MSF supports Bedrock Management Services $2.15 billion investment in new construction at Hudson site, Monroe Blocks, Campus Martius, renovations of Book Building & Tower
With approval (May 22) of support for new construction on Detroit’s historic downtown Hudson’ site and renovations of the city’s treasured icons, the Michigan Strategic Fund board authorized vital funds for Bedrock Management Services’ long-anticipated transformation of some of the highest profile brownfield properties in the state.
Image courtesy of Bedrock Detroit
“The Transformational Brownfield Plan continues the momentum of Michigan’s reinvention by expanding opportunities to create modern and vibrant communities throughout the state,” said Gov. Rick Snyder.
“As the first transformational brownfield project, Bedrock’s visionary development in Detroit will serve as a model for how private and public entities can work together to transform brownfield sites into drivers of economic revival and growth,” he said.
Last July, Gov. Rick Snyder signed into a law an economic-development package known as the Transformational Brownfield Plan (TBP). The development blueprint is a strategic effort designed to attract businesses and developers to invest in large, catalytic projects – and continue to attract residents to Michigan.
"The Michigan Strategic Fund's approval of the MIThrive financing represents a major step forward for Detroit and other Michigan cities that are rebuilding," said Mayor Mike Duggan. "Thanks to this new tool, we will be able to make sure these projects realize their full potential to create thousands of new jobs in our cities."
MIThrive is a coalition of Michigan economic development organizations, cities and chambers that supported the transformational brownfield legislation.
Sites considered under the package are high-profile, high-traffic areas that define a locale’s identity and economic prospects. The TBP provides a key approach in closing the financing gap for private investors while generating a positive return for both the developer and the state from long-term tax revenue.
Support for Bedrock’s package of developments in downtown Detroit is the first Transformational Brownfield project approved by the Michigan Strategic Fund under the legislation.
Located in one of the highest-profile and historic business districts in the state, the Bedrock project includes $2.15 billion capital private investment in four distinct development sites covering six acres.
The construction sites include:
• Hudson’s Block : Located on former Hudson’s department store on Woodward Avenue. Currently a vacant ground-level site above underground garage. Construction plans include building tallest tower in city, retail, conference, office and 330 residential units.
• Monroe Block: Site is currently vacant. Construction to create retail office and 482 residential units.
• One Campus Martius expansion: Adding 11 stories to rear of building.
• 13-story Book Building and 38-story Book Tower: Among city’s treasured historic sites. Will add retail, conference center, hotel space and 95 residential units.
In total, about 3.1 million square feet of new office, retail, residential and hotel space will be developed. When completed in 2022, the project is expected to create 7,738 jobs, paying on average $34 per hour.
In addition, the average annual construction jobs created as part of the TBP is 2,764 during the building and renovation process at the four development sites. Approximately $3 billion in total economic output is projected during the five-year construction period.
“These landmark developments are a milestone representing Detroit’s credible new era of hope, optimism and growth,” said Dan Gilbert, Bedrock Founder and Chairman. "This process has been an outstanding example of collaboration between multiple levels of government and private industry that will unleash billions of dollars of investment, resulting in transformational impact to Detroit, the region, and the entire state of Michigan.”
Incentives for Bedrock’s development projects are based on an independent, third-party analysis conducted by SB Friedman Development Advisors, University of Michigan Research Seminar in Quantitative Economics, and W.E. Upjohn Institute for Employment Research.
Based on consultants’ findings, the MSF board approved the $618-million, multi-layered incentive package that includes:
• $60.6 million construction sales/use tax exemption;
• $229.6 million property tax (traditional TIF) capture revenue;
• $18.1 construction period tax-capture revenue;
• $256.2 million withholding tax capture revenue;
• $51.6 state income tax capture revenue;
• $1.6 million city income tax capture revenue.
The economic and fiscal impact assessment of the project determined that over the course of the reimbursement period, the TBP is projected to produce $2.5 billion in new state tax revenue, which has a net present value of $861 million. The net present value of the $618 million TBP incentive is $265 million. The report concludes that the net benefit to the state will be $596 million or $3.2 of new tax revenue to the state for each dollar of revenue foregone through the incentive.
“The Transformational Brownfield Program has the potential to become a best practice for how public-private partnerships enable developers to make transformative community investments,” said Jennifer Kanalos, director of board administration for Detroit Economic Growth Corporation (DEGC), which has facilitated tax abatements, sale of property, and local brownfield approvals to expedite the approval of the project.
DEGC has worked with MEDC to interpret statute and execute local approval processes, which serve as the precedent for future brownfield transformational plan requests across the state.
“The work of the DEGC and public authorities, including the Downtown Development Authority and the Brownfield Redevelopment Authority, ensured the project received the financial incentives needed to make it viable and take the first TBP project though the local process to approval.”
The Michigan Economic Development Corporation is the state’s marketing arm and lead advocate for business development, job awareness and community development with the focus on growing Michigan’s economy. For more information on the MEDC and our initiatives, visit www.michiganbusiness.org. For Pure Michigan® tourism information, your trip begins at www.michigan.org. Join the conversation on: Facebook, Instagram, LinkedIn, and Twitter.
Frequently Asked Questions
QUESTION: Why is the Transformational Brownfield Plan (TBP) necessary?
ANSWER: Policymakers have tried to attract businesses and workers to the state through tax reforms, such as replacing the Single Business Tax with the Corporate Income Tax in 2011, regulatory reforms, such as relaxing the restrictions regarding autonomous vehicle testing, and economic incentives.
There was a belief among policymakers and municipal leaders that the state and municipalities had few economic development options to persuade businesses or developers to invest in large and meaningful projects that would make Michigan a more attractive place for people to work and live in.
Furthermore, many Michigan municipalities, particularly Detroit, have blighted areas and buildings that are too expensive for developers to renovate without assistance. In an effort to create more economic development opportunities, remove blight, and attract skilled workers to Michigan, some suggested creating an additional economic tool that will encourage developers and businesses to renovate or repurpose some of the most challenging brownfield properties into attractive economic and residential hubs.
Q: What is the impact on of the TBP on Detroit?
ANSWER: The immediate impact is activation of vacant and blighted spaces in the downtown. This is a step forward for the preservation of Detroit’s unique architectural heritage.
The project includes the addition of over 7,700 new high-wage jobs, approximately 900 new housing units in the downtown. The 13-story Book Building and 38-story Book Tower will undergo a $311 renovation bringing the historic icons back to life as a hotel, retail and residential hub of activity after being largely vacant for two decades.
Q: What is the impact of the TBP to the state overall?
ANSWER: The net positive impact to the state is $596 million, according to the report by the University of Michigan’s Research Seminar in Quantitative Economics (RSQE). Increased revenue to the state will occur year over year throughout the entire capture period.
The present value of the gross new tax revenues to the state will total $861 million, and the present value of the incentives to the developer at $265 million. This translates into an estimated state-benefit-to-incentive ratio of $3.20 to $1.00. (Note: The net benefit to the state will be $3.20 of new tax revenue for each dollar of revenue forgone through the incentive.)
Q: What is the timeline for the TBP?
ANSWER: Legislation became effective as of July 24, 2017. Incentives of the TBP in Detroit were presented in November, and the findings of an independent impact study was presented at the Michigan Strategic Fund meeting on May 22, 2018. Construction has begun on Hudson’s site and completion of all four sites is projected by third quarter of 2022.
Q: Why was there a third-party analysis?
ANSWER: There are two important thresholds that must be met by a TBP applicant: 1.) The proposed project must demonstrate that it will result in an overall positive fiscal impact to the state that is greater than the TBP award, i.e., state revenue generated must exceed the tax revenue reimbursed and exempted to the developer; and, 2.) There must be a demonstrated financial gap that if not for the incentive, the proposed project would not be financially feasible.
TBPs proposing to use more than $1.5 million in annual tax capture revenues require an independent economic and fiscal impact analysis conducted by a third-party. Consultants were selected to conduct the analysis by the MEDC and the state treasurer through a competitive RFP process.
The University of Michigan Research Seminar in Quantitative Economic (RSQE) along with the W.E. Upjohn Institute for Employment Research performed an economic and fiscal impact assessment and SB Friedman Development Advisors conducted an underwriting analysis of the project.
Q: Why is there a need for this incentive?
ANSWER: The financial needs for this attraction package results from the difference between development costs, and what current market rents can support. In addition, there will be extensive space committed to public uses which is critical to local and state economic development, attraction of talent and overall quality of community life.
An important distinction to make is that the state isn’t cutting a check to Bedrock Management Services. The developer will have the opportunity to be reimbursed a portion of specific incremental taxes generated by project during construction and through the reimbursement period.
Q: What is the amount of the TBP Incentive and how is it disbursed?
ANSWER: TBP attraction package in aggregate equals $618,019,167.
The following is a breakdown of the incentives:
• Property tax capture in the amount of $229,558,387;
• A maximum of $18,174,854 in construction period withholding tax capture revenues;
• A maximum of $60,647,889 in construction period sales and use tax exemptions;
• A maximum of $307,977,593 in income tax capture revenues and withholding tax capture revenues (post-construction); and
• A maximum of $1,660,444 in local income tax capture revenues (post-construction).
The developer proposes to invest $2.15 billion in the four project sites over the next five years. During construction the TBP award will allow for sales and use tax exemption and reimbursement of the construction period withholding taxes. Following certification of final construction costs the TBP award will allow the developer to be reimbursed a portion of the property tax capture for 30 years as well as 50% of the post-construction income and withholding taxes generated on the project sites.