Mall Properties Transition to the Untraditional

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With mall vacancy rate across the U.S. setting new records, it’s no surprise that malls are standing empty or being repurposed. Two new occupants of the Lakeview Mall in Battle Creek are doing just that. A climate-controlled self-storage developer bought the former Macy’s and plans to rent storage units, reachable by an indoor drive-through, and Horrocks Farm Market will move from downtown Battle Creek into the former JC Penney store. This represents the current trend for mall properties. Development experts look toward transitioning these large retail properties into housing, entertainment venues, medical facilities and other non-traditional mall tenants.

 

 

Weekly Brief – June 14, 2021

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While the real estate market was booming in Detroit prior to the COVID-19 pandemic, the comeback has been somewhat slower post-pandemic.

This is largely due to the reliance on the downtown and Midtown development’s reliance on a singular force: Quicken/Rocket employees. As the return-to-work process has been adopting a more hybrid approach and has been slower than anticipated, the rebound of Detroit retail and restaurants has been slower than expected.

There are a couple of other issues in Detroit that have hindered the growth of the real estate markets in Detroit.

First, the Ilitch development of District Detroit has been, to be charitable, lacking. This has had the impact of stalling some development as developers wait to see what, if anything the Ilitch organizations will develop.

Second (and this applies to the residential market much more than the commercial market), the incidence of title fraud is still more than occasional (albeit perhaps not as rampant as it was previously). Until there is some solution to this issue, the residential markets will be hindered. As an observer of the title fraud, it appears some factors feeding the prevalence of title fraud include out-of-state investors who are not “on the ground,” as well as the much higher percentage of non-owner-occupied properties.

Perhaps technology can help solve the title fraud problem. Although few truly understand the benefits of it, the adoption of a blockchain approach to deed recording could slow down title fraud.

Westin Book Cadillac Penthouse Condo Sets a New Record for Detroit

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A Westin Book Cadillac penthouse sold for $3.537 million. The penthouse sits atop the 31-story high-rise hotel in downtown Detroit. The deed was recorded in Wayne County in December. The sale came at a time when the downtown Detroit condo market was oversaturated. Previously, the most expensive Detroit condo sale was recorded at about $1.8 million in 2017. Incidentally, that condo is also in the Westin Book Cadillac.

 

Midtown Development’s Tax Credits Expire

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The Mid development in Midtown is headed toward a financial loss. The developer is still trying to get the project off the ground. Almost $9 million in Michigan Business Tax brownfield tax credits expired on Thursday, June 10, 2021. The 10-year expiration looms because the development team has not built the promised seven stories of one of its proposed buildings by June 10, 2021. The Michigan Business Tax statute requires projects to be completed within 10 years of the pre-approval letter.

Century-Old 1031 Exchange Tax Break Is On The Chopping Block

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Thanks to a 100-year-old provision in the tax code, real estate investors have been able to roll earnings from the sale of one property into the purchase of another to avoid paying taxes on the gains from the properties they sold. Section 1031 covers a transaction that is commonly called a like-kind exchange and provides a tax deferral on the financial gain of a sale if the proceeds are directly rolled into a similar investment property within 180 days. The Biden administration is taking aim at the tax code in the interest of financial equity. The current administration’s efforts would generate $19.5 billion in tax revenue over 10 years.

Historic Train Depot in Lansing is Due for a Makeover

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A 113-year-old train depot on Michigan Avenue, just a few blocks from the state Capitol building, is coming back to life. Vacant since 2016, the Lansing property was the former location of Clara’s restaurant, and is being redeveloped by the Gillespie Group. A  national coffee retailer will occupy part of the depot, while the remaining 4,045 square feet may be repurposed as a restaurant, retail or office space. A new parking lot and drive thru will be added, along with a green space parklet. Construction is expected to begin in September and wrap up during summer 2022.

Sterling Group Pockets $36 Million for Joe Louis Parking Deck in Detroit

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Sterling Group’s quick sale of the Joe Louis Arena parking garage netted eight figures for the Detroit real estate company. Sterling Group purchased the property from the City of Detroit in a deal that became public in October 2019. The real estate company paid $2 million in cash to the city and reimbursed the city $12.1 million  for the demolition within the area. Detroit also saved $3 million on parking deck improvements, $4 million on remediation of the arena site, and about $7 million in tax-increment financing dollars.

Weekly Brief – June 7, 2021

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Last week I discussed how the pre-pandemic disputes over short-term rentals are bubbling up again.  The other land-use issue that I expect will come front and center as we return to some semblance of normalcy post-pandemic is cannabis-related property.

Communities are starting to see large-scale and capital-intensive cannabis development. The property taxes from these developments are, of course, enticing to communities. However, I suspect we will start to see some municipal disputes about cannabis uses in the next few years, as these uses continue to proliferate.

Already, we are seeing disputes relating to the use of property for caregiver grow operations. I expect these disputes to multiply.

However, I also expect to see cannabis-related property transactions to proliferate. If (or when) the federal government removes the remaining regulatory and legal hurdles to cannabis development, I would expect these developments to accelerate. However, I also expect major corporate investors to get into the cannabis market once the remaining legal hurdles are cleared. The impact of the acceleration of this segment of the market may, in my mind, counter-intuitively, drive prices down. As the business becomes more normalized, I expect the approved zoning for these uses to expand, which will have the impact of increasing the supply of properties that are approved for such uses.

(Shameless plug: My title company has extensive cannabis property experience. We have handled over $80 million in cannabis property transactions. We can issue title policies for cannabis-related properties, and we have dedicated escrow accounts for cannabis-related funds at a cannabis-friendly financial institution. If you need assistance in this area, email me at dnykanen@mwtmi.com)

Former Site of Detroit Country Day School Purchased

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The historic former Detroit Country Day School building has sold. The 38,500-square-foot building has sold to JCJ Development LLC which is registered to Jordan Jonna. JCJ Development will convert the original school building into a residence. In 2017, Detroit Country Day announced a $30 million campus expansion and vacated the building. The building received a $2.9 million purchase offer from the Troy-based Kensington Church in 2019. The church withdrew its offer after community protest.

 

 

Wholesaling Middlemen Descend on Neighborhoods

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States and cities in the U.S. are cracking down on a niche in house-flipping known as wholesaling. The wholesalers do not typically hold real-estate licenses which makes regulation difficult. Wholesalers negotiate with homeowners and then put the homes under contract and sell those contracts to home-flippers. A home that just needs a little upgrade is long gone in today’s market. Instead, wholesalers are targeting homes that aren’t on listing services and need major overhauls. Most are in poorer neighborhoods. There are allegations that some wholesalers mislead struggling homeowners about the value of their property and take advantage of the situation.