It wasn't long ago that governments made big splashes in greater downtown real estate, buying landmark properties and turning them into executive offices.
These days, however, you'd be hard-pressed to find a real estate broker who reasonably expects a governmental unit to be a serious contender for greater downtown property in Detroit.
Case in point: Since the beginning of 2013, government units have only purchased two properties downtown. Those buildings, in Capitol Park and Paradise Valley, total just shy of 8,000 square feet.
Compare that with 2000 to 2010, when governmental units purchased 2.32 million square feet of space ranging from large office buildings to land, from parking decks to smaller properties inside the central business district, according to an analysis of property sales listed by CoStar Group Inc., a Washington, D.C.-based real estate information service.
All told, a Crain's review of 141 downtown properties shows that governmental/public ownership is down to seven properties, representing just 5 percent (rounded numbers) of those surveyed. But those properties account for 15 percent (2.6 million square feet) of the square footage (about 17 million square feet).
By comparison, Dan Gilbert and his related companies own 40 percent of the surveyed properties, totaling 7 million square feet, and other private owners own 52 percent of the properties, totaling 7.3 million square feet. Nonprofit and religious organizations own 4 percent of the properties, totaling 1 percent of the total 17 million square feet.
There were two giant government deals from 2000-2011. Wayne County bought the 643,000-square-foot Guardian Building at 500 Griswold St. downtown as part of a portfolio deal for $14.5 million from Detroit-based Sterling Group in 2008.
In 2011, the Michigan Strategic Fundpurchased Cadillac Place outright from New Center Development Inc., an ownership entity in which the state had an ownership stake as part of a deal hammered out afterGeneral Motors Corp. left the 1.36 million-square-foot New Center area office complex for the Renaissance Center. The last of 5,200 GM employees moved into the RenCen from the Albert Kahn-designed Cadillac Place on West Grand Boulevard in 2001.
But times have changed.
Governments, particularly the county and the city of Detroit, are much more wary of making significant real estate deals. Simply put: Detroit, which emerged from its historic Chapter 9 municipal bankruptcy a year ago, and Wayne County, which is operating under a consent agreement, don't have the cash to invest in downtown property. In fact, both governments have been unloading or are looking to unload some of their key properties in cost-savings efforts.
Among them: The Guardian Building itself, which the county bought in 2008 along with the First Street Parking Garage and the building at 511 Woodward Ave., and the Old Wayne County Building; the county had owned the land on which the 226,000-square-foot building, built between 1897 and 1902, sits.
The building had been Wayne County's executive office home until it purchased the Guardian Building following a disagreement with the previous owner, Old Wayne County Building LP, over rental rates. The Old Wayne County Building sold for $13.4 million to 600 Randolph SN LLC, a private New York-based investor.
The county also sold the Philip J. Neudeck office building at 415 Clifford St. last year to businessman Joe Barbat, who plans a multifamily conversion, for $2.3 million.
Detroit also sold its former fire department headquarters building at 250 W. Larned St. to a Chicago-based hotel company that plans a hotel conversion with 80 rooms in a $28 million redevelopment of the 63,000-square-foot building. A number of properties, including the Joe Louis Arena and some riverfront land, among others, also went to bond insurers Syncora Guarantee Inc. and Financial Guaranty Insurance Co. during Detroit's bankruptcy.
So just as the city and county have been eager sellers of unused or underutilized properties in efforts to bring in revenue and cut operating expenses, there too have been an increasing number of eager buyers downtown looking to capitalize on higher property values and demand for things like multifamily housing and quality office space.
A review of CoStar data shows that between 2005 and 2010, there were just 29 total downtown property sales. That has increased steadily every year since as market conditions and demand improve, growing from 15 sales in 2011 to 41 last year. As of Nov. 3, there had been 25 total this year, according to CoStar.
Yes, an undeniable factor in the increase is Dan Gilbert's downtown buying spree. But smaller yet formidable private investors and property owners also are stepping up downtown.
"The key factor is that we don't need (government deals) the way we used to need them," said AJ Weiner, managing director in the Royal Oak office of Jones Lang LaSalle. "When the market was extremely soft and there was a limited amount of real estate activity, you needed the state and city to step up" with things like tax incentives.