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Wayne County threatens Detroit bankruptcy deal

Robert Snell
The Detroit News

Wayne County is threatening to unravel a breakthrough deal that settled Detroit's bankruptcy case unless it receives land or more than $30 million — money the city needs to bankroll Detroit's revitalization.

The threat emerged in a bankruptcy court filing Thursday that reveals Wayne County and Detroit are fighting over a nearly 40-year-old deal to redevelop the landmark former Detroit Police Department headquarters at 1300 Beaubien in downtown Detroit.

The city's bankruptcy lawyer criticized Wayne County on Thursday for waiting until two months after Detroit emerged from bankruptcy court to pick a fight over real estate and a historic but rundown Albert Kahn-designed building.

In a recent bankruptcy filing, Wayne County said it had a deal with the city to demolish the police headquarters and build a jail. The deal between Detroit and Wayne County dates to 1976, but the city dumped it in bankruptcy court last fall, a move that went unopposed by Wayne County until last month.

The fight could undo a hard-fought bankruptcy settlement the city reached with its fiercest bankruptcy creditor, bond insurer Syncora Guarantee Inc.

Syncora attorney Ryan Blaine Bennett said Wayne County officials had an opportunity to object to the property deal before U.S. Bankruptcy Judge Steven Rhodes approved the city's bankruptcy plan in November.

"Wayne County is up against the law here and the facts ... and we don't believe the outcome in Judge Rhodes' courtroom is going to be a bad one (for Syncora)," Bennett told The Detroit News. "They were in the courtroom ... they knew what was going on and they didn't do anything."

The settlement gave a Syncora subsidiary the option to acquire the old Detroit Police Department headquarters site along with a lease of the Detroit-Windsor Tunnel and other property.

"This could be a problem," said Douglas Bernstein, a Bloomfield Hills bankruptcy attorney.

Wayne County Executive Warren Evans' office said Thursday it is exercising its option to control redevelopment of the land under the 1976 agreement with the city.

"Wayne County is not seeking compensation from the city of Detroit, but rather specific performance," Evans' office said in a statement. The statement did not elaborate on what the county defines as "specific performance."

The county and the city are working cooperatively to address this matter," Evans' office said.

Mayor Mike Duggan's spokesman declined to comment on the issue.

"The city won't comment on pending litigation but we are always willing to work toward an amicable solution," city spokesman John Roach said in an email late Thursday.

Wayne County said in a recent filing it would suffer damages of more than $30 million unless Rhodes rules that the deal shouldn't have been dumped in bankruptcy court.

That doesn't mean Wayne County could collect the entire amount from the city if it succeeds in the post-bankruptcy fight.

Wayne County could get a $30 million claim in the bankruptcy case and, like other unsecured creditors, settle for perhaps 10 percent, or $3 million, Bernstein said.

That money could help reduce Wayne County's $70 million annual deficit.

The city's bankruptcy lawyer said the county waited too long to complain about the police headquarters site.

"The Wayne County objection was filed approximately 117 days after the court-ordered deadline to file such objection, and more than two months after" Rhodes let Detroit dump the Wayne County deal, city bankruptcy lawyer Heather Lennox wrote in a filing Thursday.

The 1976 deal between the county and city was supposed to be fulfilled in two phases. The first phase was completed and involved Wayne County acquiring land next to police headquarters and building the Andrew C. Baird Detention Facility.

The second phase is unfulfilled, Lennox said Thursday in urging the bankruptcy judge to deny Wayne County's objection. The city never demolished the headquarters after the Detroit Police Department moved two years ago into the former MGM Grand Casino site downtown, and Wayne County never paid for the headquarters site, Lennox argued.

The deal called for Syncora to get the first right to take the property, subject to certain development agreements with the city, Bennett said.

"I don't know how you could give Wayne County the relief it's seeking," Bennett said. "You wouldn't have a meeting of the minds anymore."

The former Detroit Police Department headquarters was a minor and largely forgotten piece of real estate the city used in deals with Syncora and another bond insurer late in the Detroit bankruptcy case.

Bond insurer Financial Guaranty Insurance Co. agreed to a deal that promises to transform the riverfront and the Joe Louis Arena site into a 300-room, 30-story hotel with condominiums and retail shops.

Syncora's deal also involved real estate, including an extension of the Detroit-Windsor Tunnel lease and a lease for a parking garage underneath Grand Circus Park.

Staff Writers Chad Livengood and Christine Ferretti contributed.