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Historic Tax Credits: The Future of Detroit and the Future of American Cities

Published by John M. Tess on Sunday, September 1, 2013

Journal cover September 2013   Download PDF

The challenge facing Detroit is well-documented. We have all seen the images of graffiti-covered, decaying buildings and the half-barren blocks where neighborhood houses have been demolished. In 2005, the National Trust for Historic Preservation listed the historic buildings of downtown Detroit on its “11 Most Endangered Historic Places.” In that listing, the National Trust wrote, “The city is at a crossroads. Detroit’s leaders can continue their demolition campaign, or they can work with developers and preservationists to breathe new life into old buildings and save the history of one of America’s great cities.” Four years later, Time Magazine’s cover featured “The Tragedy of Detroit.” Today, the city is in bankruptcy.

Contrast Detroit to its neighbor to the northwest, Oakland County, Mich. The July 29 issue of Bloomberg Businessweek featured an article titled, “Detroit is Dead. Long Live Oakland County.” Oakland County is roughly 20 minutes from downtown Detroit. According to Bloomberg, while Detroit’s population has dropped by 60 percent since the 1950s, Oakland’s population has tripled, and the county is one of the wealthiest in the country.

It is easy to dismiss Detroit as being an anomaly -- a city failing to change with the times that reached that unfortunate tipping point where economic realities swamped economic viability. Unfortunately, the challenges Detroit faces are not unique to the Motor City, and they represent important challenges for the preservation community.

While we often hear the development community tout “New Urbanism,” the combined experiences of Wayne County, where Detroit is located, and Oakland County illustrate that the flight to the suburbs that began in the years following World War II continues today. Across the country, center cities continue to lose market share to the suburbs. There have been successes in stalling and slowing that flight. The reality, though, is that while many people are heading into the core, even more are heading out. The irony is that we live in a world where urban tourism is thriving and where there is a greater appreciation of our past. And it is in our city’s core where our history lives -- not in the recent farmland turned to residential developments.

Part of the problem is that real estate development industry is risk adverse and for the most part, suburban development is straightforward. The development framework is set and it is easy for a developer to build to suit the market. The economic models and pro formas are clear, which helps secure financing. A well-managed project has a good shot at meeting the market in a timely fashion. A developer planning a 200-room Hilton Garden or Courtyard by Marriott by the airport can pretty well pencil in opening day when construction begins and know that the building can be built to the brand’s requirements. This is true regardless of product type. And while preservationists and urbanites may recoil at the notion of staying by the airport, the market is there and where the market is, so are developers and profits.

Contrast that experience to the challenge of building in an urban core, where developers face a far more complicated review process that typically involves public hearings and long discussions about the right shade of beige and thoughts about how “perhaps the program needs to change to accommodate the building.” Worse is the unfortunate developer who discovers that the one-story building on the site of his proposed high-rise tower is unexpectedly deemed “historic.” A central city developer may only guess at an anticipated opening date and hope that the final design looks somewhat like what was planned. And of course, the adage that “time is money” remains true. Certainly, urban development is far more complicated than suburban development. There is an enormous challenge to integrate new construction into the existing environment and so reasonable processes are essential, but add a level of uncertainty to the real estate market and limit the number of interested developers.

What compensates for the added aggravation and risk is the preservation of the rich, textured fabric of our urban cores. These places have an evolving history that spans centuries, reflected in the architecture of the buildings. Sometimes an iconic building, such as the Empire State Building or Chrysler Building, can capture that history.

Perhaps more are important than solitary iconic buildings are the collections of buildings that create a unique sense of place and heritage. Detroit’s historic Financial District -- a significant portion of downtown -- was listed on the National Register in 2009. The 27-acre district comprises 33 buildings, two sites and one object. As the nomination correctly states, “From the 1850s to the 1970s the Financial District in downtown Detroit was the financial and office heart of the city.” The buildings within this district capture the glorious past of one of America’s great cities. The automobile revolutionized American life, Detroit was the epicenter of the automobile industry, and downtown was the epicenter of the city. The auto industry not only transformed Detroit, but the entire upper Midwest region. During the interwar years, Detroit was the fourth largest city in the United States after New York, Chicago and Philadelphia. It is one thing to have a sense of place; it is another when that place has an absolutely amazing heritage.

