Detroit council votes today on arena deal; Ilitches to get land for $1

After weeks of debate and public meetings, the Detroit City Council is expected to decide today whether it will transfer land along the desolate streets of the Cass Corridor for the Red Wings’ new $650-million arena district.

The proposed deal — 39 vacant parcels just north of downtown for $1 — would be the city’s chief contribution to the proposed arena, a joint venture between companies controlled by Red Wings owner Mike Ilitch and the Detroit Downtown Development Authority, an agency which promotes development with tax breaks and other incentives.

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Some city officials say they’re concerned about the deal and think the city should get more for the land. A Free Press analysis of city records shows that several private landowners succeeded in netting millions for themselves by selling similarly situated land in the arena’s footprint to Ilitch-controled corporations.

But others, including several council members, say the city should give the land because the new arena district will bring jobs, increase property values and rejuvenate an area mired in crime and blight for decades.

City Councilman Gabe Leland, who chairs the planning and economic development committee, said the arena project will provide the city with a needed economic boost. “I ran my election on creating jobs,” said Leland, who won election in November. “This is not the perfect deal that I talked about earlier. There’s an opportunity here to create an environment to create some jobs.”

The arena development would span eight desolate blocks and transform the Cass Corridor, an economic dead zone between downtown and Midtown and once a notorious haven for crime and prostitution. The ice could be ready in time for the 2016-17 hockey season.

City records show that corporations under the Ilitch umbrella spent nearly $50 million in the past seven years buying out the private owners. Some of the most lucrative private deals to the former owners involved properties that are currently boarded-up, covered in graffiti and strewn with empty liquor bottles. The owner of a squat one-story building on a ¾-acre parcel along Sibley Street, for example, fetched the highest dollar —$20.4 million — from the Ilitches.

Another major deal

The Red Wings arena would be the latest major investment in Detroit for the Ilitch family, which has spurred earlier phases of downtown’s revitalization. Projects over the past 25 years, such as Comerica Park, the MotorCity Casino Hotel, Hockeytown Cafe and the renovation of the Fox Theatre have brought millions in revenue to the city.

Despite some concerns that the city may not be getting fairly compensated for its land, development experts note that the eye-popping sales prices for distressed Cass Corridor real estate were based on the land being valued as the site of a new sports arena.

On its own, Detroit has been unable to develop the land, which has sat fallow for years and contributed to the corridor’s reputation.

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“Right now they’re generating zero revenue for the city,” said Jim Bieri of Detroit-based Stokas Bieri Real Estate. “So the value to the city is, if anything, negative because they have to be concerned about whatever happens on that land, but they’re getting no revenue from it.”

Council President Brenda Jones, who has expressed concerns about whether the arena project will guarantee jobs for Detroiters, said the city’s land has not been put to good use and her goal is to help rebuild Detroit.

“No one has, I don’t think, has been jumping over hoops to buy that land,” she said.

The public land transfer is a linchpin for what could be become Detroit’s $650-million arena district mega-project. The $450-million hockey arena is expected to anchor a $200-million spin-off development of residential, entertainment, retail and office buildings. The total project is to encompass 45 blocks.

The 27 city-owned properties as well as a dozen owned by the city’s Economic Development Corp. would be transferred to the Detroit Downtown Development Authority for $1.

An additional 26 city-owned properties outside the arena site but within the boundaries of the spin-off development would be transferred for fair market value, which has yet to be determined.

The Ilitches’ Olympia Development of Michigan already has agreed to transfer more than 50 properties under its control to the Downtown Development Authority, also within the eight-block arena footprint.

The development authority will own the future arena site and lease it for up to 95 years to Olympia Development, which will not pay any rent, but would be responsible for paying off a portion of bonds issued to pay for the arena’s construction.

'Nothing in return'

One council member said the city should not be giving away land when it is cash-starved and going through bankruptcy.

“Why are we transferring over this (public) property for a dollar when the value of the land is worth way more than that?” said Detroit City Councilwoman Mary Sheffield. “It’s hard for me to just give away land with nothing in return.”

The publicly owned land has a recorded assessed value of about $2.9 million, although it is unclear when the city last evaluated those properties. Assessed values in Detroit are supposed to represent half of a property’s market value.

In a report last summer, council’s policy analysts suggested that all the properties in the transfer should first be formally appraised before they are handed over.

“It would be more ideal for the city to receive fair market value for the transfer of city-owned land ... to help the city financially that is undergoing the largest municipal bankruptcy in the history of the United States,” the analysis report said.

