Why Adaptive Reuse Is Essential To The Future Of Detroit

Detroit might have fallen the hardest among Midwestern cities in the late 20th century, but even so it has an advantage when it comes to making a comeback: an enormous building stock, much of which is solid raw material for adaptive reuse. 

As Detroit re-invents itself in the 21st century, adaptive reuse is at the forefront of the effort, according to the speakers at Bisnow's Adaptive Reuse & Placemaking event in Detroit.

Re-invented older structures are now recognized as an essential part of the placemaking mix, the speakers said, part of the fabric of urban districts where people exchange goods, services and ideas — a dynamic that is taking hold anew in Detroit. 

The Adaptive Reuse panelists said now is a time in the local market unlike any in recent memory: Detroit is being remade.

CBRE President-Midwest Division John Latessa Jr., who has been working in the Michigan real estate industry for 30 years, said while there are important redevelopment projects throughout the Midwest, the level of activity in Detroit is remarkable, and not limited to Downtown.

"There's no city in the Midwest doing close to what we're doing," Latessa said. "In Downtown, but also Midtown, New Center, the riverfront and other places. Not only is there a large building stock, but Detroit has the advantage of thoughtful developers who are mindful about their surroundings. Not every city can say that. It's a good combination."

He said word is getting out about Detroit. For example, the ULI Spring Meeting is coming here in early May.

"That will be an important event, when developers and investors will see for themselves what's happening in Detroit. They'll see that the fundamentals are strong here, and that the city's momentum will carry forward."

City of Detroit Director of Historic Preservation Jackie Taylor said the city owns a lot of vacant buildings, such as 36 former schools, and is working on plans to reuse them.

"We have incredible buildings, and they give the city character, so why tear everything down?" she said.

Taylor said Detroit's building stock is more than just its best-known redevelopment projects.

"It isn't just the Fisher or other famous buildings," she said.

"We have former commercial buildings in the neighborhood commercial corridors that can be remade into new structures — new retail, new schools, other new uses for the neighborhoods. The city has plans to adapt and bring back these structures to life, with consideration to the people who live there."

The process will not happen all at once, Taylor said. Part of the process will involve "tactical preservation" — that is, the use of part of a structure, such as the auditorium of a closed school — which is all of the property that might be economically viable, at least for a while. Thus it might be a first step toward a larger redevelopment.

"The question now is how do you deal with that in a regulatory framework?" Taylor said. "We're working on a codified approach for certain kind of buildings."

The Platform has about 700 residential units in the pipeline for the next three years or so, said The Platform Director of Design and Culture Abir Ali, whose company is a developer working exclusively in Detroit, including central and surrounding neighborhoods.

Detroit is much more than Downtown and its environs, she said.

"We work in New Center, Tech Town and Milwaukee Junction, but also Old Redford, Island View and Fitzgerald. We believe you can't invest in the city center without investing in the surrounding neighborhoods — it's a balance to us," Ali said.

The Fisher Building is the crown jewel of The Platform's efforts.

"When we acquired the Fisher Building, we started considering ourselves stewards of the building," Ali said. "The importance of the building is more than just as office, retail, theater space, or even as a historic structure, but also as an essential part of the fabric of the neighborhood — a place for people, a continuation of New Center.

"We approach all of our portfolio with that sensibility. The front door of a building doesn't start at the front door, it starts at the boulevard."

The Detroit Future City Implementation Office Executive Director Anika Goss-Foster said her organization is working on putting together a 50-year framework on land use and redevelopment in Detroit. There needs to be a larger framework because there is a lot of land that could be redeveloped.

"There's over 6 square miles of occupiable land, mainly old industrial sites," Goss-Foster said. "That's at least 900 buildings, many located along railroads and adjacent to residential neighborhoods."

Many of those properties are vacant, and as such they disrupt the opportunity to re-create neighborhoods, Goss-Foster said.

"We analyze these properties and determine which ones are viable redevelopment possibilities. We have a strategic approach in identifying these vacant places and marketing them as part of a larger strategy to revitalize neighborhoods.

"Developing a framework for adaptive reuse of industrial sites is critical for the future of Detroit, because it impacts so much of the landscape of the city,"  Goss-Foster said. 

Redeveloping a city takes development and financing expertise, the Creating Destinations panelists said. The local expertise is here, and now the money is coming.

"America is excited about Detroit, because we love a comeback story," Marcus & Millichap Senior Vice President Steve Chaben said. 

It is a different environment in Detroit now, he said. As recently as a decade or so ago, no one was buying here, except Dan Gilbert. Lenders were reluctant to lend for any kind of deals in the city.

"Now lenders want to be here," Chaben said. "Life company loans are coming to Downtown and Midtown for the first time in years. I've been selling in greater Detroit for 35 years and I've never seen such interest. There is a lot of outside interest in Detroit real estate chasing opportunities in the market."

Bernard Financial Group and Bernard Financial Servicing Group founder and President Dennis Bernard said, even now, underwriters are not as familiar with Detroit as loan originators, but that is changing. 

"It can be a challenge to deal with underwriters who aren't familiar with Detroit," Bernard said. "There haven't been that many sales yet, because there isn't much incentive to sell right now, so underwriters say there are no comps. So you have to bring them to town and show them the market." 

Redevelopment can pose special challenges for financing.

"It's important to keep construction loans flexible, with a mini perm component to it," Bernard said.

"Construction might be scheduled for 18 months, for example, but it's best to have the ability to have a three-year loan, because you don't known what you are going to find under the previous development, such as unknown pipes or tunnels or other features that need cleaning up." 

Bedrock Vice President of Hospitality Andrew Leber said the Shinola Hotel project is about redeveloping for the long term.

"The market has a long way to go, but the long term is bullish, and the Shinola Hotel is going to be a part of the future of Detroit, and benefit from it."

The development is on five parcels on Woodward Avenue, including two historic buildings, two infill buildings and a parking lot. There will be an activated alley as part of the project, making connections with the nearby Element Hotel at the Metropolitan Building and The Siren Hotel at the Wurlitzer.

"We put three and a half years of design work into the Shinola Hotel, and we're still fine-tuning it," Leber said.

Sachse Construction CEO and founder and Broder & Sachse Real Estate co-founder Todd Sachse, whose projects have included The Scott at Brush Park and currently The Hamilton, said for developers, the skilled labor shortage is a national problem, but not as bad in Detroit as in other markets.

"But it is having an impact here," Sachse said. "Not so much on timelines, but certainly on costs. Developers who aren't familiar with the market might think that Detroit is an inexpensive place to build, but it isn't. Labor costs about 18% more than the national median. On the other hand, contractors here are high quality, and have good relationships with subcontractors, so they're well paid for it."

Even so, with the market's momentum, developments will get done. Sachse said The Hamilton needed to be gutted and redeveloped.

"We did an arrangement by which low-income residents who lived there before can live there after the redevelopment, and pay only 5% more rent than when they moved out," Sachse said. "We made it work as a historic rehab, and we're proud of that."