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By Alex Ebert
A $2.1 billion redevelopment project in Detroit spearheaded by a controversial NBA owner will be one of the first to apply for Michigan’s newly minted brownfield redevelopment tax incentive program.
Developer Dan Gilbert’s real estate firm, Bedrock LLC, announced yesterday that it’s pursuing state “MIThrive” tax credits as part of a package to redevelop four downtown Detroit properties. Bedrock announced that it will chip in $1.9 billion and expects $250 million in government bonds to provide the remaining capital to add on to four existing structures and create Detroit’s tallest skyscraper. Gilbert, who founded Quicken Loans Inc., owns the NBA’s Cleveland Cavaliers.
The state’s thus-far untested incentive package could provide millions of dollars in incentives, depending on how successful the project is in creating jobs and commerce. The program, effective only since July 24, allows a developer to receive reimbursement from the state for up to 50 percent of the state income taxes generated by jobs created on the project or residents living in the project. It also provides sales and use tax breaks on construction equipment used for brownfield site redevelopments.
Because of limitations in the program’s language, the Bedrock four-building redevelopment would be the only Detroit project eligible to receive the incentives this year—and one of only five permitted in Detroit during the program’s five-year span. The group announced that it’s seeking local approval from the Detroit Brownfield Development Association and will then seek the credits from the Michigan Economic Development Corporation.
“Transformational projects like these are necessary to both accommodate the expansion of current downtown businesses as well as making Detroit a legitimate competitor for new businesses and massive opportunities (like Amazon’s HQ2), and attracting vital talent from all over the country and world,” Gilbert said in a statement.
The sheer size of the four-building project means that potential incentives could be massive, perhaps nearing the annual cap of $40 million on a MIThrive project after the construction dust settles. The five-year MIThrive incentive program has a total budget of $1 billion, which can be split into as many as 25 projects throughout the state.
Combined, the four redevelopments will create 3.2 million square feet of space and about 900 residential units, and the project would be able to capture half of the residents’ income taxes. At full capacity, with just one resident in each room making the city’s median wage, the residents in these projects would earn about $22.5 million annually and would pay nearly $1 million in state taxes. That could earn developers $500,000 annually.
The projects could also capture half of the income from permanent jobs created. The developers estimate that 9,000 new jobs could be created with people working in the skyscraper’s observation tower, the Monroe Blocks street-level restaurants, and the historic Book Tower’s prime office space. When the same math is applied, the workers’ captured income could net the project at least $5 million annually. Because the law authorizes 20-year incentive deals, the project could receive more than $110 million from the state.
Local and state politicians heralded the redevelopments as the kind that the MIThrive program was created to attract.
“One of the Senate’s top priorities is to pass legislation that supports an economic environment ripe for growth and investment,” Senate Majority Leader Arlan Meekhof (R) said in a statement. “I was happy to be a champion for MIThrive because it positions Michigan to attract development and jobs that may have otherwise passed us by.”
But critics of the MIThrive program said this is precisely the kind of project the state shouldn’t be funding.
“You have to ask yourself, for each of these buildings being made, how many buildings were not built because taxpayer money is coming from the state or the city or both,” Michael LaFaive, senior director of the Morey Fiscal Policy Initiative for the Mackinac Center for Public Policy, told Bloomberg BNA.
LaFaive said that providing large tax incentives to a select few means that a city and a state cannot lower taxes for all, and that depresses overall economic investment in a region.
“Just building more buildings is not going to bring back Detroit,” he said.
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