Signature Associates

Space Constraints

Posted By: DBUSINESS on May 18, 2023.  For more information, please click here to read the source article.

Fifty years ago, downtown Detroit staked its economic revitalization to the Renaissance Center. It was a stretch project if ever there was one — a $357-million Hail Mary that Henry Ford II, then chairman and CEO of Ford Motor Co., called the key to forging “a viable, going, great city.”

Highlighted by a gleaming, 727-foot-high, 73-story cylindrical central skyscraper sheathed completely in glass, surrounded by four 39-story auxiliary towers with the promise of many more, and anchored beside the Detroit River, it was promised that the “RenCen” would single-handedly put the Motor City back on the map of metropolitan greatness.

Nowadays, there’s not nearly as much hype attached to a new development on the site of the former J.L. Hudson’s department store on lower Woodward Avenue. On the block that held the beloved but shuttered old emporium until it was imploded in 1998, Dan Gilbert is raising a building that will become the second-tallest skyscraper in Detroit — the exclamation point on a $1-billion, mixed-use megaproject that has taken five years to start and will consume another couple of years to finish.

It’s a bold signature on Gilbert’s nearly 15 years of pioneering — and highly successful — efforts to revive downtown Detroit. “Dan’s vision is very clear. He’s 100 percent focused on returning Detroit to its rightful position as a world-class city,” says Kofi Bonner, CEO of Bedrock, Gilbert’s real-estate arm. “He doesn’t talk about legacies. To him, it’s the journey. He’s very clear in his moonshot.”

The 45-floor skyscraper will be a luxury Edition hotel for up to 22 stories or so, “and above that, an elegant and lean tower that begins to scale back as it turns into residential,” Bonner says. “(There will be) about 89 or so units. The residences will be branded. Folks living there will have the ability to avail themselves of amenities of the hotel services, which will create an elevated experience for tenants. They’ll also have their own very exclusive amenities.”

Next door, an 11-story office building will have a huge atrium and what Bonner calls “an elegant rooftop anatomy.” Upscale stores will be sprinkled through the first floors of both buildings. A street-level plaza stretching from Woodward to Farmer Street between the two structures will provide pedestrians with easy access to stores and restaurants.

Even in terms of parking, the Hudson-site complex aims to be innovative: To squeeze in enough automobiles in a central business district that remains understandably transit-light and car dependent in the automotive capital of the world, Bedrock is considering “a mechanical parking system where you can put a car on top of a car,” Bonner says.

Gilbert’s tower initially was going to be as much as 900 feet, its cloud-borne apex easily eclipsing the top of the Renaissance Center. But lately, Bedrock has knocked the plan for the Hudson-site tower down to 685 feet, likely due to inflated construction costs and diminished expectations for the future of office real estate in Detroit.

Yet in a major way, Bedrock’s decision was a sign of the city’s progress. Not as much is dependent on that tower as the massive onus that was placed on the RenCen. Over the past decade, Gilbert, the late Mike Ilitch and his successors, and other entrepreneurs already have revived and solidified the lower Woodward core and beyond.

Indeed, new and refurbishment projects now are sprouting up all over town, feeding robust tendrils of revitalization that stretch horizontally — as well as vertically — from downtown to Corktown; from The District Detroit, where three sports stadiums offer nearly daily sports and entertainment, to Greektown; and from the Huntington Place to the Huntington Tower.

HELLO, DETROIT

There’s only one problem with the panoramic view of The District Detroit from the outdoor rooftop lounge at the apex of the new 21-story Huntington Tower at 2025 Woodward Ave.: You can’t quite see home plate at Comerica Park because it’s tucked right behind the right-field stands.

But this is a small nit to pick about a building that’s a pride of the bank, appreciated by employees, and coveted by fellow downtown tenants.

Ground was broken on the glass-clad building by Detroit’s Chemical Bank, which subsequently merged with Minneapolis-based TCF Bank in 2020. After Huntington acquired TCF in 2021 — a transaction that also resulted in another name change of the original Cobo Hall, to Huntington Place — Huntington completed the tower and designated it the commercial headquarters.

Huntington Chairman Gary Torgow dubbed it “the largest bank building built in Detroit’s history” at the tower’s grand opening in September. Originally, it was announced as a $104-million project.

