Finley: District Detroit build-out on pause

It sounds like the reprise of a story we’ve heard many times before: grand plans by the Ilitch organization to bring a transformational project to the land they own in downtown Detroit are being delayed.

But this time, the reasons given have a solid ring of legitimacy.

Olympia Development and its partner are to announce today they are “resequencing” the $1.5 billion, 10-building District Detroit development on property around Little Caesars Arena. What that means is the first two structures — office buildings on Woodward in front of Comerica Park — won't go into the ground as planned this summer.

Instead, the developers are looking to 2025 for their first groundbreakings, likely to be on one of two hotels included in the plans and an 18-story residential building at 2025 Cass Ave. Officials from Olympia and New York-based The Related Cos., say the decision reflects the sharp downturn in the demand for office space, even though they say they have a commitment from a major tenant. Few lenders are willing to loan money to build office buildings in a post-COVID environment in which most employees are still working remotely for at least part of the week.

And while construction costs are leveling off, interest rates that have soared since the project was announced have altered the cost/return equation.

"Financing commercial office development is challenging nationwide," the developers said in a statement. "So we are resequencing the projects to meet the market demand..."

Lenders are more interested in investing in residential and hospitality projects. Two hotels are included in the plan, one with 270 rooms next to Olympia-owned Fox Theatre and another with 270 rooms on Woodward next to the arena. Revised plans call for starting one of them in the first quarter of 2025. The mix of offices, residential and commercial space won't change, but the order they'll be built in will.

Over the years, I've been among the harshest critics of the Ilitches' unfulfilled promises. There are a few reasons I’m less skeptical this time.

For one, the office market truly is depressed, and nowhere is that truer than in Metro Detroit, which has the nation's highest office vacancy rate at around 20%.

Second, this isn’t just an Olympia initiative. It has a major league partner in Related, one of the largest developers in the world owned by one of its richest men, Stephen Ross. He doesn’t have a history of not finishing what he starts.

And finally, the project is anchored by the University of Michigan Center for Innovation, a $250 million research and development facility funded in part by a $100 million donation from Ross, a UM grad. That gives Ross a personal stake in the success of the facility, which will be far less impactful if it’s standing alone in an undeveloped desert.

Olympia is going ahead this summer with one of its own projects, the Henry Street residential redevelopment. The plan calls for restoring seven 1920s-era historic buildings in the Cass Corridor, with half of the 170 units designated as affordable. That project is receiving low-income housing tax credits from the state.

And work on the utility infrastructure needed to support District Detroit will continue.

What about the brownfield tax credits approved by the city of Detroit for the development? Olympia and Related can’t start collecting them until construction work is underway. But they still are on the hook for funding the Community Benefits Agreement they signed.

So, I’m keeping my powder dry on this one. The explanation for the delay feels legit. Of course, if we get to this time next year and no groundbreaking plans are in place, it will be a different story.

Sign up for the Nolan Out Loud morning report at detroitnews.com/newsletters.