Detroit seeks $12M loan for cleanup at Joe Louis Arena site

Christine Ferretti
The Detroit News
A view of the surrounding land and structures around the Joe Louis Arena in Detroit on Wednesday October 4, 2017.

Detroit — The city next month plans to get going on a $12 million cleanup of the shuttered Joe Louis Arena site, an endeavor that's going to cost twice as much as originally anticipated. 

The Office of the Chief Financial Officer is seeking Detroit City Council's approval to enter into a low-interest loan agreement with the state for the environmental remediation. The state, prior to Detroit's bankruptcy, had approved a $6 million loan from the Michigan Strategic Fund for the arena demolition.

"Really and truly we are going to start hopefully next month in earnest the remediation of the structure so we can get ready for the demolition," Detroit Building Authority Director Tyrone Clifton said during a council subcommittee meeting on Wednesday.

Clifton said Wednesday that an environmental assessment conducted over the summer determined there was more asbestos abatement needed for the site than expected. It's a "safety hazard," he said, "that needs to be dealt with."

Demolition preparation will get underway early next year and could take up to two months. The actual tear-down is projected to begin in June, city building officials told The Detroit News. 

"This is an involved project," said Timothy Palazzolo, a deputy director for the building authority. "It will take the better part of 10 months to complete."

The discussion took place during the council’s Budget, Finance and Audit subcommittee meeting. The loan approval request will return to the committee next week.

The arena and its adjacent parking garage were given to bond insurer Financial Guaranty Insurance Co. under an agreement struck in Detroit's Chapter 9 case. The New York firm was a major creditor that lost $1.1 billion in the bankruptcy.

FGIC seeks to recoup its money by developing the arena land after the venue is demolished. Under the deal, Detroit is required to facilitate the arena's razing.

An obstacle arose in late February, when a lawsuit was filed in U.S. Bankruptcy Court by Gotham Motown Recovery, the company created by FGIC to develop the site.

FGIC argued it needed up to two years to come up with a development plan. The city had refused, initially giving the bond insurer until August.

Under a mediation settlement reached in the bankruptcy court, FGIC was granted an extension for its development plan until Jan. 15, 2020, Sarah Pavelko, director of real estate and financial services for the Detroit Economic Growth Corp., said during Wednesday's meeting. 

From that date, the bond insurer has 12 months after acceptance of the development plan to close on the property. They company then has 12 months to begin construction and 36 months to complete the project. she said. 

Detroit's Chief Deputy CFO/Finance Director John Naglick said the administration "has been very firm" on not giving any further extensions to FGIC. 

"They have taken long enough on this, in our opinion," he told council members on Wednesday. "The administration is not easily granting more extensions to this organization."

A representative with FGIC could not be immediately reached Wednesday for comment.

After council signs off on the loan, the city must provide public notice, under state statute, to allow for a 45-day window for public comment.

Under the arrangement, the city will obtain the loan and pledge Detroit's general fund as repayment. The 20-year loan would require the city to pay interest only for the first two years, officials said. Ultimately, revenues are anticipated from the future development.

Detroit Councilwoman Janee Ayers said Wednesday she was wary of the contractually-obligated payments, which would begin next year. 

"Starting next year, we have this over $100,000 payment, the second year, an over $100,000 payment, and then in 2021 we go to $885,000 payments. So, as we talk about how important 2024 is with our pension obligations coming, with now this $800,000 and some odd payment, we have to be very cognizant of what we're doing," she said. "I just want to make sure that we're looking at this and everybody has a chance to understand."

It's proposed that a revenue-generating project would be developed on the site by 2024, Ayers added.

"But if in fact they don't, then what does that mean for us? That means that the payment is still there," she said. "Just in case, we either have to push them .. or take it back and figure out how we reprogram the space. Those are important things."

Currently, the city is paying $600,000 annually in holding costs for the arena site to cover security and utilities, Naglick said.

"That's already in this year's budget," he noted, adding the CFO's office recognizes the need to have four years of balanced budgets. "It's an OCFO loan application. We'll make sure we put it in our budget."

The city has received close to a half-million dollars in proceeds from seat sales and other personal property within the arena.

The building authority recently announced a second sale at a reduced cost for seats and its working with a salvage company to begin dismantling the facility through the end of October and into November, Clifton told council members.

Joe Louis was a city-owned facility that was home to the Detroit Red Wings as well as a concert venue. The Wings moved to Little Caesars Arena on Woodward last fall and the venue was shut down last summer.