“The main thing it did for us was to consolidate our staff,” says Eric Dietz, southeast Michigan president for the Columbus-based regional-banking leader. “We were pretty spread out.”

Floors 2 through 11 are devoted to parking, an unfortunate necessity in downtown’s tight market. Where Huntington Tower differentiates itself is in how the top nine floors ultimately were designed to accommodate a workforce of 750 people who are working full time or under a hybrid model that brings them in mainly in the middle of the week.

The open concept dominates, with many informal areas for collaboration, glass-walled meeting rooms, sprinklings of spaces for eating and taking breaks, lots of Huntington-brand green, and signage that repeats “Welcome” all over the place. There are some traditional cubicles, many of which are “hoteling” desks shared by staffers, but traditional “corner offices” are nowhere in sight.

The large meeting space on the 19th floor is a company favorite because it can hold up to 300 people and can be configured multiple ways.

“We’re getting a lot of activity in that room from Huntington groups (inside and) outside of Detroit who want to hold annual or quarterly meetings there,” Dietz says. “Nothing against Columbus, but Detroit is new and it’s a great place for colleagues to visit.”

Just one story up is a rooftop deck, a space designed for hosting multiple activities that can hold up to 360 people. Torgow said at the grand opening that it literally provides “a 50-yard-line view of Detroit.”

Ron Gantner, a real estate partner at the Plante Moran consulting firm in downtown Detroit, notes the roof services the fact that “people are interacting with the outside a lot more than in the past. A lot of older buildings (in Detroit) were closed off and shelled in. It’s, ‘How do I create something that’s unique and different than the office building I’m sealed in?’ Hopefully you’re enjoying the outside in some way nine months of the year. The Compuware building started that with an outside deck on the 15th floor.”

All of this adds up to a Huntington Tower that has become the envy of downtown, especially because the bank hasn’t opened it up to other tenants. “There’s a flight to quality in office space in Detroit now, so there was a demand from the outside, had there been space,” says Dave Miller, senior vice president of Signature Associates in Southfield. “But they’re not offering space.”

As Andy Gutman, president of the Farbman Group in Southfield, puts it, companies seeking office space “aren’t supposed to fall in love with a building. But this is a place that people want to (work in) and love to work (in). It’s another beautiful building that leads to a further resurgence of the city.”

And the initiatives keep coming. Late last year, the Ilitch family’s Olympia Development announced a new, $1.5-billion project that will bring housing, office, retail, and two hotels to 10 properties in The District Detroit, which covers 50 square blocks. The brownfield-remake effort is meant to fulfill a longstanding vision for creating vibrant neighborhoods around Little Caesar’s Arena, the sports and entertainment district that the owners of the Detroit Tigers and Red Wings, and the Fox Theatre, already had established.

“The vertical gets better when you create room for the vertical to breathe, with good public spaces and community gathering places,” says Andrew Cantor, president of Related Michigan, the real estate operation for billionaire Stephen Ross, a Michigan native since transplanted to New York City who is Olympia’s partner in the venture. “That’s something fundamental to our approach to this development.”

To be sure, the pandemic put a big dent in the evident economic progress of the city, flushing commuting office workers from downtown for many months and throwing their eventual return into question.

But “in general, the future of commercial real estate in Detroit is strong,” says Andy Gutman, CEO of Farbman, a local real estate management group. “Usually, Detroit is ground zero for distress. But that’s not the case. Look at cities like Chicago, with so many buildings teetering on the point of failure.”

Fifty years ago, Detroit was teetering at the edge of its own historical abyss, pushed there by a diaspora of residents to the suburbs that began in the early 1950s, then was fed by the 1967 riots, white flight, and the subsequent urban-suburban acrimony of the late 1960s. Among the scars of neglect and decay was a downtown riverfront populated mainly by three cement factories, industrial businesses, and warehouses.

An unprecedented corporate consortium led by Ford Motor Co. meant to change all of that. After abandoning initial plans to build a new sports stadium between Jefferson Avenue and the river, the 52 members of the Detroit Renaissance partnership that Henry Ford II had assembled decided to put up a 33-acre destination complex instead. The RenCen would offer 2 million square feet of office space, a 1,400-room Detroit Plaza hotel, and a 350,000-square-foot shopping center with retail shops, cafes, restaurants, banks, brokerage firms, theaters, private clubs, and a department store.