Despite bankruptcy and hard times, a group of leaders is attempting to, as the National Trust characterized it, “breathe new life into old buildings and save the history of one of America’s great cities.” Business leaders have begun buying buildings in the city’s core, investing in their redevelopment and moving employees from offices in the suburbs. One such leader is Dan Gilbert, who was born in Detroit, educated at Wayne State and is founder of Quicken Loans. In total, Gilbert is reported to own 30 buildings with approximately 7.5 million square feet of space housing roughly 9,200 employees in Gilbert-related enterprises. Another is Daniel Loepp, CEO of Blue Cross Blue Shield of Michigan, who in 2012 moved 3,400 workers from suburban Southfield, Mich. bringing a total of 6,400 Blue Cross workers to downtown.

Their vision is to focus on the new economy as the basis for a revitalized downtown core, creating a 24/7 critical mass of people living, working and playing in downtown Detroit. Helping to advance this vision are institutions, including the College for Creative Studies. With donations from the Ford Family and General Motors, the school renovated the 1930s Argonaut Building, designed by Albert Kahn, to serve as a charter design school and a creative corridor center. Also advancing the discussion are events as the “Redesigning Detroit,” a juried design competition sponsored by Gilbert’s Rock Ventures and focused on imagining the possibilities for the site of the demolished Hudson Department Store. These initiatives are beginning to show promise. One promising indicator is the planned 2014 opening of the Aloft Hotel in the historic 1914 Whitney Building.

Detroit, particularly when appreciated in the context of the ongoing flight to the suburbs, cannot be carried on the shoulders of individuals -- no matter how broad those shoulders may be. Gilbert and Loepp had the advantage of having a workforce to locate downtown. Detroit’s historic Financial District is mostly composed of speculative office buildings constructed in the hope that they would be filled with large and small businesses from the traditional downtown employment sectors: financial, insurance, legal, real estate and related professional services. Those sectors have undergone profound changes: They’ve shrunk and no longer require downtown office space. And Detroit, like most cities has yet to answer the question of what is the new downtown job base.

The buildings in Detroit’s financial district are just like the hundreds located in downtowns around the country: commercial-style high-rises built between 1910 and 1930. From a preservationist’s perspective, all of these buildings will be endangered until the question of demand is answered. Many suggest that adaptive reuse for housing is the answer. If there is no downtown job base, is downtown housing sustainable? The key is creating that 24/7 mix of housing, jobs, retail, restaurants and entertainment. Some historic preservation professionals joke that poverty and economic inactivity are good agents for preservation; that is true to a degree. Buildings have an inherent tendency to disintegrate, however, and Detroit shows the limits of poverty as a preservation agent.

In January 2013, then-Secretary of the Interior Ken Salazar toured Detroit and spoke to stakeholders about the city’s challenges from the perspective of historic preservation. That visit led to an announcement of several National Park Service (NPS) initiatives to promote historic tax credits (HTCs) in economically depressed areas. Two of the initiatives particularly stand out. One reiterated and expanded on the 2006 “Recommendations for Making a Good Program Better,” report from the NPS Advisory Board, which suggested improving the flexibility of the HTC program. The second initiative was partnering with the White House Council on Strong Cities, Strong Communities (SCSC). First announced in 2011, SCSC seeks to strengthen local governments’ capacities to develop and execute their economic vision and strategies. Often overlooked, the call to partner with SCSC is an important and positive shift in the mindset of the tax credit program.

The center of downtown Detroit is a historic district. These buildings, which create a unique sense of place and purpose, offer the city its most potent weapon in combating flight to the suburbs. The single greatest resource for revitalizing these buildings is the HTC, though there are a number of additional federal, state and local incentives that can be twinned with historic rehabilitation. There is also an array of federal, state and local economic development incentives can support activities within these historic buildings. Ultimately, like the stage in a theater, a renovated building alone does not create demand. Salazar’s announcement recognizes that the HTC program specifically and the historic preservation community generally must be an active partner in the larger conversation on saving our urban cores, one focused on how we truly turn the tide on the flight to the suburbs.

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