Anatomy of the Deal
Rising from the ashes of bankruptcy,the restoration of the Book Cadillac Hotel proved to be one of the most complicated redevelopment efforts in the nation. It included 22 levels of financing, a clouded title, political theatrics inside the governor’s office, creative equity, and the fulfillment of one man’s dream.
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Business: Real-estate development and management
Executive: John Ferchill, Chairman and CEO
Revenue: $200 million (2007)
Despite being accused of throwing Gov. Jennifer Granholm under the bus, investing $8 million of his own money before renovation crews ever set foot in the Book Cadillac Hotel, and losing another $9 million in financing days before the closing only to replace it less than 24 hours later, John Ferchill still bristles at the one-sentence letter he received from the National Trust for Historic Places disapproving part of the tax credits needed for the nearly $190-million restoration effort — one of the largest projects of its kind ever attempted.
Ferchill, 65, a stylish, shoot-from-the-hip developer from Cleveland who’s tackled some of the most complicated historic renovation projects in the Midwest, couldn’t believe his eyes. “I called up our historic architects and said, ‘Did you guys see this letter?’ They said, ‘Oh, we’re on it.’ And I said, ‘Do you know what this means?’ ‘Yeah, we understand.’” But Ferchill, chairman and CEO of The Ferchill Group, didn’t sense the architects had grasped the full ramifications of the letter. “What this means is that all the money that you see related around the historics — the conservation easement, the tax credits — it’s a number that’s about $50 million — it’s gone.”
Welcome to the dramatic ups and downs of one of the nation’s most complicated renovation projects. The transaction, which had as many moving parts as the Dream Cruise, might as well have been scripted as a Hitchcock thriller — it was that diabolical. “We’ve done a lot of complicated projects over the years modernizing a 300-year-old city,” says George W. Jackson Jr., president and CEO of the Detroit Economic Growth Corp., a quasi-public development agency that held title to the Book Cadillac. “We bought up the three cement companies on the river and created the River Walk, we spurred the redevelopment and construction of dozens of buildings downtown, brought in scores of new businesses and residents, the casinos are nearly completed, and yet the Book was this albatross around our neck. It was a glorious link to our past, and some would say an unrealized symbol of our future.”
Late in Detroit Mayor Dennis Archer’s second term, in 2001, the Book Cadillac was considered a dangerous eyesore, but was owned by a group of private investors. The city wanted to see it renovated, if possible, even if the private investors who owned the structure had declared bankruptcy. “We forced the Book out of bankruptcy, and eventually got control of the property. It was a long, and complicated, process,” says Brian Holdwick, vice president of Detroit Economic Growth Corp. “That, to me, was a crucial turning point in saving the building.”
As the disposition of the Book Cadillac was being deliberated in bankruptcy court, city officials began reviewing national developers that had the skill set to renovate the structure. During the same period, the city asked Ferchill to examine a set of initial engineering studies that determined the Book should be leveled. “I looked at the report and immediately — and quite frankly — I spotted the flaws,” Ferchill recalls. After touring the dilapidated interior, which appeared to have been struck by a Category 4 hurricane, Ferchill advised the city to call another engineering firm to survey the wreck. The second report proved more promising than the first, but enough time had passed that Ferchill was dealing with the administration of Mayor Kwame Kilpatrick, who took office in 2002. What’s more, city officials were impressed enough with a historic restoration firm in Texas that they proceeded to negotiate a development agreement.
“I always assumed it would be us,” Ferchill says. “I never said so. I never agreed to it. I never spoke it. And, honest to God, one day I pick up the newspaper and I read [the city] had selected another developer. So I call up George, and I could tell he was concerned that I would be upset. And I said, ‘George, don’t worry about it.’ And he says, ‘What do you mean?’ And I said, ‘I think you’ll be calling me back in the future.’”
At the time, Jackson had his hands full on a number of fronts. It had already taken him a few months to convince a skeptical mayor and City Council that the Book could be restored. Soon after Kilpatrick took office, he declared that all “the old dinosaur buildings” should be demolished. Jackson met him halfway. But the decision put him in the crosshairs of a very active collection of preservationists who believed every downtown structure should be restored or mothballed until such time a development plan could be stitched together. “I was fighting a two-front war with limited supplies — meaning money,” Jackson says.
Already, the preservationists had used public demonstrations, legal filings, and an aggressive public-relations campaign (which the media was all-too-willing to cover) to persuade the city to redevelop such structures as the once-glorious Hudson’s building, the Statler-Hilton Hotel, and some of the dozens of structures that were razed to make way for Comerica Park and Ford Field.
“We had lost a few battles and had won a few battles, but we drew a line in the sand when it came to the Book Cadillac,” says Francis Grunow, a member of the Friends of the Book Cadillac and the former executive director of Preservation Wayne, a Detroit nonprofit that promotes historic restoration. “We had worked every channel we could think of to save the Book,” he says, “and we were ecstatic when the city had finally found a developer to take it on.”
But Grunow and the city could never have predicted what happened next. The city had selected Historic Hospitality (a division of Kimberly-Clark, the consumer products giant that operates a historic-redevelopment division) to transform the Book Cadillac into a 400-room hotel with dozens of condos, banquet areas, storefronts, and unique restaurants.
Suddenly, it seemed as if the clock had rolled back to 1924, when Frank, Herbert, and J.B. Book opened the new hotel on what was the site of the Cadillac Hotel. The brothers, successful real-estate developers who were riding the wave of untold money rolling into the city on the strength of the auto industry, wanted to convert Washington Boulevard into a bustling thoroughfare akin to New York’s Fifth Avenue.