“Something quite remarkable is taking place, something unique in the history of cities,” intoned the narrator in a nine-minute RenCen promotional video that featured a jazz-funk version of “Also Sprach Zarathustra,” the classic composition that gained modern popularity as the theme song from “2001: A Space Odyssey.”

Later, the narrator continues, “It’s the largest privately financed urban development in history (and) there will be nothing quite like it in all the world.”

Key would be an iconoclastic interior design by architect John Portman, whose modernist renditions in the Peachtree Center in Atlanta and the Embarcadero Center in San Francisco had helped revolutionize big public spaces. Experiencing the RenCen’s central tower would “touch and delight (y)our senses” and “take your breath away,” the video promised. “It may well be the architectural achievement of this decade.”

But instead of taking visitors’ breath away with its five levels of suspended walkways that crossed a six-story atrium, a reflecting pool, and a revolving cocktail island, the RenCen simply frustrated them. The central tower proved to be one of the most confusing structures in the world, to its tenants as well as visitors. A pedestrian commute from the top of one of the auxiliary towers to the top of the main one could take 15 minutes.

The huge, naked concrete buttresses that were central to Portman’s design also could seem to physically threaten passers-by, in many places providing just a few feet of clearance underneath, in the RenCen’s sharpest expression of brutalist architecture. And within the far-flung network of stores on the lower levels of the complex, shoppers simply got trapped by the loops of a maze that was basically unnavigable.

The stores were “supposed to be a savior against retail moving to the suburbs, but the shopping space” never took off, says Brendan Roney of the Detroit Historical Society. “It’s not like a mall — it’s not, go upstairs and around the corner to get some food. It’s not centralized like a mall is.”

Exasperating inside, the RenCen also proved to be intimidating outside. “It is a total environment, a town within a great city, linked by rail, waterway, superhighway, and air to the other cities of the world,” the promotional video said. The problem was that the complex wasn’t really linked to the rest of its own neighborhood. Many pedestrians didn’t dare try to cross multi-lane Jefferson Avenue, which empties traffic from highways on both the east and the west.

Another infamous feature was two concrete berms that designers placed directly in front of the RenCen facing Jefferson Avenue. They were meant to hide infrastructure such as HVAC equipment, and Henry Ford II reportedly was fastidious about trying to make them look pretty, with ivy covering the concrete. But unfortunately, it was quickly apparent that the berms were both an immense physical barrier as well as a psychological one that basically said, “Stay away!”

General Motors rescued the RenCen, purchasing it from an investor for the bargain basement price of $72 million in 1996 to serve as its new global headquarters, and moving corporate functions lock, stock, and barrel from the 1920s-vintage GM Building in the New Center area. In addition to revitalizing the complex as a center of commerce and tourism, the automaker fixed many of the RenCen’s obvious problems, including removing the berms, lightening spaces inside, and providing a plethora of new signage to help people get around the building.

GM also created the Wintergarden area, connecting the RenCen to the city’s new RiverWalk. Detroit’s riverfront was named Best Riverwalk in the Nation by USA Today in 2021 and 2022, topping better-known walks such as San Antonio’s. In turn, GM has invested $35 million into the Detroit Riverfront Conservancy’s efforts to expand and maintain the RiverWalk.

The RenCen “never has looked better,” says Dan Austin, a City of Detroit communications director, who’s also a maven of historic Detroit buildings. “But there’s only so much you can do with a building that’s built like a labyrinth.”

So, the RenCen’s relationship with the rest of the city was stuck in an uncomfortable equilibrium even as downtown, across Jefferson Avenue, was being reborn. Then the pandemic hit in 2020, immediately emptying GM’s workforce from the towers and keeping most white-collar employees away for more than a year. When GM tried to call them back last fall, internal opposition exploded, and a revolt was on. GM backed off the deadline for a “hybrid,” or part-time return to the office, delaying it until January.

Meanwhile, the RenCen has lost commitments from some of its other major tenants, most notably Blue Cross Blue Shield and Deloitte.

For its part, GM says, “Detroit is our headquarters and our home, and the Renaissance Center is a vital part of the downtown Detroit community. Right now, we’re focused on bringing our employees back to the office, which is an important step for our business and for the continued revitalization of the city. GM is committed to keeping the Renaissance Center in a Class A manner and will never deviate from that standard. Building management is actively canvassing for prospective tenants and offers competitive lease rates and flexible lease terms.”

BOTTOM’S UP

Tucked in among all the other changes to the Detroit skyscape is a $65-million mixed-use project in Greektown that would be notable simply for the fact that the 16-floor tower at Gratiot Avenue and Brush Street will bring new housing to the area for the first time in several decades, in the form of 153 luxury condominiums and apartments.

But what really makes The Exchange stand out is that it appears to be upside down. A construction technology pioneered by the builder, Barton Malow, enabled the Southfield-based contractor to assemble the top floors at ground level and then raise them into place.

Using a process Barton Malow calls LiftBuild — itself the basis for a startup the company acquired — the builder raised the 16th floor last year, and continued lifting and locking successive stories underneath it until, in early February, The Exchange consisted of 14 completed floors on top, around a core that stretches to the bottom, with the final floor lift scheduled by spring.

“LiftBuild is definitely a step in the right direction for the construction industry,” says Ryan Maibach, CEO of Barton Malow, which plans to celebrate a century in business in 2024. The company is involved in a number of other major endeavors, such as building Ford’s $5.8-billion BlueOval SK Battery Park in Kentucky and the Hudson’s development in downtown Detroit, but Maibach is excited about the Greektown project partly because he believes LiftBuild can help shave as much as 50 percent off the time required to build projects such as The Exchange.
Every tall building has a structural core, Maibach explains, “and then you typically build the skeleton around that. But this approach uses the core as a primary structural element and lifting mechanism, so we’re able to create manufacturing space at the base of the building. You see some terrific efficiencies in putting up the building. And because you’re relying on fairly constant and standardized engineering, we see the possibility for automating the design process, too.”

While the RenCen has been foundering, Gilbert has bought, rented, refurbished, and populated downtown office space with thousands of employees of his highly successful Rocket Mortgage and Rock Family of Cos., using his businesses as engines of economic revitalization and drawing in others in pursuit of the same goal. The Ilitch family has operated similarly.

And they weren’t investing for the best ROI. “A lot of that is driven by legacy,” says Ron Gantner, a real estate partner in the Plante Moran consulting firm in Detroit. “It would be hard if you had to do it with a third party and traditional development financial goals to hit. None of this would happen, especially with interest rates where they are now. It’s part of their legacy. They want to create an environment that, hopefully, they and their kids will see. Otherwise, they could go to a bank and buy CDs.”

Every office landlord in Detroit and the region, not just at the RenCen, is dealing with a powerful new dynamic in the wake of COVID-19: the work-from-home phenomenon, coupled with the demand by workers returning to the office, especially younger ones, not to come back to the same old cubicle with the requisite ping-pong table in the break room. “Real estate is part psychology,” Gantner says. “Look at the experiences that kids have in college dorms and classrooms, and technologies. Universities are spending billions of dollars to create that. Students come out of school and their expectation is that this is their amenity base at the office. There’s a lot of pressure on employers to attract top talent, to have open and collaborative work, and the coolness factor is what they’re looking for.”

Tectonic movements in the broader economy also are coming into play, especially the tens of thousands of recent layoffs by Amazon, Meta, Google, and other big digital-tech companies. For two decades before their current contraction, those giants’ ever-expanding hiring gave downtown-office developers across the country hope of landing one big fish that could financially justify their projects.

In Detroit right now, there also are cost pressures on Rocket Mortgage, thanks to fast-rising interest rates that have quelled the retail-mortgage business and prompted the company to offer buyouts to an undisclosed number of employees. Overall, the metro Detroit office-vacancy rate reached more than 26 percent in October, much higher than before COVID-19, according to Signature Associates in Southfield.

Yet, in fact, Cantor says, nationally there remains “strong demand for dynamic office space that’s modern, with inspired designs, large open spaces that allow people to gather and collaborate, and lots of amenities around so it becomes a live-work-play environment that a lot of tomorrow’s talent is seeking.”

The city’s latest tower projects have, of course, taken this well into account, including new space in The District Detroit such as the 20-story Huntington Tower that opened last year. And office landlords downtown and in the suburbs, for the most part, are continuing to invest in places that modern workers will enjoy, especially as more of them opt to live nearby in new and restored residential offerings.

