Antoine de la Mothe Cadillac lent his name to the quintessential American icon — the Cadillac, future land boat of choice for generations of American dreamers and schemers, not to mention Elvis impersonators. This July, the Tall Ships will visit Detroit, complete with a re-enactment of Cadillac’s landing on these shores, celebrating the 300th anniversary of Detroit’s settling by the French.

This will be a fun time, what with the parade of historic ships, concerts of all sorts, an 800-voice Tricentennial Gospel Choir and an appearance by the incredible Stevie Wonder. We know what the first 300 years have been like for Detroit, whose economy was literally forged on the anvil of ingenuity by Henry Ford and fellow tinkerers. It is much less clear what the next three or four years will be like.

Positive build-up

Downtown Detroit has sprouted three successful temporary casinos and a new stadium for the Detroit Tigers. There also is a new stadium in the works for the Detroit Lions. General Motors Corp. (GM) has established its world headquarters at the riverfront Renaissance Center.

Compuware’s new downtown headquarters is the first new office headquarters building in downtown Detroit in nine years but, overall, the downtown office market is less than stellar. Another twist: two-term Detroit Mayor Dennis Archer has announced that he will not be a candidate for a third term in office.

Wayne County’s expanded Metro Airport will place Detroit’s air transit facilities — in look, feel and function — among the nation’s finest. The real goal: solidify and augment Michigan’s economic development programs intended to diversify the economy, keeping growing firms in the region while drawing new winners.

In fact, this year Site Selection magazine awarded Michigan the “Governor’s Cup,” recognizing the state for the fourth consecutive year as having the most new plants and expansions. Gov. John Engler and Doug Rothwell, president and CEO of the Michigan Economic Development Corp. (MDEC), touted 2,538 new and expanding business locations in calendar year 2000, and 34,000 new jobs for Michigan since the early 1990s.

Waiting to exhale

It’s all quiet on the real estate front, as markets absorb a modest flush of new product, and dot-com-itis hits other office markets more dearly. There are still good acquisition values in Detroit’s suburban office markets, suggests Bill Harvey, senior vice president at the Bloomfield Hills office of Chicago-based Transwestern Commercial Services.

“We’re a little contrarian. We’re a little shy from the institutional side, waiting to see what happens with the auto industry,” Harvey said. “But once people realize things are stable, they will come in and come in hard. When it comes to buying Class-A property, we have similar net-income levels as other prime markets, but Detroit properties trade at a discount to other markets.”

Dominance by local developers and local construction lenders is the key, said mortgage banker Larry Hadley, principal of Novi-based Hadley & Associates.

“They understand the cycles of our economy and commercial real estate markets, that we are all in the car business in this town whether we know it or not, or whether we like it or not. It keeps supply and demand in better balance than other Midwest cities,” Hadley said.

“The only hesitation to investing would be that we don’t know where we are in the economic cycle,” he added. “There is a tremendous risk that the economy is a lot squishier around the edges than everyone realizes, that values and rents may well have peaked and are headed for some kind of downside, and we don’t know how much, how fast, how hard or how long.”

Detroit snags Compuware: steel stretches skyward

Construction is now under way on the new downtown Detroit world headquarters for Compuware Corp. The project’s first phase of two adjoining 16-story wings totaling 1.1 million sq. ft., along with above and underground parking for 3,000 cars, is expected to be completed by mid-2003. The facilities, which will be owned by Compuware, are being built on the 9-plus-acre Campus Martius redevelopment district, where the city is building an underground parking garage on the former Hudson’s department store site. In addition to the parking facility, other amenities include a cafeteria, a wellness center, a day-care center and a 14-story atrium.

This first phase will add as many as 3,600 Compuware employees to downtown Detroit’s work force. a second, unscheduled phase would bring the total Compuware employees downtown to as many as 5,100. The move consolidates offices currently in Farmington Hills and Southfield, Mich.

Developers assigned to the headquarters include Detroit-based Redico-Cummings and Chicago-based U.S. Equities Realty LLC, longtime corporate-wide realty advisor to Compuware. Heading up U.S. Equities’ Detroit office and supervising the project is Senior Vice President J. Walter Berger, whose resume includes more than 15 years managing the in-house real estate activities of Detroit’s NDB, then First Chicago NBD and Bank One, its merged successors.

