The Future Of Joe Louis Arena After The Detroit Red Wings

Per the city of Detroit’s lease agreement with the Ilitch’s the Detroit Red Wings have the ability to extend their lease of Joe Louis Arena until construction on the new arena has been completed. But once construction is competed and the Detroit Red Wings move to their new arena, the Joe’s doors will close forever.

The land Joe Louis Arena and the JLA Garage currently resides on have been sold to Financial Guaranty Insurance Company – the insurance company that insured some of the City of Detroit’s creditors – as part of the City of Detroit’s bankruptcy agreement.

Now we are going to go through the proposal from FGIC that led to the City of Detroit to sell off the property of JLA and the JLA Garage in the City’s bankruptcy proceeding, then we will go over what it means in layman terms.

The City of Detroit’s responsibility:

With in 90 days after the expiration of the current lease to which the JLA Parcel is subject, the City shall commence demolition of the JLA.

The demolition will include remediation of exciting environmental contaminants on the surface or sub-surface of the Parcels sufficient under applicable law for the Developer to use the Parcels for it’s intended use as a multi-use hotel, condominium office, or retail development.

The demolition of the JLA is expected to commence on or before September 15, 2017 and will be completed within one year of commencement.

The State shall make available to the City certain Community Revitalization Program incentives up to $6,000,000 for purposes of reimbursing the City for the costs and expenses incurred in connection with the demolition and any necessary environmental remediation. If the City does not use the entirety of such $6,000,000 for the demolition and any necessary environmental remediation, the balance shall be made available to the Developer.

What it means:

Once the Detroit Red Wings’ lease of Joe Louis Arena and the JLA Garage is over the city will have ninety days to begin the demolition of the buildings. Give the Developers a clear date of when the property will be available and sets a date for the City to start the process.

The City of Detroit is responsible cleaning up any contaminants above or below the surface for the Developers, so they can develop the property without interruption and keeps the developers off the hook for environmental damages from the previous tenant.

This is the current date that the Detroit Red Wings lease of JLA will expire and the City of Detroit will have ninety days from this point to begin the demolition of the JLA and JLA garage.

The State of Michigan will provide the City of Detroit with the funds to completely demolish the JLA and the JLA Garage and clean any environmental issues if necessary, but if the City does not use all of the money than the remaining sum will be given to the Developers to use for construction.

The property Developers responsibility:

Within 36 months of the execution of the Agreement, the Developer shall identify a development partner and prepare a comprehensive development plan for the Parcels, including the application for Community Revitalization Program Incentives and the brownfield plan necessary for the TIF Incentives, and shall submit the Proposal to the City for approval.

Upon request of the Developer, the City may extend the deadline by which the Developer is required to submit the Proposal by 24 months.

The city will use the Parcels to be zoned “B-5”, which will permit the Parcels to be used as a mixed-use development, subject to the City’s administrative review of the site plan.

The City’s approval of the Proposal will be separate from the approval of the general municipal approvals or permits (e.g., conditional use, site plan); however, the Developer may proceed with securing these approvals after the City’s approval of the Proposal.

The Developer will have until 180 days before the Proposal submission deadline to notify the City that it wishes to inspect the Parcels, during which time the Developer may conduct diligence including physical inspections, environmental studies, and review of surveys and title reports

• Should the Developer determine that the Parcels are in unsatisfactory condition, it may raise objections via a formal notice to the City within 120 days of the Diligence Notice.
• The City will have 60 days to cure the Developer’s objections and if they are not cured, the Developer may then choose whether or not it will close on the transaction, provided the City must cure those encumbrances for the benefit of the City or those defects in the title that would make title unmarketable or unreasonably interfere with the development of the Project.
• The Developer will indemnify the City against any lost or expense as a result of the diligence.

If the above conditions are met, and the Developer has provided a notice to proceed for the project on or before either (i) the Objection Deadline or (ii) if the Developer provides an objection notice prior to the Objection Deadline, within 15 days after the Cure Period, then the City and the Developer will close on the Parcels on the later of:

• Two years from the approval of the Proposal, or
• Six months from the completion of the demolition

What it means:

The Developers will have three years after the JLA is demolished and the environment cleaned to get a plan together for the property and bring in architects, contractors, and other partners to develop the property.

If the Developer is not ready to submit the proposal in three years after demolition, then they are able to extend the deadline by two more years. This allows the Developers to hold off on building anything if the economy is bad at the time and because the Developer does not have a set plan of what will be going up in that space, yet.

Mixed-use development means the Developer’s building or group of buildings are able to be used for a combination of residential, commercial, cultural, institutional, or industrial uses, where those functions are physically and functionally integrated, and that provide pedestrian connections

The permits for the building will still go through the proper channels and the City will not be able to help or hinder the Developer’s ability to secure these approvals for the construction of the building.

This protects the Developer from being on the hook for the property if the City did not clean the premises well enough. The City will have two months to fix the issues the Developer has with the properties or anything that could interfere with the project.

If the property is up to the Developer’s standards, then the project will move forward.

Economic Development Incentives:

If the Proposal is approved by the City, the State has agreed to reimburse the Developer for certain eligible project costs through CRP and TIF incentives to the extent that the Proposal meets the eligibility requirements for the incentives

• Up to $4 Million in the CRP incentives, and
• Up to $14 Million in TIF incentives, which will accrue 3% per annum interest on any outstanding balance thereof

The City will use good faith efforts to cause the cap on the TIF Incentives to be increased to $18,000,000 in exchange for eliminating the $4,000,000 in CRP Incentives that are to be provided to the Developer.

The State has also to agreed to designate the development a neighborhood empowerment zone, if it contains residential development.

The City has agree to declare the Parcels part of a Commercial Redevelopment Zone or a Commercial Rehabilitation Zone, as requested by the Developer, and the City will cooperate and assist the Developer in applying for certain tax abatements associated with such zone.

What it means:

The Developer will receive incentives for building on the land.

TIF Incentives are easier to obtain and do not have stipulations on them, so the Developer would prefer to have them over the CRP Incentives and the City will help them obtain them over the CRP Incentives.

If the building or building contain a residential population, the State will help develop the area around the building(s) to make the area more attractive to potential residents.

The Developer will receive help from the city to receive tax breaks for building on the land.

Other Terms:

The Developer will commence the development within 1 year following the closing date and will substantially complete the development within 36 months following the closing date.

• If the Developer fails to achieve the commencement of construction within 1 year, the Parcels automatically revert to the City.

The Developer will accept the Parcels on an “as-is, where-is” basis, subject to the City’s environmental obligations.

For any general Municipal approvals and permits (zoning, site plan, et all), the City and State agree to process such requests promptly and in no more than 30 days and shall use reasonable efforts to facilitate such requests.

Prior to closing, the City will maintain the Parcels in at least the same condition and repair as of the date of the Agreement, subject to demolition.

The agreement is subject to Bankruptcy Court approval, and the Bankruptcy Court shall retain jurisdiction over any disputes related to the Agreement.

What it means:

Protects the City of Detroit’s rights on the property and keeps the Developer from holding the land without building or improving the land.

As the City finishes demolition and environmental cleaning each piece of land, the Developer will receive the property as it is finished.

The City will not hinder the Developers ability of receiving permits to build on the land and will expedite the permits in a reasonable time.

Protects the Developers land, by making the City take care of them until closing, which means keeping the land from falling into disrepair.

The Bankruptcy Court needs to approve the plan and any disagreement on this agreement will be settled by the Bankruptcy court.

Now we have a nice little timeline for the Development of the JLA: