State approval sought for bond-funded Detroit development project
DALLAS - Bedrock Detroit, Dan Gilbert’s real estate development company, presented plans for its partially bond financed “transformational” projects in the city’s downtown to the Michigan Strategic Fund board on Tuesday.
The presentation follows the Detroit city council's approval of the plan, which includes $250 million in new state tax incentives, on Nov. 21. The tax incentives, known as transformational brownfield tax credits, were created this year by the state legislature.
Tax increment financing would come from a property tax generated by residents living in the new developments, state income tax generated by workers at the developments, state income tax on construction labor building the projects and state sales tax on construction materials used to build the projects.
The tax plan will support $250 million in bond financing by authorizing the capture of an estimated average of $15.9 million of principal and interest payments annually, primarily supported by state taxes over 35 years to repay the bonds. All tax capture is limited to newly created revenues from the development sites themselves.
Kathy Achtenberg, a spokesperson for the Michigan Economic Development Corporation, said that the next step is to take the developer presentation to a third party reviewer. “The third party reviewer will look at everything the developer has put together and determine is what they except to receive is appropriate. From there Bedrock would come back with their formal request,” Achtenberg said.
Achtenberg said that Bedrock is anticipated to come back to the Michigan Strategic Fund board with a formal request in March of 2018.
The Detroit Brownfield Redevelopment Authority unanimously approved Bedrock’s plan in October. “The bonds would be private bonds that Bedrock Detroit would secure,” said Brownfield Redevelopment Manager Brian Vosburg. “The city will not be issuing any bonds or securing any debt for the project.”
In September, Bedrock announced that it would be seeking gap financing through the new state MIthrive program enacted into law earlier this year. The program builds on the existing local brownfield tax increment financing program by providing additional state support needed to make transformational development projects financially possible.
Bedrock’s proposed project will cost $2.1 billion and 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 Gilbertco-owns with Detroit-based Meridian.
“Together, the bond financing and sales tax exemption will cover approximately 14 percent of the development costs,” the developer stated in a press release. “Bedrock, and potential partners, will be investing and financing the remaining 86 percent of the total $2.1 billion investment.”
According to an analysis by the Detroit Economic Growth Corporation, because the tax increment financing Plan does not capture any city taxes, the package will result in a net benefit of $673 million in new tax revenue to the city over the life of the tax increment financing.
Bedrock's plan is the first project in the state and city to use the tax incentive program.
Detroit developers can keep up to 50% of the income tax generated by individuals working or living in a redeveloped site for up to 20 years. The five-bill package sets a $40 million annual limit on the amount of tax revenue developers can capture at all of the sites under the Transformational Brownfield Program.
To qualify for the incentives in Detroit, a minimum investment of $500 million is required.