In assessing the overall vitality of Detroit’s downtown, Berger emphasizes several factors that helped reinvigorate Cleveland’s downtown: a sincere desire by diverse parties to work together; good access to the government structure; a regional income taxing authority; access to mass transit; and a less developed infrastructure in outlying areas.

In addition to the GM and Compuware moves, job creation downtown will come through the growth of smaller companies, many of which are populating Detroit’s older office properties, according to Berger.

“We are in the stage of being given a fair look by everyone. Given a fair chance to compete, Detroit offers a lot,” Berger said. An important aspect of the new headquarters will be incorporating it, as much as possible, into the public and social flow of the city. In addition to first-floor retail and top-draw restaurants, the building may feature a “Top of Compuware” observation deck.

Elsewhere, prime downtown office space is available. This includes 300,000 sq. ft. in Ren Cen Phase II, a non-GM part of the complex, expected to become available this summer when ANR Pipeline employees move to other locations. Jeff Bell, senior vice president of the office services group at the Southfield office of Northbrook, Ill.-based Grubb & Ellis, reports progress on several fronts. Crain’s Communications will move to Brewery Park Phase II. There also are new leases at Stroh Rover Place, represented by Bell, the Detroit office of the U.S. Food and Drug Administration and two securities firms.

Solid prospects for the city lie in establishing new retail and residences, according to David Farbman, president and CEO of Farmington Hills-based The Farbman Group.

The Farbman Group has developed the Lofts of Woodward Center, 60 lofts with 13,000 sq. ft. of retail near Campus Martius. Next on Farbman’s agenda is its New Amsterdam development, an ambitious mixed-use project to be constructed in coordination with Wayne State University.

New Amsterdam is located between Wayne State University and Detroit’s New Center area, where the State of Michigan employees will occupy much of GM’s former Albert Kahn-designed headquarters.

New Amsterdam’s initial phase will include as many as 120 residential units, market-rate lofts renting from $850 per month to $2,100 per month, and a childrens’ museum fashioned out of an abandoned Detroit Edison (DTE) substation. In converting old warehouses and other buildings to residential use, The Farbman Group is making use of a number of state incentive programs. According to Farbman, these include a new Obsolete Property designation (in a state pilot program) and the Brownfield Authorities program. The group also is using an infrastructure grant and historic tax credits. The first residential move-ins are expected in fall 2002 or spring 2003.

“Now, Wayne State’s endeavors will lead to truly mixed-use, not simply a biotech park,” Farbman said.

Suburbs feature careful construction

In suburban Detroit, David Miller, a partner and office broker with Southfield-based Signature Associates-ONCOR International, reports that in Southfield, the 165,000 sq. ft. Phase II of Redico’s Oakland Commons is on track for completion by year-end 2001. Tenants in the development’s Phase I include GMAC, Siebel Systems, i2 Technologies and Vastera.

Miller said that any perceived pause in lease commitments by metro Detroit tenants is a temporary phenomenon.

“The underpinnings of the economy are still good. Any slowdown we are seeing locally or nationally is just temporary,” Miller said. “Overall, we are anticipating a successful recovery in the second half of the year due to people who had put decisions on hold rather than making lease commitments,” Miller said.

Additionally, Signature Associates-ONCOR International office brokers John Fricke and John Gordy will be representing Redico’s Two Towne Square, expected to break ground this summer and be completed in fall 2002. The 180,000 sq. ft., 9-story office building will be connected to the existing One Towne Square, with an asking rate of $19 triple net, Fricke reported.

Also in Southfield, Business Development Manager Barb Bartos reported that a second phase of 66 condominiums is under way on the Evergreen Road side of the Town Center office complex. This will bring the development to 128 units, furthering Southfield’s goal of creating an urban center. A third phase of the site’s development would include retail, Bartos said.

Many of the city’s economic development objectives will be highlighted in a new marketing initiative “Southfield: The Center of it All.” One component includes Southfield’s participation in Oakland Automation Alley SmartZone, whereby the city has teamed up with Lawrence Technological and Oakland universities with support from Oakland County’s Automation Alley program. The Zone is one of 11 established this April by the State of Michigan to encourage and support high-tech growth in the local economy.

