New York Times Feature: A Detroit District Thrives by Building on the Past

By Alison Gregor | New York Times

Published: August 31, 2010

DETROIT — In sharp contrast to the rest of the Detroit metropolitan area, an area known as Midtown just north of the central business district has been holding its own in the recession.

Much of the success of Midtown — as it was branded a decade ago — is a result of the strength of institutions like Wayne State University, the Detroit Medical Center, the Henry Ford Hospital and the Detroit Institute of Arts, all of which contribute students and employees as well as residents.

Another component of Midtown’s success is that its developers are refurbishing older buildings, using tax credits and public financing, as much as they are building from scratch.

“For a long time, there was a big effort to tear things down in Detroit,” said Michael Poris, a principal of the architecture firm McIntosh Poris Associates, which is restoring a former vaudeville house in Midtown for multiple uses. “But if we have all these great historic buildings here, why not take the historic tax credits and reuse them? Plus it’s a greener, more sustainable form of development.”

According to the CoStar Group, a real estate information company in Bethesda, Md., the vacancy rate for office space in Midtown — including an adjacent area called New Center, where the former headquarters of General Motors now houses state offices — stood at 8.2 percent in the second quarter of this year.

The vacancy rate in Detroit’s central business district, which at 24.5 million square feet has 3.5 times the space of Midtown, was 19.5 percent in the second quarter of 2010.

In a boon for Midtown, the Detroit Medical Center announced in June that it had been acquired by Vanguard Health Systems, a unit of the private equity giant Blackstone Group, which said it would invest $850 million over five years to expand and upgrade the medical center’s facilities.

“We really have lost almost no businesses during the recession,” said Susan Mosey, the president of the University Cultural Center Association, an organization formed by several Midtown institutions that guides development in the area. “That isn’t to say that businesses haven’t had to reduce costs and become more efficient, but the neighborhood’s remained pretty stable.”

The housing market is thriving too, Ms. Mosey said. Many obsolete buildings in Midtown have been converted to rental housing in recent years, and the rental market has been strong. An association study found that 92 percent of the 4,295 rental units in the area were occupied last spring.

A handful of condominium projects begun right before the national housing market collapsed had to shift gears and become rental apartments. Those were leased quickly, Ms. Mosey said.

“There’s one developer who converted his building to medical office, and he’s fully leased,” she said. “There is a demand here for medical office use and uses related to the university.”

The project where Mr. Poris is restoring the former vaudeville house, the 1912 Garden Theater, includes a new three-story office building. The top two floors have been leased by the Wayne State Physicians Group, he said.

That development, which is reviving an entire block along the area’s main commercial artery, Woodward Avenue, includes construction of a 302-space parking garage and restoration of the two-story Blue Moon building, built in 1886, for office and restaurant space. After the Garden Theater is restored into a music hall and commercial space, 60 apartments will be built, Mr. Poris said.

Much of the $45 million development was financed with historic preservation tax credits, along with brownfield tax credits for re-using an obsolete building, Mr. Poris said.

“If you can fund 40 percent of a project with tax credits, it’s a big deal,” Mr. Poris said. “And the banks are looking for investments, so the banks will buy the tax credits, or investors will buy the tax credits. There’s a market for them.”

In another example, the long-vacant Argonaut building, the 760,000-square-foot Art Deco building that once housed vehicle design offices for General Motors, was restored in 2008 for $140 million, about half of which was financed by tax credits, said a co-developer, Eric B. Larson, the president and chief executive of Larson Realty Group. In September 2009, the College for Creative Studies, as well as an 880-student charter school, moved into the building, now called the A. Alfred Taubman Center for Design Education.

Preservationists had the foresight to get much of Midtown designated as historic in the 1990s, thus ensuring they would be eligible for tax credits, said Diane Van Buren, vice president of sustainable planning at Zachary & Associates, a property development and development consulting group.

Zachary & Associates, with several partners, is in the process of creating an area within Midtown called the Sugar Hill Arts District, in tribute to the traveling black jazz musicians who once played in clubs and stayed in stately homes in the neighborhood, Ms. Van Buren said.

Much of the district was destroyed in the urban renewal movement in the mid-20th century that displaced many African-American neighborhoods in Detroit and elsewhere, she said.

Several buildings and sites in Sugar Hill are being redeveloped, including 71 East Garfield Street — the former site of a hotel that was destroyed by fire — which has undergone a $6 million renovation into 22 live-work spaces for artists and eight commercial spaces.

Nearby, a historic 19th-century nurses’ home, Newberry Hall, is being redeveloped into 28 rental apartments. Both projects are stressing sustainability by using solar power,geothermal systems and recycled building materials, Ms. Van Buren said.

Despite a lack of conventional financing from lending institutions for redevelopment, local developers have faith in the Midtown market and will soldier on, using tax credits, grants and public financing where possible, said Ernest Zachary, the president of Zachary & Associates.

“I have no question that if you build something here, people will move in,” he said.