hasn't revealed any future tenants, but says it has received interest from potential occupants.
The plan calls for about 400,000 square feet of office space. The pandemic has put a question mark on what the future of office space looks like, with many people electing to work from home as the U.S. continues to see surges in coronavirus cases.
"We are very much following all of the developments and all of the speculation and insights from various consultants ... as to what people think is going to happen with respect to the future of offices," said Larry McLaughlin, executive vice president and chief development officer for Bedrock. "A lot of that at this point in time is very much speculation. No on really knows for sure what's happening."
McLaughlin said there are no plans to change the Hudson's development, and the company is confident it will be able to lease the office space it has.
"One of the things we have going for us in terms of that particular project, is it's obviously going to be a very iconic project," McLaughlin said. "It will be a state-of-the-art building in terms newness and construction and technology ... it's a very distinctive building and one that we will be marketing not just locally and regionally but nationally, so we have very high expectations and confidence as to our ability to lease that space."
John DeGroot, Newmark Knight Frank vice president of research in the commercial real estate advisory firm's Detroit office, said Metro Detroit's office market vacancy rate was steady at 15% during the second quarter this year.
"The market was predictably inactive, given COVID-19 related stay-at-home orders that put a halt to most business interactions," he said. "The three-month-long mandate caused many to fear the office market would be left flooded with vacant office space."
But there was no surge of subleasing in the market during the second quarter as was expected, DeGroot noted.
"Once stay-at-home orders were lifted, employment shot back up and the economy started showing drastic improvement in just a short period of time," he said, adding "likely by the fourth quarter of 2020 going into the first quarter of 2021 we’ll see a return to normal and more investment into the office market."
Leasing activity has slowed in Metro Detroit, but overall the office market has remained stable, according to a recent report by CBRE Inc., a commercial real estate services and investment firm. In the second quarter, Metro Detroit's office vacancy rate was 13.5%, down from 19.7% five years ago.
"Most office indicators show surprising market stability thus far, supporting the notion of an unremarkable downturn for the sector," the report says.
In downtown specifically, there was increase in the amount of space leased in the second quarter.
But the report does note: "The future use and value of conventional office space is perhaps under the most intense scrutiny ever. A variety of competing forces will play out over the next year to provide clarity on how offices may change."
On Monday, two tower cranes will arrive at the Hudson site to help start building up the block portion of the estimated $1 billion development and its 680-foot tower.
The crane to help build the lower block section is 194 feet tall. The other crane for the tower will start at 213 feet tall and will grow with the building. Bedrock says it will be the second-tallest building in Michigan behind General Motors Co.'s Renaissance Center, which stands at 727 feet.
Hudson’s was a premier retailer in downtown Detroit for decades. It broke ground on its Woodward location in 1891, went through 12 expansions, with final additions in 1946 extending the store over an entire city block, according to Bedrock's website. Hudson’s closed in 1983. The building was imploded in 1998.
Crews spent the last year and a half demolishing an old parking garage, drilling through old concrete foundation left behind after the demolition of Hudson's and building a new foundation.
It's "always assumed" that there will be obstructions whenever installing caissons, cylindrical chambers that go deep into the ground for foundation, Guziewicz said, "but ... we hit the jackpot of all obstructions ... we hit so many obstructions that it blew our obstruction allowance."
Mike Schefka, project director for Southfield-based Barton Malow, the construction management company on the project, said "it was much more challenging here because of the existing foundation from the old Hudson's. We had to drill through concrete and a lot of obstructions that were buried in there when they imploded it. It’s one thing drilling through earth, it's another thing drilling through existing concrete."