Bartos also would like to see Southfield permanently snag the headquarters for Covisent, the automotive OEM-sponsored online contracting system. It’s currently housed in Southfield’s Maccabees Center, in the Town Center area.

“The race is between Oakland County and Ann Arbor,” Bartos said.

Office growth

Matt Fenster, principal of Farmington Hills-based Paragon Corporate Realty Services, said that while sublease space is trending up, “as far as overall vacancy rates, there is not a lot of change between the fourth quarter of last year and first-quarter 2001.” Fenster added that metro Detroit’s office use is also likely underestimated, given the substantial office build-out in many flex-space properties.

Paragon’s Metropolitan Detroit Office Outlook for 1st Quarter, 2001 also notes that eight projects totaling 583,000 sq. ft. were under construction at the close of first-quarter 2001, with 50.3% pre-leased.

According to Signature Associates-ONCOR International’s Year-end Market Report 2000, new office projects under construction included:

• Stuart Frankel Development’s 165,000 sq. ft. Cambridge Court II; and its 80,000 sq. ft. Victor Corporate Park in Livonia, where a 50,000 sq. ft. lease to Hewlett Packard has been announced;

• Koll Development’s 120,000 sq. ft. Koll Corporate Center in Auburn Hills;

• Beztak Cos.’ 36,000 sq. ft. Brookfield Center, Etkin Equities’ 34,000 sq. ft. Fairways Office Center, and 61,000 sq. ft. Halstead Point, all in Farmington Hills;

• Northern Equities’ 50,000 sq. ft. Haggerty Corporate Office Center II in Novi; and

• Redico’s 165,000 sq. ft. Oakland Commons Phase II in Southfield.

Bruce Morrison, principal and director of investment sales for Signature Asssociates-ONCOR International, does acknowledge that there are concerns about reorganization at DaimlerChrysler.

“But with interest rates the way they were, we had a record year last year in terms of total transactions. While some of the deals $10 million and greater may have slowed, there are many, many buyers for properties $10 million and less,” Morrison said.

“The slowdown in the economy has not affected real estate development yet in any way, shape or form. There is no slowdown or pause in commercial development,” suggested Tom Jurewicz, principal and head of the real estate group for the Farmington Hills office of Saginaw-based Rehman Robson PC. Weakness on the stock market can play into real estate hands, many observers suggest.

“We are doing remarkably well even though cap rates are softening,” noted Len R. Tosto, senior vice president of investment brokerage with the Birmingham, Mich. office of Colliers International. “The Fed is committed to lowering short-term interest rates. The increased supply of money and increased liquidity are flowing into real estate.”

Detroit investment sales also have been active, according to Tosto, noting Burlington Hills-based The Kojaian Co.’s acquisition of Seven Mile Crossing in Livonia and the sale of six office properties, comprising approximately 350,000 sq. ft. to JFK Investments.

Joel Feldman, principal of newly formed First Realty Co., said that for 2001, companies should look for a continuation of the introduction of Class-A office space in the marketplace. During 2000, 16 new office developments came on line for a total of 2.28 million sq. ft.

“Most or all were completed developments, with at least one tenant in hand,” he said. “All are Class-A, from named parties like Kojaian, Etkin, Gary Jonna and Neal Sosin (several of whom are longtime Detroit-area developers), and all were well-received. Right now, nothing is in limbo, even with the so-called slowdown.”

The Haggerty Road corridor will continue to be the epicenter of metro Detroit office development, Feldman said.

Bread and butter

The industrial sector is still Detroit’s bread and butter. Even if the butter is being spread a bit thinner right now, the slices are still being carved thickly. Larry Emmons, senior vice president with the Southfield office of Grubb & Ellis, noted that larger projects are doing well, where there is greater availability of smaller buildings, say 15,000 sq. ft. to 20,000 sq. ft. An example of the former is New York-based Ashley Capital’s new 1.1 million sq. ft. Livonia Corporate Center, which, Emmons said, is 93% occupied, all within asking rates.

