Gilbert seals $618M tax incentive package for 4 Detroit projects

Dan Gilbert, the billionaire who has overhauled downtown Detroit by resurrecting historic buildings, sealed one of his biggest Motor City deals yet by getting final approval Tuesday for a $618 million tax incentive plan.

The largest tax subsidy ever awarded in Michigan will fuel Gilbert's $2.2 billion plan to create the tallest building in the city on the empty Hudson’s block on Woodward Avenue; develop 3 acres of mainly vacant space on the Monroe Block; renovate the equivalent of seven football fields of interior space at the long-dormant Book Tower and Building on Washington Boulevard; and add an 11-story annex to the One Campus Martius building.

“These landmark developments are a milestone representing Detroit’s credible new era of hope, optimism and growth,” Gilbert said in a statement. “This process has been an outstanding example of collaboration between multiple levels of government and private industry that will unleash billions of dollars of investment, resulting in transformational impact to Detroit, the region and the entire state of Michigan."

The tax deal was approved by a state economic agency Tuesday and will be applied to the construction of the developments. The four projects are properties owned by an entity linked to Gilbert, founder of Quicken Loans and Bedrock Detroit, which controls more than 90 downtown area properties.

In total, about 3.1 million square feet of new office, retail, residential and hotel space will be developed. When completed in 2022, the developments are estimated to create 7,738 jobs, paying on-average $34 per hour.

Many questions remain, including what tenants would occupy the developments and how their relocation might affect vacancies in existing office space in Metro Detroit. Bedrock officials offered no names of potential tenants.

The approval by the board of the Michigan Strategic Fund in Lansing on Tuesday was the final bureaucratic hurdle for the tax incentive package. The $618 million amount "is a new height for us," Greg Tedder, an executive vice president of the Michigan Economic Development Corp., said at a press conference Tuesday. The strategic fund is part of the MEDC. By comparison, construction of the $863 million Little Caesars Arena received $329.1 million in tax subsidies earlier this decade.

Quicken officials said that over the 30-year period in which the tax incentive package will be repaid, the incentives will have covered 15 percent of the projects' costs; meaning 15 percent will have come from some form of taxpayer money that would have ordinarily gone to schools, fixing roads and generally supporting state government departments.

The payoff for the deal will be even bigger, state officials said Tuesday. Even with the tax incentive package, an economic impact study done by the University of Michigan says the state will get $596 million in new tax revenues over 30 years, state officials said.  Another way to measure that is a little over $3 of new tax revenue will be created for each dollar of revenue that will go toward the tax incentive package, state officials said.  

 The tax incentives are intended to make southeast Michigan "more competitive" in its ability to attract new business, RJ Wolney, vice president of finance for Bedrock, said during a media conference call Tuesday afternoon. Gilbert led the city's recent attempt to convince Amazon to build its second headquarters in Detroit. The city didn't make the finalist list. 

The incentives are needed to create catalytic developments to help fill the funding gap of building such projects that can't be made up with current rents for downtown commercial projects, Wolney said. 

"Rents have a long way to go," in Detroit, Wolney said. Bedrock is aiming to charge a rent  "in the high 30s and low 40s per square foot" at the developments, he said. The average rent for "Class A" office space downtown is currently $23.69 per square foot, according to the most recent report by the commercial real estate firm JLL. 

The multi-layered incentives come from different sources:

• $256.3 million will come from the state income taxes of workers expected to be employed in the new properties.
• $229.6 million from the increase in property tax value expected to result from the new developments.
• $60.6 million in state sales taxes from the construction materials used to build the developments.
• $51.7 million in state income taxes from residents living in the new buildings.
• $18.2 million in state income taxes from construction workers building the projects.
• $1.7 million in city income taxes from the Hudson's site project. That money will be given back to Detroit through a community-benefits agreement approved by City Council.

All but the construction materials taxes will be used to pay off $250 million in bond proceeds over 35 years at a rate of about $15.9 million per year.

An estimated $300 million of the tax package comes from the new transformational brownfield plan, which was created last year by the state Legislature after Gilbert played a high-profile role in a statewide coalition that lobbied for the breaks. The deal approved Tuesday takes up about 38 percent of the $800 million that could be awarded to brownfield developments. The legislation sunsets in 2022.  

The first effort to pass the brownfield tax subsidies package — often called the “Gilbert bills" in Lansing — did not succeed in 2016. At the time, then-House speaker Ken Cotter, R-Mt. Pleasant, said: “Dan Gilbert has done great things for Detroit, and he has shown that he is a competitor and a winner. If he can’t make a deal work without state aid, then it is not a deal worth doing, and Michigan taxpayers should not be forced to invest.”

 In 2017, Gilbert and a statewide coalition of local governments, developers and some unions again lobbied for the bills. The legislation was changed to ensure that both cities and small communities could benefit. Public campaign finance records showed that various Quicken Loans employees gave a total to $35,975 to state House members' committees in 2017.  Of those 56 lawmakers, 48 voted yes on the main bill in the brownfields package. 

In Detroit, various community groups have been critical of the tax subsidies. At the December 2017 groundbreaking of the Hudson's site development, about 15 people with a group called the Detroit People’s Platform showed up to speak out against the deal. The group's main concern is that Gilbert and Bedrock did not provide a specific plan on how the developers will hire 51 percent of Detroit residents to work on the project.

The transformational brownfield plan uses a public financing method called tax increment financing, commonly called TIF. 

Through the use of TIF, municipalities typically divert future property tax revenue increases from a defined area or district toward a development or public improvement project in the community. TIF subsidies are not taken directly from a city's budget, but the city incurs loss through foregone tax revenue.

A Quicken Loan executive said it was too soon to tell whether Bedrock or other Gilbert affiliate might pursue any of the remaining incentives from the brownfield legislation – about $500 million – for other Detroit projects.