The pipeline for new office and industrial building construction in metro Detroit is getting busier.
There are 8.4 million square feet of proposed office buildings and 8.5 million square feet of proposed industrial space construction in Wayne, Oakland, Macomb, Livingston and Washtenaw counties, according to Washington, D.C.-based real estate information service CoStar Group Inc.
While the timelines for many projects will depend on success in landing tenants, developers and brokers say demand for the new buildings is being driven by tenant needs for specific kinds of space, or the desire to be in a particular part of town.
“The existing facilities, for a myriad of reasons, don’t often fit with what the current demand is and it’s sometimes better to build new,” said Kevin Hegg, vice president of the Canton Township office of Ashley Capital LLC. “There’s been a consolidation within the supplier groups of the larger, top-tier companies, and as they are growing and becoming more sophisticated, the demands as far as amenities and features — have become more specific.”
Although nowhere near Detroit’s industrial construction peak in 1998 when 17 million square feet of new space came online, demand for modern industrial buildings is fueling local and out-of-state developers to plan build-to-suit projects. About 700,000 square feet was built in both 2012 and 2013, up from 200,000 square feet in 2011, according to CoStar. Going forward, some of the new construction will redevelop or expand upon existing developments.
Amson Dembs Development purchased a former Showcase Cinemas building in Auburn Hills, razed it and plans to turn the site into a high-tech business park, shown in an artist’s rendering.
For example, Novi-based Amson Dembs Development Inc. purchased a former Showcase Cinemas building in Auburn Hills, razed it and plans to turn the site into a high-tech business park with two buildings between 160,000 square feet and 200,000 square feet each.
Also in Auburn Hills, Faurecia North America Inc., the fifth-largest auto supplier, is building a three-story, 300,000-square-foot North American headquarters on 211 acres at I-75 and University Drive in the Oakland Technology Park. The new headquarters will be a $30 million development by Southfield-based General Development Co.
In addition, developers like Southfield-based Redico LLC and California-based Industrial Realty Group LLC plan build-to-suit industrial projects for large tenants in western Wayne County and the city of Detroit, respectively.
Redico purchased 59 acres of vacant land in the Northville Technology Park on the northeast corner of Five Mile and Beck roads in Northville Township in September.
The company plans build-to-suit projects on 27 of those acres; Redico sold 32 of the acres to an undisclosed buyer.
Last month, Industrial Realty Group closed on the purchase of the majority of Detroit-based American Axle & Manufacturing Holdings Inc.’s former Detroit manufacturing complex at I-75 and Holbrook Street.
“The deals that we’re seeing — a lot of these are overseas companies, and that continues to bode well for Detroit being the epicenter for automotive business in the world,” said Gary Weisman, principal of General Development.
There are 23 proposed industrial construction projects of 100,000 square feet or more in metro Detroit, according to CoStar.
“Fifteen to 20 percent of our business is now construction money,” said Dennis Bernard, founder and president of commercial mortgage broker Southfield-based Bernard Financial Group Inc. “It was never that big.”
The office construction market also has several planned building projects that could change the local landscape.
The region’s office market hit its peak in 1986, when 8.4 million square feet of space was constructed, according to CoStar. Last year, just 100,000 square feet of space was built, down from 300,000 in 2011 and 200,000 in 2012.
Of the 23 proposed office construction or redevelopment projects totaling 100,000 square feet or more, all but two of them are in Wayne and Oakland counties, according to CoStar.
Among the big projects, Detroit-based Meridian Health Plan is planning to relocate into a new 16-story, $111 million office tower on Monroe in the central business district so it can consolidate employees from two buildings into one. The 320,000-square-foot building by Livonia-based Schostak Bros. & Co. would be the first new major office construction downtown since construction of One Kennedy Square was completed in 2006.
And with Redico’s two Towne Square towers in Southfield totaling about 670,000 square feet, and almost fully occupied, the company may construct a third building at the site, said Dale Watchowski, CEO, COO and president of Redico.
That build-to-suit Class A tower, which would be 300,000 to 350,000 square feet on the site northeast of Northwestern Highway between Civic Center Drive and Lahser Road, is “a very distinct possibility,” Watchowski said. (Crain’s first reported the plans in the Feb. 24 edition.)
