The Malik Report
by George Malik on 07/24/13 at 05:59 PM ET
On Wednesday afternoon, the Michigan Strategic Fund approved the sale of a total of $450 million in bonds to help defray the cost of the Ilitches' proposed follow-on rink rplacing the Red Wings' current home, Joe Louis Arena, as well as surrounding economic development. The Detroit Free Press's Tom Walsh confirms...
The Michigan Strategic Fund (MSF) board today approved issuing up to $450 million in bonds to finance construction of a $650-million project that will include a new arena for Detroit Red Wings hockey and other events, plus $200 million more in the 45-block area between downtown and Midtown.
To move the project forward, the city, state and the Ilitch-owned Olympia Development must complete a concessions management agreement that would commit to the Wings playing there for at least 35 years, with 12 five-year options to follow.
The MSF approval came by unanimous voice vote, after which Gov. Rick Snyder voiced his support. The project would create 4,380 new construction jobs, he said.
When asked why taxpayers and city employees should support public funds for a sports arena at a time when Detroit is bankrupt, Snyder defended the use of MSF-issued bonds.
The arena project “should increase the tax base of the city longer term, and should increase the employment opportunities for Detroiters,” he said. “So this should create a better environment for Detroit long term, and that will be better for all of us.”
W. Howard Morris a Detroit accountant and Snyder appointee to the MSF board, was the only board member to ask the state and Ilitch officials why this is a good deal for taxpayers. Mark Morante, of the Michigan Economic Development Corp., said the new arena would spur other activity “in our signature city (Detroit), on its signature spine (Woodward Avenue) to connect downtown and Midtown.”
As does the Detroit News's Louis Aguilar...
Gov. Rick Snyder touted the $650 million new hockey arena and 45-block entertainment district planned for the blighted Cass Corridor Wednesday as an example that big Detroit development projects will continue to move forward amid Chapter 9 bankruptcy.
“How many tremendously good things are going on in Detroit? That’s why I think this project is so wonderful. There is a very bright future,” Snyder said during a brief exchange with reporters at the offices of the Michigan Economic Development Corp. He made the comments just after the state’s economic development agency approved the process for $450 millions in private activity bonds to finance construction of the arena.
“We are addressing a specific situation in Detroit with bankruptcy. It’s about getting a fresh start with the city of Detroit’s government,” he said. He added that the long-term impact of the new arena will “create a better environment” for the city.
Last month, Olympia Development of Michigan, the real estate arm of Detroit Red Wings owner Mike Ilitch, signed a memorandum of understanding with the Detroit Downtown Development Authority and Wayne County that provides a framework for the private and public financing of the project.
The project includes acquisition of land, construction of the events center, the acquisition and installation of furnishings and equipment, and further development of the surrounding district. The investment for the project is estimated at $650 million.
The $650 million development would be funded with a mix of $365.5 million in private investment and an estimated public investment of $284.5 million. Detroit Economic Development Corporation President and CEO George Jackson and city officials have been quick to stress that no money would come from the general funds of the financially beleaguered city or county.
Instead, the $450 million sports and entertainment center and accompanying $200 million residential, retail and office district is getting public money through tax increment financing. The MSF’s action on Wednesday also supports an issuance of $450 million in private activity bonds to finance construction.
On Wednesday, Gov. Rick Snyder said he expects the project, which is expected to add 4,380 construction jobs, to be a boon for Detroit.
“This new entertainment district will be much more than a new arena for the Detroit Red Wings. This is a project that will help revitalize Detroit,” Snyder said in a statement. “This project creates another major destination point for residents and visitors alike that builds on prior investments along Woodward from Comerica Park and Ford Field to the new Whole Foods in Mid-Town. The Ilitch family organization is making an enormous investment in the city and state bond financing makes this project a true public-private partnership.”
The project was first revealed near the end of last year when the Illitch family said that that the development hinged on passage of state legislation that allows for use of DDA funds. That legislation passed in December.
The state legislation allows Detroit's DDA to collect up to $15 million a year for the project. According to the DEGC, the primary public funding mechanism for the project will be about $12.8 million per year in property taxes captured. The DDA will contribute another $2 million each year, and OIympia Development will pay another $11.5 million annually. Together, those three commitments will be used to retire 30-year bonds through the MSF.
The DDA and Olympia chose to use the Michigan Strategic Fund to issue the bonds for the public portion of the project but were not required to do so. The DDA can issue bonds.
Observers have said the state was chosen to be the bond issuer because the Wall Street may look at any bond issued from Detroit with skepticism.
DEGC President and CEO George Jackson said he hoped approvals for the arena project could be in place by the end of the year. Actual construction of the arena would take 24-30 months, so 2016 or 2017 are the likeliest years that the Red Wings would begin play at the new arena.
The quasi-public, nonprofit DEGC is the city's umbrella economic development agency providing staff, financing and incentives for the various authorities, including the DDA, that do specific tasks, such as neighborhood, commercial and industrial redevelopment along with investment.
Who notes that other organizations have to sign off on the deal:
Approvals still are needed from the DDA, Detroit City Council, Wayne County Commission, Detroit Economic Growth Corp. and Olympia's board.
Details presented to the MSF board included:
• Completion of the arena is anticipated in 2017.
• The size of the arena would be about 650,000 square feet, with 18,000 seats, including approximately 1,200 premium seats.
• An attached parking deck would have about 500 spaces, and the ground floor would include 10,000 square feet of retail space featuring a team store, restaurants and other retail. This space would be open to the public not only during events, but also at other times.
• Possible projects in the development area around the new arena might include new office and retail at Woodward near Sproat; renovation of the Detroit Life Building and Blenheim buildings for retail and residential units; renovation of 1922 Cass building for office use; a new 70-car parking deck with ground floor retail; and a site for a possible new hotel.
An Olympia Development PowerPoint presentation submitted to the MSF board cited stadium and arena projects that the company said spurred bursts of economic activity in Indianapolis, San Diego, Los Angeles and Columbus.
It also showed a list of 11 arena and ballpark projects in the past decade — in cities from New York to Memphis, Houston, Orlando and Cincinnati — that were 50% to 100% financed with public dollars.
And as an FYI, from the Associated Press:
Representatives for Olympia Development, which is owned by Red Wings owner Mike Ilitch and his wife, said the project will create 400 more permanent jobs and 5,500 construction jobs. At least half the construction jobs must go to city residents.
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