Thursday, October 27, 2016

Confusion over cost of Little Caesars Arena; speculation builds on a Pistons move downtown

Posted By on Thu, Oct 27, 2016 at 1:18 PM

click to enlarge PHOTO BY JAMES MARVIN PHELPS | VIA SHUTTERSTOCK
  • Photo by James Marvin Phelps | via Shutterstock

In what would likely be the biggest business coup for Detroit since mortgage lender Quicken Loans announced it was relocating from the suburbs to the city’s downtown core in 2007, a deal to move the Detroit Pistons could be announced within days, according to reports.


As the new home of the Detroit Red Wings enters its final year of construction, discussions between the NHL team’s owner and the Pistons organization has intensified in recent weeks. Crain’s Detroit Business reported on Tuesday that Pistons owner Tom Gores is seeking land north of Little Caesars Arena for a new practice facility and possible headquarters for the team, and negotiations have focused on entertainment and broadcast rights for each party.

One question that hasn’t been raised: What will it cost the public to move the Pistons?

The discussions come as Oakland County Executive L. Brooks Patterson announced this week that his administration rejected an offer by the Pistons to purchase the team’s current home, the Palace of Auburn Hills, for $370 million.


“Oakland County turned down the offer because it did not want to risk having taxpayers shoulder another Silverdome,” a statement from Patterson’s office said. “The county did not want to risk having another [Pontiac] Silverdome. Plus, the county thinks the property is better in the hands of Mr. Gores and his team along with their vision for the future.”


The county said it would have been required to finance about $270 million in bonds to purchase the Palace.


A deal to move the Pistons to Detroit would require approval by the NBA and the Detroit Downtown Development Authority (DDA), which owns Little Caesars Arena.


"The organization does not have comment on the media reports that have surfaced on the subject ..." Pistons spokesman Kevin Grigg said in an email Thursday. 

Metro Times has learned that Tom Lewand, group executive for jobs and economic growth in the administration of Detroit Mayor Mike Duggan, is a key player in negotiations between the Ilitch family and Gores. Duggan is the chairman of the DDA board — and, in his absence, Lewand serves as his conduit.


Asked if Lewand is involved in negotiations for the Pistons, or if the mayor would support the use of a tax incentive package to lure the Pistons downtown, a spokesperson declined to comment.


“As a rule, we wouldn't discuss any ongoing negotiation that may be taking place or respond to speculative reporting that has taken place,” said Duggan’s spokesman, John Roach.


The DDA on Wednesday approved a contract adjustment that raises the total cost for the arena to $732.6 million — however, Olympia Development of Michigan (ODM), the arm of Red Wings owners Mike and Marian Ilitch’s company that is building the facility, says the actual cost of construction remains at $627.5 million.


The difference in costs appears to come down to the definition each have of “arena.”


In approving a change order for the arena project on Wednesday, the DDA defined the $732.6 million cost for the facility as: $451 million for the arena itself; $146 million for construction around the arena, including, for example, a new parking garage; and $97 million in “soft” costs, meaning engineering and architectural planning.


ODM says the cost of what it refers to as the Little Caesars Arena “complex” — including surrounding office, retail, and parking — is slated to be around $823.5 million, including soft costs, and breaks it down as: $627.5 million for the 785,000-square-foot arena, along with $196 million for new office buildings, retail and parking.


To finance the project, $450 million in bonds were issued, of which $250 million are being paid off using property and school taxes captured by the DDA. The authority is legally allowed to capture property and school taxes within what’s known as a tax increment financing (TIF) district to fund economic development in downtown Detroit.


(The state has said it repays schools for diverted revenue, but it’s unclear where it finds that $15 million in annual taxes to repay the school district for the bond payment.)


The DDA also said yesterday that the $250 million bond issue has been used up, and it is now drawing on the remaining $200 million loan — which will be paid off by an $11.5 million annual fee from the Ilitch organization — to finish construction.


Most importantly for taxpayers: Olympia is responsible for any cost overruns above and beyond the bond issues for the arena.


A message was left for a spokesperson with ODM seeking comment.


At the meeting on Wednesday, the DDA’s board didn’t discuss any potential deal that would require additional public funds to build a new practice facility or headquarters for the Pistons.


In one possible scenario, if Gores is indeed looking at land north of the arena for a practice facility, an expansion of the DDA’s TIF district could be required — a move that would thereby divert additional taxes to the DDA that otherwise would flow to the city and school district.


An expansion of the TIF district would require approval by the Detroit City Council.


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