“While it may be taking longer to fill some vacancies, the deals we are making are good deals for landlords,” Emmons said, in an oft-expressed theme among brokers in both office and industrial.

Jon Savoy, Grubb & Ellis’ senior vice president and director of industrial services, agrees that activity has slowed in the last six months. “We still had positive absorption in the first quarter of 2000, when the vacancy rate came down better than a percent, from 6% to 5%, and, overall, we do not have an oversupply of product,” he said.

As many as 200 properties have been added to metro Detroit’s industrial inventory in the last several years, according to Savoy. This build-up has led to increases in property values, better-designed high-tech properties, and new zoning in communities like Novi and Wixom.

“Western and Southwest Oakland County, Macomb County and Livingston County are still growth areas,” Savoy added.

David Hobaian, senior vice president of brokerage for Kojaian Co., has reported that one of the company’s two 345,000 sq. ft. buildings at Interchange West, located at I-275 and Haggerty Road, is now fully leased to Detroit Center Tool. Kojaian’s Wixom Technology Park, at I-696 and Wixom Road, now offers 232,000 sq. ft. of spec high-tech space, as well as 22 acres available for build-to-suits.

At Kojaian’s Cherry Creek Corporate Park in Shelby Township, four buildings are already completed, one being leased to Delphi Automotive, another sold to the Crown Group. Envisioned on Cherry Creek’s 175 acres is a comprehensive mixed-use development, including office, industrial, high-tech, retail and supporting restaurants and service stations.

Macomb County charts progress

Perhaps unbeknownst to outsiders, Macomb County has the greatest concentration of Big Three automaker facilities in the metro Detroit area. These include two stamping plants and two assembly plants of DaimlerChrysler.

Substantial progress has been made on development of the 150-acre former Warren Tank Plant site, according to Donald Morandini, the county’s economic development division director, and Ed Bayer, planning director for the City of Warren.

Future tenants of the site include Chicago-based developer CenterPoint Properties, auto supplier Noble International and Stage 3 Productions, as well as Macomb Community College’s nearly 40,000 sq. ft. Michigan Technical Education Center and a UAW (Region 1) Technical Training Center. All developments are organized under a tax-incentivize State of Michigan Renaissance Zone.

At its Warren Technical Center, GM Corp. also has started to raise steel on a 960,000 sq. ft., 8-story tower, an extension of an existing facility that will contain a new GM Vehicle Engineering Center (VEC). The VEC tower is a key element in the $1 billion redevelopment of the distinctive Warren Tech campus, designed by Finnish architect Eero Saarinen from 1946 to 1952 — a testament to America’s post-war exuberance. Among goals of the redevelopment: combining the work of 8,000 engineers and technicians of GM’s North America Vehicle Engineering Organization, which is currently being performed at more than a dozen locations throughout Southeast Michigan. The estimated completion date for the VEC tower is November 2002.

As one of the largest single-tenant office buildings currently planned in the country, the VEC will include a 40-foot-high, sky-lit atrium, retail, cafe amenities and exhibition areas, open-office workstations conforming to the firm’s template for common interior office workstations, and an enclosed, 3,000-space parking structure.

GM also is coordinating with the City of Warren to develop a master plan for 312 acres west of the Tech Center that GM has determined will not be for corporate use. Urban Design Associates, Pittsburgh, has been hired to work on the plan, including holding a community charrette. GM has already announced its intention to donate 100 acres of this property, 40 acres of which are classified as wetlands, to the city for park development.

Bayer also reports that City of Warren officials are working on having the entire city designated as a State of Michigan Brownfield Redevelopment Authority. Among the program’s incentives are deductions in Michigan’s SBT (Single Business Tax) related to job creation. A startup project involves expansion of the Iroquois Dye facility on Grosebeck Highway to an adjacent, vacant property, according to Bayer.

The next great thing in retail?

While retail catches its breath and stops a few leaks, there is still a sense that many platforms — the strip center, the stand-alone drugstore with drive-thru, the regional mall — have gone about as far as they can go. Where the new products and ideas will come from, no one is quite sure.

“With the downturn in the economy, retailers are more conservative in their approach to projecting revenues and proposed locations,” said Bennett Terebelo, executive vice president with Southfield-based LaKritz-Weber. “This is causing many retailers to take a tentative view, not stopping them, but slowing them down.”

