e Ilitch, Ross transformational brown eld funding by the numbers

e state’s socalled transformational brown eld real estate development funding mechanism was enacted in 2017 and has not been used much since.

In fact, if approved, a request from the Ilitch family’s Detroit-based Olympia Development of Michigan and Stephen Ross’ New York City-based Related Cos. for $616.3 million in funding on $1.53 billion in new construction and redeveloped buildings would only be the third time the state has signed o on its deployment.

So how does it work, where does the money come from and where would it be deployed?

e program allows for developers who meet certain project cost thresholds — in Detroit’s case, $500 million at a minimum — to apply to capture various state taxes, some short term and some long term.

e captures don’t take place if a project isn’t completed.

In e ect, transformational browneld funding for large-scale projects comes from the following buckets: Tax-increment nancing on state property taxes at the developed property over 30 years; exemption on 100 percent of the state sales tax on construction materials and 100 percent of the state income tax on construction labor; a 20-year capture of 50 percent of the state income tax on permanent employees at completed buildings; and a 20-year capture of 100 percent of the state income tax on residents of new residential properties.

For the Ilitch and Ross projects, 10 of which are scattered around the former’s District Detroit area, that breaks out as follows, according to a summary of the proposal that has been approved by the Brown eld Redevelopment Authority Board but also needs City Council and Michigan Strategic Fund approval.

 Construction materials sales tax exemption: $38.1 million.

 Construction worker income tax exemption: $11.4 million.

 Permanent employee state income tax exemption: $278.4 million.

 New resident state income tax exemption: $74 million.

 State property tax TIF: $214.4 million.

Of the projects envisioned, the most heavily subsidized through the TBP are new o ce buildings, which are being proposed in one of the most di cult o ce environments in recent memory.

Keith Bradford, president of Olympia Development and District Detroit, told me two weeks ago that level of subsidy is a function of the building uses and the way the TBP is structured.

Because there are slated to be a high concentration of permanent and higher-paid workers in those new buildings, the amount of income tax capture on them is higher. It’s not, Bradford said, a function of increased aid to more challenged real estate sectors. at’s also why another 546,000-square-foot o ce tower with 10,000 square feet of retail, slated to go at either 2305 Woodward or 2300 Cass Ave., would receive $165.2 million in transformational brown eld funding, with $113.7 million of that coming from permanent workers. at project is expected to cost $278.7 million, so the TBP award amounts to about 59.3 percent of that. e other proposed project TBP allocations are as follows:

Hence, that’s why a 493,000-squarefoot new o ce tower at 2200 Woodward Ave. with 28,000 square feet of retail has a total transformational brown eld capture of $171.1 million, with $104 million of that coming from permanent worker income taxes on a project costing an estimated $340.1 million. e TBP capture is a shade over 50 percent of that.

And a mixeduse building with 131,000 square feet of o ce and 18,400 square feet of retail at 2300 Woodward costing $83.7 million would receive more than half that ($42.8 million) in TBP subsidy. Of that, $27.6 million comes from permanent worker state tax capture.

And the Detroit Center for Innovation business incubator in the former Loyal Order of the Moose Lodge Building at 2115 Cass Ave., with 83,500 square feet of o ce space and 10,800 square feet of retail, has a $59.7 million development cost and a $28.4 million TBP subsidy totaling about 47.6 percent of the development cost. Permanent worker state income tax captures amounts to $17.5 million of the TBP subsidy.

 2250 Woodward residential building, with 287 mixed-income units and 27,000 square feet of retail: $216 million development cost, $69.2 million TBP subsidy.

 Conversion of the Fox O ce Building into a 177-room hotel with 11,000 square feet of retail: $121 million development cost, $22.7 million TBP subsidy. e DDA has committed $48.75 million in funding for more a ordable housing at deeper Area Median Income thresholds ($23.75 million) and up to $25 million for road improvements, utilities, security and public space upgrades for the area. e Ilitches and Ross are also seeking another $133 million in subsidies in the form of commercial Public Act 210 and residential Neighborhood Enterprise Zone tax abatements up to 10 and 15 years, respectively. e Detroit City Council is considering various NEZ approvals now. at also does not include the $100 million the state earmarked for the Detroit Center for Innovation, a proposed $250 million University of Michigan graduate school campus that would serve as a second anchor for the District Detroit.

 e 191-room Little Caesars Arena hotel with 22,000 square feet of retail: $190.8 million construction cost, $40.4 million TBP subsidy.

 Redevelopment of the former Hotel Fort Wayne into 131 units of residential space with 5,300 square feet of retail: $68.7 million development cost, $22.8 million TBP subsidy.

 Detroit Center for Innovation residential tower at 2505 Cass with 261 mixed-income residential units and 8,800 square feet of retail: $150.1 million development cost, $47.9 million TBP subsidy.

 Redevelopment of the Detroit Life Building at 2210 Park Ave. with 16 units of residential and 3,000 square feet of retail into residential: $23.6 million development cost, $5.8 million TBP subsidy.

Of course, the transformational brown eld funding program is not the only public money sought as part of the revived vision for the District Detroit, which spent years languishing with little residential construction, ts and starts on new buildings and an overall plan from July 2014 that did not live up to what was promised. e total as of right now is about $797 million on $1.53 billion in construction.

Contact: kpinho@crain.com; (313) 446-0412; @kirkpinhoCDB