Great piece on Syncora's Detroit potential
It may have lost millions in its bankruptcy settlement with Detroit, but Syncora Guarantee Inc.'s bet on greater downtown real estate appears to be paying off.
At least one of the properties the bond insurer now has development rights to on the east riverfront and near Greektown would play a key role in Dan Gilbert's and Tom Gores' ambitious $1 billion plan announced last week to bring a Major League Soccer team and a new stadium and mixed-use development downtown.
Whether the development on the site of the half-built Wayne County Consolidated Jail ever gets off the ground, Syncora's acceptance of developing rights to the former Detroit Police Department headquarters building as well as about 8.3 acres of east riverfront land near Chene Park seems to have made the haircut it will take on its bankruptcy claim less drastic than originally thought.
Particular properties along the riverfront have gained significant value in the 18 months since Bermuda-based Syncora settled a $333 million bankruptcy claim for $44.8 million in new debt, a lease to operate the Detroit-Windsor Tunnel, a long-term lease of a Grand Circus Park parking garage, development rights to the DPD building at 1300 Beaubien and land.
In large part, that's because development surrounding the riverfront property has been happening at a frenetic pace, said Dennis Bernard, founder and president of Southfield-based Bernard Financial Group Inc., which originates debt for real estate acquisition and development.
He pointed to the $65 million first phase of the Orleans Landing mixed-use development and the $42 million construction of DuCharme Place in Lafayette Park as two examples of new multifamily construction pumping up property values around Syncora-controlled land just north of Chene Park.
"Whether it's a potential soccer stadium, additional recreation for the city, multifamily — you're going to see increased value and development along that spur," he said. "In other words, that spur is becoming more pedestrian and user friendly, and with that comes safety and other opportunities."
No formal plans have been announced for the largely vacant block north of Chene, which consists of five parcels with city and private ownership, although there has been interest in the site.
Syncora also has development rights to another property, this one known to be part of the stadium plans: the former DPD building, built in 1923 and designed by Albert Kahn.
It sits in the planned 15.5-acre arena development site.
And although aerial renderings of the development plans released last week don't appear to show it still standing, Matt Cullen, president and CEO of Gilbert's Rock Ventures LLC, said that demolition of the building has not yet "been contemplated."
It could also be redeveloped as a historic renovation project, he said.
Regardless, the Gilbert-Gores team would have to purchase the building — and with a $1 billion plan with approximately 1 million square feet of space on the line, would likely pay a substantial sum for it, despite the fact that it has experienced serious maintenance issues in the past couple of years.
For its part, Syncora said in a prepared statement: "We currently are not in a position to discuss the details of the properties on which we have options. We continue to work with the City and are excited about Detroit's growth and revitalization."
Matt Lester, founder and CEO of Princeton Enterprises LLC, said the DPD building could have been viewed as "a liability or of marginal value."
"It now appears to have significant value in light of the potential redevelopment of the jail site and the various redevelopments planned along the Gratiot corridor," he said.
"If anything, that building has development capabilities right away. There is a lot of value inherent in that asset," said AJ Weiner, managing director in the Royal Oak office of brokerage firm Jones Lang LaSalle.
"There is a general feeling that the boat has somewhat sailed for the CBD (central business district), so you're seeing a lot of interest going east along the river and west through Corktown, north through New Center and Midtown," said Marc Nassif, managing director, Midwest, of the Livonia office of Dallas-based BBG Inc., a commercial real estate appraisal firm.
"The interest for those properties has truly become national. They want market studies and feasibility studies," he said. "Two years ago they were local calls, and now they are coming from across the country."
Lester, whose company has real estate holdings along the river, said the bond insurer's gamble on riverfront real estate was a wise one.
"The value of that real estate has only been enhanced over the past 18 months and may have gone up in value as much as 20 to 50 percent or more, depending upon the value attributed to it through the bankruptcy proceeding."
If the property is flipped for a soccer stadium, or if Syncora participates in any development of the properties it controls, the moves could enhance the bond insurer's investment in Detroit's recovery, said Douglas Bernstein, a banking and bankruptcy partner with Bloomfield Hills-based Plunkett Cooney PC.
"It would certainly give them an opportunity to enhance their return," Bernstein said. "It would essentially mean they waited two years to convert their claim into cash."
Flipping the properties to Gilbert and Gores also would help the bond insurer exit the real-estate business and avoid what could be costly development costs, particularly with the old DPD headquarters, Bernstein said.
"There's probably remediation that's going to be necessary, and I assume asbestos, which dramatically increases the cost of demolition," Bernstein said.
The land development agreement is with Syncora subsidiary Pike Pointe Holdings LLC.
Comparable sales are difficult to come by because of the overall size of the riverfront property. However, data from Washington, D.C.-based CoStar Group Inc. for land sales between the Detroit-Windsor Tunnel and the Belle Isle bridge sheds some light on how much the bond insurer could earn from selling the property.
Since the Syncora deal was struck in September 2014, a 0.33-acre parcel at 2100 Guoin St. sold for $500,000 in July, or $1.5 million per acre; and a 0.6-acre parcel at 1944 E. Jefferson Ave. sold for $400,000, or $667,000 per acre, in January 2015, according to the real estate information service.
Based on those per-acre prices, the 6.79 acres north of Chene Park that Syncora controls would sell for between $4.53 million and $10.19 million.
Syncora received development rights to a total of 8.35 acres of riverfront land. Based on the per-acre prices since September 2014, that would sell for between $5.57 million and $12.53 million.
Between Jan. 1, 2010, and the Syncora deal, there were seven land sales in the area, with known sale prices ranging between $225,000 and $852,000 per acre. However, none of those properties totaled more than 2.24 acres.
Syncora isn't the only bond insurer to let the city resolve some of its debt with real estate interests. Financial Guaranty Insurance Corp. receiveddevelopment rights for Joe Louis Arena, which is slated for demolition and to be replaced by a hotel with at least 300 rooms and standing no more than 30 stories; and a mix of office, retail, recreation and residential space, according to bankruptcy court documents. The property sits on about 9 acres.
The interest in land given to Syncora during Detroit's bankruptcy does not surprise Melissa Jacoby, a University of North Carolina law professor and bankruptcy expert who followed the city's case.
"The whole point was to predict the future, and I speculated that the percentage of recovery that Syncora or FGIC would be getting was potentially significantly greater than was being announced" in 2014, she said.
"In terms of whatever bet Syncora made, there's a big chance this real estate is going to be worth more, and we'll need to re-evaluate the extent of the haircut that they supposedly took," Jacoby added.
The Detroit bankruptcy was significant for its size and the use of real estate to settle claims with Syncora and FGIC, the last major holdout creditors in the case, Jacoby said.
"I'm not trying to make them out like they got the best deals in the case — we'll see," Jacoby said. "The last holdouts are not supposed to do well."
Attempts to reach Ian Glastein, vice president of New York City-based Monarch Alternative Capital LP, who is working on behalf of FGIC on its Detroit real estate, were unsuccessful.
