The 15 Year Ilitch
Today, Olympia Development, the Ilitch's real estate company, unveiled its $650 million dollar vision for the new Arena District. While the plan is nothing new; the flood of press surrounding the tasteful watercolors and 3D renderings also brought with it a healthy reminder about how money, politics, and urban development plays out in the long run.
The Ilitch history
Let's start with a trip back in time to 1982: Detroit's Hockey team, The Red Wings, were suffering a decades-long slump in performance and the team that had once housed greats like Gordie Howe was looking washed up. Mike and Marian Ilitch, the owners and founders of the widely successful Little Ceasar's franchise pizza restaurants, took interest in the team and purchased it from long time owner, Bruce Norris for $8 million ($19.7 million in 2014 Dollars) 1. A steal by any standard when you look at the team's current record playoff streak. 15 years after their purchase, The Wings took home the 1997 Stanley Cup in one of the best playoffs seasons around.
Shuffling back to the 80s, we see the historic Fox Theatre, also in rough shape: years of declining sales and a closed mezzanine and balcony was starting to show. It was certain the theatre was dying a slow, unfortunate death without a major renovation. It was in 1988 that the Ilitches swooped in with a $12 million renovation project, saving the theatre and creating the now famous "Foxtown" entertainment district on Woodward, just north of Grand Circus park 2. The Ilitches had begun their second of many more highly-successful purchases and turnarounds.
In 1992, the Illiches added to their sports team collection by purchasing the Detroit Tigers from another pizza baron, Tom Monaghan of Dominos Pizza fame. After purchasing the team, Illich made his intentions clear to build a new Baseball Stadium to replace the aging Tiger's stadium and created Olympia Development in 1996 to manage and oversee new development projects in downtown Detroit. And in 2000, the Tigers moved into the new Comerica Park, located directly across from the Fox theatre 3. The stadium was built for $361 million, $115 million of which was paid for by Detroit and Wayne county taxpayers 4. In 2006, the Tigers were the dark horse or the season, emerging from 12 years of losing seasons after the 1992 purchase. Another Ilitch success story, the Tigers are now a successful sports franchise and with a number of winning seasons on their belt since their comeback eight years ago 3.
While the Tiger's stadium was being built and for years after, Olympia Development started to buy up lots surrounding the the entertainment district in the dark. They sat on the lots for years, letting the property sit vacant or abandoned.In 2008, the Downtown Development Authority event stepped into the tune of $2.5 Million in state funding to tear down six buildings on the Ilitch property. Now, if you drive by the lots on a game day, you'll see dozens of parking lots packed with cars parking for $10-20, operated by Olympia Development's parking department. This property would someday become the basis for the proposed Arena District 5.
Back to 1998, when Marian Ilitch divests her interests in the Detroit Tigers to invest in the newly conceived Motor City Casino which opened in 1999. Six years later, she would become its sole owner, and in 2008 a $300 million renovation campaign would see the casino expand to include a giant luxury hotel and various amenities. The casino, located under a mile away from the Tigers stadium, sits in North Corktown along Grand River Ave 3.
In 1999 just prior to the stadium opening, the Ilitches created Ilitch Holdings, Inc. to contain their various businesses, and sports franchises. The Holding company would become an important part of the Ilitch empire, with Mike and Marian as Chairman and Co-Chairman respectively and their son Christopher, would would later become the President and CEO 6.
Start buying up those hotels
So now we come to the 15-year mark on the Ilitches next big plan: The arena district. But before we dive into the plan, let's see what's happened to the family and the properties they own in the area. Currently, Forbes calculates their net worth at $3.6 Billion, and their original company, Little Ceasar's isn't doing half bad either, with an annual revenue of $3.7 Billion dollars 7. But how about all that property doing in the entertainment district? Pretty poorly, in fact. They've sat vacant, unused, and under taxed as undeveloped land. All of which was silently purchased and kept as open lots to keep prices low. "It’s been painful to not be able to develop some of that property because every time we made a move, the price for other property would shoot way up,” Christopher Illich said in a recent Detroit News article 8. But even with such hardships as paying market value for property, the Ilitches suffered through years of hidden purchases to build the grand vision they had for the neighborhood. The tactic of secretly purchasing properties isn't anything new. Even Quicken Loan's Dan Gilbert has done it multiple times to keep prices low on his building buyout in Detroit 9. But like anyone playing a game of Monopoly eventually you have to seize the time and start building Hotels on Broadway, or Woodward in this case.
So we come to the grand Arena District plan: a development 15 years in the making. A quick look at the map and you can see the strategic purchases come together for a connected, cohesive vision of commercial, residential, and entertainment space.
The finances, though, are far more murky. Of the $450 million dollar arena development, 58% will be publicly funded through existing state economic development funds. While it is thankful that none of the money will come directly out of the city's general fund, the city loses out on possible taxes for the arena. Like in past stadium developments, the actual stadium is owned by the city, yet managed by the Ilitches. However, unlike the previous Joe Louis arena arrangement, the city doesn't get a cent of revenue sharing. It's great for the Ilitches, as the deal allows them to collect all revenue from the stadium (The city made $7 Million a year on Joe Louis 10), without any of the property taxes that would go along with a large private venue. And let's not forget that the city council also sold the last few properties the Ilitches needed for a dollar 11.
So why would a city that needs every cent in new revenue take such a horrible deal?
They have no leverage
Let's make no mistake: Detroit can use as much development as possible. It's a city that desperately needs every new job and every new business. I make no statement to say that development on its own isn't bad for the city. When you're in the hole as much as Detroit is, you have no bargaining power and you basically take any deal you can get. The only problem is, Detroit did have a major piece of borrowing power: land. The Ilitches were already pot-committed when they spent $50 million acquiring all of the private land they could in the entertainment district 8. They're already running and expanding land they own in the area. Unlike other developers who could just move to Oakland county, the Ilitches can't really pick up and move out. If the Ilitches really wanted their "grand vision", they should have had to pony up to buy that land from the Downtown Development Authority. A perfect opportunity to make some money for the city! Here, in the midst of the bankruptcy, was some assets they could actually sell for money and not cause an uproar like the DIA. They event missed out on profiting from taxes on the stadium or some of the revenue sharing like they had done in the previous Joe Louis deal. Instead, the city just sat there and let the Ilitches walk all over them.
They are blinded by the Stadium Effect
Now I won't go into exhaustive detail over the "Stadium Effect," because several better writers have done a far better job than I have on the subject. But here's the idea: a sports owner wants to build a big stadium and promises a major new entertainment venue, huge new revenues for the city, tons of new jobs, concurrent development, and more. It sounds like a fantastic feat of the private sector to come in help out a city. All the city has to do is shell out taxpayer money or subsidies or tax breaks in hopes of all of this new revenue. However, after the stadium is built and the initial hype dies down, the revenue doesn't come. The city foots the bill for new infrastructure and road repairs. They also get a big building which is only occupied a small fraction of the year. So where did the money go? Typically right into the pockets of the owners. And the city is no better off than before.
Like every city before it, Detroit has fallen prey to another snake oil salesman disguised as a capitalist trying to help out a city down on its luck. To be fair, it's not like we should expect anything else. Ilitch Holdings is a business and will do whatever it has to to turn a profit. You can't blame them for being deceptive or being slumlords, but we can blame ourselves for letting them get away with it at the cost of city residents.
If you want some more information on the stadium effect, read these articles:
The future of the district and the city
Let me finish with a bit of a personal prediction of what will happen to the stadium. I think it will be a major success. In three years time, we'll have a brand new stadium on Woodward connected to the M-1 Rail line. The new lighted roof will illuminate the night sky with a gaudiness that is only challenged by Marian's Motor City Casino We'll see commercial spaces and apartments fill up in the new district. Property values downtown will continue to rise. Who knows, maybe the Pistons might even move downtown 12? But missing from this exciting new future will be places like Comet Bar 13 or buildings like the (suspiciously burned) First Unitarian Church of Detroit 14. What's more, the area outside of the Downtown Development District, the other 135.7 square miles that make up the City of Detroit, won't see the change. They'll still be dealing with poor police presence, slow emergency responders, water and power shutoffs, high unemployment, and the rapid gentrification of the neighborhoods. While the Ilitches skirt around taxes; the rest of the city won't get a penny. The reverse robin hood of the city continues, and the comeback will continue to make wealthy individuals more wealthy.
And let's make things clear: I am and will continue to benefit from this. I'm white, male, college-educated, middle class, and I make my living in the tech field. For me, this "comeback" helps only people like me, while keeping everyone else at arms length: segregated by neighborhood, education, race, and income. Let's be clear, I'm very thankful for my job, and thankful for where I am in life. So, right now I'm paying my city taxes in hope that some of it finds its way out of downtown. So here's to hoping for that great Detroit comeback:
Here's to hoping that some of the jobs created go to current city residents.
Here's to hoping that some of the residential units are for low-income or subsidized housing.
Here's to hoping that some of the commercial spaces will go to local businesses.
Here's to hoping that the city ends up making some meaningful revenue off this deal.
Here's to hoping that someone good actually comes out of this.
Because it sure looks like more of the same to me.
: Hodges, Michael H. (September 8, 2003). "Fox Theater's rebirth ushered in city's renewal". The Detroit News (detnews.com- Michigan History). Retrieved August 14, 2012.