O'Keefe in the News

What will developers pay for ‘hot spot’ building near new Detroit Red Wings arena?

What will developers pay for ‘hot spot’ building near new Detroit Red Wings arena?

March 1, 2016

As published by Mlive

Bids are due Friday, March 4, for an outdated municipal office building on the edge of a sizzling hot redevelopment zone of Detroit.

The building at 640 Temple is located midway between the new $627 million Red Wings arena and Motor City Casino, with freeway access a few blocks west and the Masonic Temple one bock to the east.

“The area is obviously a hot spot in the city of Detroit,” said Khalil Rahal, executive director of Wayne County’s Economic Development Corp. “… In a lot of ways, it’s a gateway to Midtown.”

The eight-story Albert Kahn-designed building is owned by Wayne County, which is shedding its excess real estate as it deals with a multi-million dollar structural deficit and operates under a consent agreement with the state.

The 167,000-square-foot building is marketed as a mixed-use redevelopment opportunity. An additional 23,000 square feet of space is in the basement, and 200 parking spaces are included.

“With the pending development of the new Arena District surrounding this building a buyer for this site would not be difficult or time consuming to find,” listing agent Mike Deighan wrote to the county in March 2015.

“It’s an amazing location, considering what it looked like 2 years ago compared to today,” said commercial broker AJ Weiner of Jones Lang Lasalle in Royal Oak.

The nearby Red Wings arena is part of the $1.2 billion The District Detroit, which also includes private development – retail, residential and office – on 50 city blocks bordered by Woodward, Cass, Sproat and I-375. It’s under development by Olympia Development of Michigan, an entity of Ilitch Holdings Inc.

That leaves 640 Temple in a unique position: “It’s a building that found a whole new neighborhood without having to move,” Weiner said.

Based data for office building sales in the area, the price for 640 Temple could range from $4.75 million to $19 million, Deighan told county officials a year ago.

More current figures peg sold buildings in the area to $24-$50 per square foot, said Rahal.

“We don’t have a range” for an expected offer, Rahal said. “We’re letting the market determine that.”

Weiner, who works in the downtown market, said a building that size with parking is a rare combination, and “investors are excited about it.”

However, it’s more difficult to predict an eventual sale price, given multiple variables for how a purchaser would use the property.

A better question, Weiner said, centers on what Wayne County would accept for the property to sell it in this round of offers.

The immediate sale of the building was recommended in a study completed in March 2015 by O’Keefe and Associates of Bloomfield Hills.

In that study, Deighan examined the 257 properties owned by Wayne County in 25 of its 43 municipalities.

According to the report on Wayne County, “Optimizing its oversized real estate portfolio will yield lasting savings in annual operating costs.”

At the time, annual rent across its portfolio cost the county $8 million, while other buildings – like the Guardian Building in downtown – were about 50 percent utilized.

640 Temple came onto the market in early November. Most county staff, including Child & Family Services, was moved to The Guardian Building.

Rahal said that, due to location, the building “definitely is one we want to list … and hear offers.”

The building was built in 1920 for the Standard Accident Company and it has experienced some mechanical upgrades in the last 25 years. It has two courtyards and high ceilings, and covered parking on the first level.

The county will evaluate all bids, Rahal said, not just on price but also the next use and how it will impact that nearby area.

Increasing commercial uses may be a priority, Rahal said. The new stadium may make that more likely, he added.

Possibilities for the redeveloped building could include residential or hotel uses, with first-floor retail space.

The property on Temple is one among 16 Wayne County properties that O’Keefe recommended the county sell immediately in its 2015 real estate review. Among other buildings listed with Deighan is the former Eloise complex in Westland and a former drain commission industrial yard also in Westland.

Once the call for bids concludes on Friday, the county will evaluate the response, Rahal said. When the administration is ready to make a selection, a sale will have to be authorized by the Board of Commissioners.

The building’s strategic location made it attractive to unsolicited offers in years before County Executive Warren Evans’ administration, Rahal said.

Unclear is whether investors and developers will continue to come to his conclusion on the property: “There’s a lot of opportunity.”