“We think that is indicative of the demand for quality space in the metro area,” Watchowski said.
Depending on the size and number of stories the tower has, construction costs could be as high as $49 million, construction experts estimate.
Construction is expected to begin next year on Wayne State University’s $60 million mixed-use development on 1.5 acres at Cass and Canfield, shown in an artist’s rendering.
In addition to new office construction, several major mixed-use projects are also on the horizon, many of them in the city of Detroit.
There is the redevelopment, also by Redico, and the Magic Plus LLC investment group of the former Michigan State Fairgrounds site at 8 Mile Road and Woodward Avenue, a mixed-use project valued at about $150 million.
Another is the 410,000-square-foot mixed-use project of 248 residential units for Wayne State University at Cass Avenue and Canfield, according to CoStar. Construction on the Wayne State project, a $60 million development, is expected to begin next year. Detroit-based Broder & Sachse Real Estate Services Inc. will develop the 1.5-acre site. Plans also include 19,000 square feet of retail space, a hotel with up to 120 rooms and a conference center that can accommodate 300 people.
In addition, there’s the $55 million, 400,000-square-foot mixed-use development facing the Detroit riverfront along Atwater and Franklin streets between the Dequindre Cut Greenway and Riopelle Street. That’s where St. Louis-based McCormack Baron Salazar Development Inc. plans 500 residential units and retail and restaurant space. But the largest planned mixed-use development for the region would be by Dan Gilbert.
Gilbert’s Rock Ventures LLC is planning a $500 million mixed-use redevelopment of the failed Wayne County Consolidated Jail site that would feature 1.7 million square feet of space, with 700 residential and hotel units and 200,000 square feet of retail space and parking. It would be adjacent to Greektown Casino-Hotel, which came under majority control of his Rock Gaming LLC’s Athens Acquisitions LLC in April 2013.
There are also mixed-use projects in the suburbs, including a $50 million development in Ypsilanti Township planned by Newport, Calif.-based Delaware Lake Shore LP. This would include commercial and restaurant space, along with 600 apartment units, planned on the east side of Ford Lake.
Plus, the former Novi Expo Center is planned to get a $100 million mixed-use development by Bingham Farms-based Burton-Katzman Development Co., the developer for property owner Kevin Adell. Adell owns the land at I-96 and Novi Road and is president of Clinton Township-based Adell Broadcasting Corp.
The two-building, 500,000-square-foot Adell Towers development is expected to consist of either two eight-story office buildings or an office building and a hotel. Retail is expected on the first floor of at least one of the buildings.
Bryce Kelley, director of the Wayne County Economic Development Growth Engine, said the improved economy triggered the renewed demand for new construction in 2013, when there was nearly $600 million in private investment in construction and redevelopment projects in Wayne County.
He expects the county to attract at least that much in new projects this year.
“We now have a sense that there is a need for more space,” Kelley said. “I think 2014 will certainly match last year, and I think it has the potential to go beyond that number.”
The need for more space overall is triggered by the returned health of the automotive industry, which has prompted suppliers to expand their workforces, Weisman said. Last year, new car production went over the 16 million mark for the year for the first time since the recession.
“In the Detroit area, we lost about a third of our suppliers,” Weisman said. “Then as the bailout took hold, it actually trickled down into the supplier base. The suppliers that remained, they all needed more capacity, and lots of them came off the fence all at the same time.”
Watchowski agreed that improved economic conditions, and the corporate real estate needs that relate to that, have sparked demand for real estate.
“Five years ago, Michigan was in a recession and the rest of the country was going into one,” he said. “The companies in Michigan really didn’t know ultimately if they were going to get larger, if they were going to contract, if they were going to go to another market or if they were going to survive at all.”
Weisman said he expects 2014 to be on par with last year in new construction and redevelopment.
“The market continues to be good,” he said. “There is a reason for new facilities because there just aren’t alternatives in the marketplace right now.”
All told, things seem to be looking up, Bernard said.
“We don’t have a building boom going on, but we certainly have building and development where we didn’t before,” he said.