The City Council is expected to vote on the public land transfer today. Should it reject the land transfer, Detroit emergency manager Kevyn Orr, under Public Act 436, can request that the state’s emergency loan board execute the deal.

Thousands of jobs

The process for assembling the land is laid out in a concession management agreement, which includes many other terms of the arena deal between the development authority and Olympia. The City Council was not involved in negotiating the agreement.

“What’s important is that all legal requirements are met, and the overall benefits to the city make the transfer worthwhile,” Robert Rossbach, spokesman for the Detroit Economic Growth Corp., said in a statement on behalf of the development authority.

Neither the developer, Olympia Development of Michigan, nor the Downtown Development Authority has said exactly where the arena will be situated on the eight-block expanse of land west of Woodward and north of the Fisher Freeway. Details for a parking lot next to the arena, such as its size, have not been released yet to the public. Three arenas the size of the Red Wings’ proposed new home — 650,000 square feet — could fit inside the proposed boundaries of the site, according to Corridors Alliance, a community group monitoring the project. Another mystery is exactly what the arena will look like.

The arena portion of the development is projected to create 5,550 construction jobs and sustain 1,100 permanent jobs, which is 440 more jobs than at the Red Wings’ current home at Joe Louis Arena.

Despite seating about 2,000 fewer fans than Joe Louis, the team’s new venue is expected to have nicer luxury boxes and employ hundreds of additional people by offering labor-intensive amenities, such as restaurants and retail stores.

“Think of the staffing needs required when one offers food choices that range from sushi to high-end food and desserts, as well as the usual arena food choices,” Mark Rosentraub, the University of Michigan professor who computed the jobs figures, wrote in an e-mail last week.

The arena is also projected to generate nearly $16 million a year in new city income tax revenue , including $8.6 million from the three-year construction period and $7.2 million over 30 years for the estimated 440 new permanent jobs.

As proposed, construction of the arena itself would be 58% publicly funded and 42% privately funded. No Detroit general fund dollars would be spent; the state is contributing the bulk of the public investment.

Olympia has agreed to pay $11.5 million annually for about 30 years to help pay off the construction bonds. Olympia will own the arena’s naming rights and will keep all revenues from arena operations, including parking fees and concessions sales. The city will not collect property taxes on the arena.

Overall, the terms are less favorable to the city compared to the team’s lease of Joe Louis Arena. Under that agreement Olympia was responsible for annual rent of $300,000, property taxes capped at $252,000 and a portion of revenues from concessions, souvenirs and ticket sales. The arena, hemmed in by the Detroit River and Cobo Center, was not part of a neighborhood or district’s redevelopment.

Deals under wraps

City and Wayne County property records show that the Ilitches paid millions of dollars for parcels in the district footprint. With the Ilitches trying to assemble as much land as possible for the project, some of the landowners drove hard bargains. But Ilitch Holdings historically has bound property owners in land transactions to confidentiality agreements. None involved in the arena project would speak on the record with the Free Press.

■ The family of a current Little Caesars manager, Susan Zoma, netted $5 million for the sale of a boarded-up liquor and convenience store — Park and Sibley Market — in their possession since 1959. Asked about the sale, an Ilitch Holdings spokesman said the company generally does not discuss or confirm specific transactions. Zoma declined an interview.

■ A company tied to Greater Detroit Cab sold the former cab offices and surrounding sites on and around the Fisher Freeway for $7.8 million. The cab company relocated to Southfield in November.

Included in the cab company deal was the Comet Bar, a shot-and-a-beer bar that, according to its owner, attracts Tigers fans and karaoke enthusiasts and still does good business. The bar’s future is uncertain, said owner Harry (Wayne) Alexander, 68, who is critical of the proposed $1 transfer of surrounding land. Greater Detroit Cab owned the bar and the land it is on.

■ The Salvation Army got $2.6 million for the old Park Avenue Hotel and several adjacent parcels between Woodward and Cass. The shell of a hotel, which is on the National Register of Historic Places and most recently served as a homeless shelter, is known for the giant “ZombieLand” graffiti tag.

■ The priciest land deal so far was secured by the family that owns Prime Parking. The owner received $20.4 million for the building at 66 Sibley.

Mayor Mike Duggan said he did not have a comment on the land transfer. “Kevyn Orr and I had a division of responsibilities, and on his side of the ledger was the hockey arena, which was negotiated by the emergency manager,” Duggan said.

Orr supports the arena project, and it is thought that he will sign off on the land deal if council balks.