Posted August 6, 2014
By Chris Christoff - Bloomberg
Billionaire Mike Ilitch and his family plan to create an instantaneous neighborhood around Detroit’s new hockey arena and jump-start an economic recovery where other sports ventures fell short.
The 250-acre (101-hectare) project near downtown sets the arena apart from other U.S. stadiums where little or no related development occurred, or arose long after construction. The Ilitches, owners of the National Hockey League’s Detroit Red Wings, will spend $200 million on apartments and retail space to attract residents by the time the arena opens for the 2017 season. They’ll also pay 44 percent of cost to build the arena.
“This isn’t, ‘Build it and they will come.’ This is, ‘We’re coming and we’re building it,” said Mark Morante, a manager for the Michigan Strategic Fund, which must authorize a $450 million bond sale to build the arena, the largest by the state’s economic development arm.
With Detroit in bankruptcy and struggling with basic services, the new 18,000-seat stadium has been jeered as a giveaway to a wealthy corporation. Supporters, including Republican Governor Rick Snyder, say it will accelerate the downtown resurgence and bring a new, vital image to a city plagued by blight, crime and poverty.
Olympia Development -- part of Ilitch Holdings Inc. -- will surround the 650,000-square-foot arena with apartments, lofts, a parking garage and a glass-covered, tree-lined “streetscape” that links the arena with offices, retail and dining establishments open daily.
The arena’s roof will glow at night with programmable light displays. It’ll hold concerts and other events besides about 40 Red Wing games each year.
Other developers are expected to build housing and retail space near the arena, the Ilitches’s Fox Theater and Comerica Park, home of Major League Baseball’s Detroit Tigers. That ball club is also owned by the family.
“This project will become one of the largest that’s ever been done by a single team owner,” said Mark Rosentraub, sports management professor at the University of Michigan in Ann Arbor who’s advising Olympia Development. “It’s not about an arena, it’s about real-estate development.”
Detroit, the former automotive giant whose population of 700,000 is 60 percent smaller than its 1950s peak, sorely needs residents and businesses. The Ilitches are trying to provide both.
The family in the late 1980s moved its Little Caesars pizza chain headquarters from a suburb to downtown, renovated the 1920s-vintage Fox Theater and paid about 60 percent of the cost to build Comerica Park, which opened in 2000.
Property taxes paid to Detroit’s Downtown Development Authority will cover 56 percent of the new arena’s 30-year financing cost. The rest -- $11.5 million a year -- will come from Olympia Development, which also will pay to upgrade streets, lighting and sidewalks.
Michigan is negotiating the sale of bonds to finance the project. The deal has been delayed for months as the state explores ways to maximize tax-exempt securities with lower interest rates, Morante said.
The Red Wings, one of six original NHL teams, have won four Stanley Cups since 1997. The team had the second-largest attendance behind the Chicago Blackhawks during the 2013-14 season.
The team’s new facility will replace Joe Louis Arena, the Red Wings’ home since 1979. That building was constructed entirely with city financing, and the team has shared with Detroit portions of revenue from parking, ticket sales and concessions.
At the new arena, Olympia Development will keep all revenue, including the sale of naming rights.
It was better to lock the company into $11.5 million annual payments for 30 years rather than haggle over percentages of ticket and parking sales, Morante said.
Victor Matheson, an economics professor at College of the Holy Cross in Worcester,Massachusetts, said stadiums built in Detroit, Chicago and St. Petersburg, Florida, since the late 1980s did little or nothing to spawn development. Detroit’s arena may prove otherwise.
“At least that’s structured in a way to give the owner a very strong incentive to go through with the redevelopment project,” he said. “An arena on its own doesn’t do much for the city.”
The Detroit plan is akin to San Diego’s Petco Park, home of Major League Baseball’s Padres, which opened in 2004, said Rosentraub. The owner built the stadium, partly with public money, and a residential-entertainment development, he said.
The Barclays Center, home of the National Basketball Association’s Brooklyn Nets, opened in 2012 as the centerpiece of a planned $4.9 billion redevelopment of a former rail yard by Forest City Ratner Cos. and Greenland USA.
In Los Angeles, the Staples Center was built 1999 by Anschutz Entertainment Group Inc., which also developed the adjacent L.A. Live residential and entertainment district. Of the $375 million cost for the arena, $58 million came from the city.
The downtown population has grown to 52,000 from 18,000 with the addition of 20,000 housing units, said Carol Schatz, president of the Central City Association of Los Angeles.
“Staples Center was transformative in bringing our downtown back,” Schatz said.
While Detroit’s project is not as large, it can improve the downtown economy more quickly,
“We’re not talking in 10 or 20 years,” he said. “We’re talking 36 to 72 months.”
Fan Larry Yung, 44, who lives a few miles from the site, called a new arena a boost.
“I wish they could do more for other places around here, but it’s a start,” he said as he fed birds in a small park a few blocks from the location. “It’ll do good for business, more jobs, bring more people back to the city.”
That’s unlikely, said Art Rolnick, a senior fellow at the Humphrey School of Public Affairs at theUniversity of Minnesota and former research director for the Federal Reserve Bank ofMinneapolis. Using tax dollars for arenas is “economic snake oil,” he said.
“If this is a really good economic investment, the market will do it, they’ll get banks to fund it,” Rolnick said. “If the owners couldn’t get private funding, that tells you it’s high risk.”
“Here’s a city that’s going bankrupt, and they’re going to invest in a hockey arena. Are you kidding me?”
Detroit would do better spending its tax dollars on improving education to create a more skilled workforce, Rolnick said.
The project has grown larger than originally planned and isn't possible without without public funding, Doug Kuiper, spokesman for Ilitch Holdings, said in an e-mailed statement.
The plan ``will clearly demonstrate the power of public-private partnerships and the positive and far-reaching impact they can have on a community,'' he said.
Rita David, 36, a waitress in Midtown, lives in a condo across the street from the proposed hockey arena. She said new housing planned will appeal to the young and empty-nest suburbanites. Simple pleasure, she said, can revive a moribund community.
“It’s fun for people who want to be around people,” she said. “If you want a thriving city, you need people.”
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