Among pro-active merchants in the metro Detroit area, Terebelo cites Lowe’s, whom he represents, with seven locations completed, and as many as 25 total projected over the next several years.

Terebelo also roots for hometown hero Kmart.

“They have a much lower basis on rental cost. Some stores have 20- to 30-year-old leases. They have done a terrific job of improving stores and getting people back in them. Many of these stores jump 15% to 17% in sales once they are rediscovered,” Terebelo said.

One certainty is that Meijer, the grocery and super-discount store operator, has deterred superstore penetration in the region by Target and Wal-Mart, Terebelo said. Meijer is also intent on expansion, Terebelo added, citing its stores in Indiana, Ohio, Kentucky, Illinois and the Chicago area.

“Yes, there is some slowdown and it will continue for a spell, but people must remember the bubble was so big. It hasn’t burst but has returned to patterns that are still pretty desirable from the perspective of almost any retailer or developer,” Terebelo concluded.

In his firm’s Year-end Market Report 2000, Signature Associates-ONCOR International Associate Broker Dan Jacob also cited impressive growth in the discount department store and hypermart grocery categories, including Meijer and Costco. Meanwhile, Jacob notes that the frantic pace of new stand-alone drugstores has understandably slowed. Competition for these big-box drugstores include large discount stores and the supermarket chains. It seems everyone has potato chips, soft drinks and a pharmacy these days.

Think Palm Beach or Boca Raton in Michigan. One ambitious specialty retail development slated for the Detroit area is a complete demolition and rebuild of MeadowBrook Mall at Walton and Adams roads in Rochester Hills. Site planning and approvals already are under way for what is envisioned as a 375,000 sq. ft. town center, MeadowBrook Village, said Jim Fielder, vice president of acquisitions and marketing for its developer, Troy-based Robert B. Aikens & Associates.

Nestled among a village atmosphere, complete with a tree-lined main boulevard, are expected to be a 120,000 sq. ft. Parisian department store and a Farmer Jack Food Emporium. The development team includes homegrown talent that enjoys a wide-ranging national and international clientele: Town Planner Bob Gibbs, and JPRA Architects and Grissim/Metz Associates, both of Farmington Hills.

Spending the night

In Southeast Michigan’s hotel marketplace, demand, which grew by 3.5% in 2000, still lags new supply, which increased 5.5% last year, according to Ed Walsh, vice president of Ann Arbor-based Hospitality Advisers.

Still, even with a decrease in occupancy of 1% from 1999 to 2000, average daily rates remain strong, having grown 6.7% from 1999 to 2000. While rates may become more of an issue as the year proceeds, Walsh noted that Michigan seems to be holding stronger than other parts of the nation.

The region’s economy seems to have breathing space for one-of-kind, entrepreneurial efforts like the proposed The Royal Grand in Royal Oak. This 12-story resident hotel will have as many as 76-hotel suites and 30 in-town residences with all the trimmings, notes developer Jack Hanna, of Royal Oak-based Chrysos Development & Management Co. Planned amenities include a rooftop terrace, two-level lounge, fitness and business centers, and banquet room. Hotel suites will start at $150 per night.

Hanna expects to benefit from the urban dining, shopping and nightlife energy of Royal Oak, while providing a “much-needed” banquet facility for the area. The city has come on board, extending right-of-ways to allow construction of the hotel’s proposed underground parking while committing to a new city parking lot that will serve the development’s need.

“Overall, nationally, it’s kind of slow,” said Mike Blahosky, first vice president and regional partner with CB Richard Ellis in Southfield, Mich. “It’s kind of like the junior high dance, with the boys on one side, girls on the other. Most metro markets are built out, and where land is available the capital markets are not real gung-ho on development.”

Blahosky said a 120-room Extended Stay America is planned for the Metro Airport area, while a 404-room Westin is scheduled for Metro’s new Midfield Terminal. Overall, a pattern of strong weekday business occupancy and softer weekend occupancy continues to characterize the hotel market in Southeast Michigan, Blahosky said. o

David F. Stein is a Farmington Hills, Mich.-based writer.