Indeed, the finances behind office construction have changed as the general labor squeeze in Detroit and elsewhere has continued, even in the face of a rocky U.S. economy. “Real estate typically is 5 percent to 8 percent of a company’s expenses, while typically 60 percent is employees,” Gantner says. “What’s happening now is that companies believe they can spend maybe 10 percent to 15 percent more on real estate because it so impacts the 60 percent of their expenditures on labor.”

As Bonner puts it, “Companies are thinking, isn’t it a better strategy to retain the folks you have so that when you come out of this, you’re not behind the eight ball? From our point of view as a landlord to many companies in this situation, we say we’re going to create the best environment that we can for you, so recruiting is easier.”

Nevertheless, many occupants of the office towers in Detroit, and tenants of commercial real estate in the surrounding metro area, are facing a new round of decisions about their future.

“We see a mixed bag of what organizations are doing when their leases are running out,” Gutman says. “Some are kicking the can down the road while figuring it out, leasing for another year, and some are reducing space. And some are returning to the office while not actually going back. Some buildings will come off market as some convert to mixed-use developments, and others will fill back up over time as the economy strengthens.”

One option is remaking vacant offices into residences. “There’s so much office space that we’ll see conversions of suitable buildings to apartments,” says John Boyd, founding principal of Signature Associates. “The apartment market is very strong. They’ve been selling at record numbers.”

As it stands, the Hudson-site tower isn’t going to be an office complex, per se, but a prestigious, high-rise residence with an attached, smaller office building. “It’s perfect for what’s desired and needed right now,” Gutman says. “The office portion of the Hudson site may fluctuate, but other uses may make up for that, and it will be a cornerstone development for the city.”

Then why did Bedrock shave so many stories off the planned tower? “The reason the height was scaled back had everything to do with uses — functionality in those spaces — and not so much a function of cost,” Bonner says. “Now the envelope fits the uses and scale.”

Down on the ground, the cityscape of Detroit gets more varied and interesting every day. The development of apartments and condos in and around The District Detroit is picking up, connecting gentrification in the arena district to neighborhoods to the north. An envisioned capping of I-75 on either side of Woodward will encourage even more organic growth, much like portions I-696 in Oak Park were covered over to create park space for nearby residents.

What the Ilitches and Ross announced “validates the district,” says Eric Dietz, president of the southeast Michigan region of Huntington Bank. “It’s been slow in getting momentum because of COVID-19, but we all know their commitment to continue their vision of the area.”

Confirms Cantor, “We think there’s an opportunity because of the scale of The District Detroit, and because of the (government) requirements of the transformational brownfield (incentive) program to think at scale, to be able to move a lot of projects forward in a short period of time, and to do so in a way to create active, engaging streetfronts, walkable districts, and nodes that are vibrant and fun.”

Broadly, real estate pros say the administration of Mayor Mike Duggan has been making the downtown-development process ever easier, with government services the best they’ve seen. “What happens in Detroit, separate from many cities, is the incredible partnership between members of the private sector, not-for-profit entities that are supportive of the urban infrastructure, and the public sector,” Bonner says. “That’s what has set Detroit apart, plus the urgency and intensity of the efforts.”

In any event, downtown Detroit now spells opportunity to a new generation of economic actors across the country and around the world. “One thing that’s unique about Detroit is that you can make an impact on Detroit,” Gantner says. “Companies can go to New York City or Chicago or Boston and be a headline for a day, but in Detroit they can really move the needle on the city’s success and opportunities for its citizens. That’s something that can be important for a corporate citizen.”

Of course, much of the rest of Detroit remains a challenge: There are 139 square miles, enough to fit the footprints of Boston, San Francisco, and Manhattan inside, but only north of 600,000 people and no pockets of densification outside the central business district. “You have four acres of some neighborhoods where only 10 people live and you have to service them,” Gantner notes.

Yet, these days, Austin says, people are fixing up mansions in the historic Boston-Edison historic district in the center of the city and on “blocks and blocks west of the Lodge Freeway on Atkinson. That’s what you need. The city can’t survive on downtown alone. It needs the neighborhoods to thrive.”

Over it all will loom the fates of the Hudson-site tower and the Renaissance Center. “The vertical and horizontal journeys,” Cantor says, “are how you bring everyone along.”