Real estate development firm Bedrock Detroit cleared its final hurdle with the Michigan Strategic Fund for approval of its partially bond financed plans for “transformational” projects in the city’s downtown.
The state approved $618 million in brownfield incentives for the $2.1 billion project. It relies on $250 million of borrowing that is secured by new state tax incentives known as transformational brownfield tax credits that were created last year by the state legislature.
"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."
“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,” said Dan Gilbert, Bedrock's founder and chairman.
It will be the first project in the state and city to use the Transformational Brownfield Plan tax incentive program. The program uses tax-increment financing via which captures growth in property tax revenue in a designated area, as well as a construction period income tax capture and use-tax exemption, employee withholding tax capture, and resident income tax capture.
The MIThrive program is projected to total $618 million in foregone tax revenue over approximately 30 years.
“The TIF will not capture any city of Detroit taxes, and it will have no impact on the Detroit Public Schools Community District,” according to a statement from Bedrock.
The tax plan will support $250 million in bond financing by authorizing the capture of an estimated average of $18.56 million of principal and interest payments annually, primarily supported by state taxes over 30 years, to repay the bonds. All tax capture is limited to newly created revenues from the development sites themselves.
The TIF financing and sales tax exemption will cover approximately 15% of the project costs and Bedrock is responsible for 85% of the total $2.15 billion investment. A Bedrock spokesperson declined to release detail of when Bedrock plans to do the borrowing and if it will be done in increments or all at once.
In November 2017, the Detroit City Council approved the financing package.
Bedrock’s proposed projects will include the redevelopment of former J.L. Hudson's department store site; new construction on a two-block area east of its headquarters downtown; the Book Tower and Book Building on Washington Boulevard; and a 310,000-square-foot addition to the One Campus Martius building Gilbert co-owns with Detroit-based Meridian.
The projects will support an estimated 22,000 new jobs – 15,000 jobs related to the construction of the projects, and over 7,000 new permanent, high-wage jobs occupying the office, retail, hotel, event and exhibition spaces, according to a release.
The plans are part of ongoing development planned in Detroit that follow the city’s exit from Chapter 9 bankruptcy and recent exit from state oversight. The city earned an upgrade to Ba3 -- still junk -- from Moody’s Investors Service on Tuesday but market access without state enhancement remains elusive.