LAST SPRING, investor Jonathan Holtzman had his sights set on a $40 million development project downtown on a block that included the site of the old Statler-Hilton hotel. But one thing stood in his way: the vacant building at 139 Bagley, owned by real estate developer Anthony Pieroni.
When Holtzman emailed Pieroni inquiring about the property, Pieroni was in no mood for games.
"Don't play stupid with me re: land value," Pieroni wrote. "I WILL NOT BE EXTORTED and certainly not by assholes such as you and Holdwick.
"If you ever approach me again about this matter," Pieroni added, "you had better be on your fucking knees and groveling."
These emails were recently made public as part of a nuisance lawsuit involving the city of Detroit and Pieroni's Triple-A Venture, which later filed a counter-complaint against the Detroit Economic Growth Corporation (DEGC) and the Detroit Downtown Development Authority (DDA).
And although Detroit, according to a Wayne County Circuit Court judge, was correct to argue Pieroni's building was a public nuisance that needed to be demolished, the DEGC's involvement with the city seemingly goaded Pieroni into negotiations with Holtzman.
The DEGC staffs and operates the DDA, whose board of directors in March preliminarily signed off on Holtzman's deal to construct an estimated 250-unit apartment complex on the block where Pieroni's property is located — including Pieroni's property.
But according to court records, Pieroni was never notified of Holtzman's plan before the project was publicly approved.
The "Holdwick" Pieroni references in the email is Brian Holdwick, executive vice president of business development at the DEGC. A month after the DDA approved Holtzman's project, Pieroni alleged in court filings that he met with Holdwick — only after negotiations with Holtzman for a selling price on his property fell through — to discuss potential development of his site. Pieroni accused Holdwick of saying the DEGC would deny any tax breaks to the buyer of another building Pieroni owned nearby, unless he sold the property at 139 Bagley for a lower price, according to court records.
In plain English, Pieroni accused Holdwick of threatening him.
Whether the meeting took place exactly in that fashion, however, is unclear. The records of the DEGC, a 501(c)(4) nonprofit that has negotiated economic development deals on behalf of Detroit since 1978, aren't directly subject to Michigan's Freedom of Information Act. And the DEGC, through its spokesman, refused to discuss the allegations.
The DEGC has a rather curious arrangement with Detroit. Its main purpose is to broker economic development deals on behalf of the city. The agency has been criticized by some as an opaque machine, one with the cheery goal of bringing investment to the city. The DEGC's fundamental structure permits it to handle millions of public tax dollars for that purpose — with little scrutiny.
The DEGC itself holds meetings, with a 53-member board of directors, that aren't open to the public. And it's not subject to public records requests. Yet roughly 70 percent of the DEGC's operating revenue comes from public tax dollars.
The DEGC provides staff and conducts business that forms the basis for action of seven public entities. The DDA alone projects it will spend more than $1 billion over the next 30 years, but it's unclear how much the other six boards the agency oversees will spend.
It's just one example of the unusual and convoluted relationship between the city the DEGC.
The DEGC acknowledges it's not a part of Detroit's government, but says "we are a [longtime] partner of it." Its articles of incorporation state its purpose is to:
— Operate and act "exclusively for
charitable or educational purposes" by creating opportunities for Detroit residents;
— Help generate new and additional tax revenues for Detroit;
— And to "promote, encourage, and assist the expansion of existing commercial and industrial business in Detroit."
But how good of a job has the DEGC done in accomplishing that task over its 36-year existence? Detroit, now neck deep in bankruptcy, has an unemployment rate of 14 percent and a continually eroding tax base.***
For some, why the DEGC exists as the agency that oversees a number of Detroit's development authorities is a mystery — a point actually once considered by a former Downtown Development Authority board member during a public meeting, who said she "often wondered" why the DDA uses the agency for staff.
The DEGC has received a load of criticism over the years from those who feel it operates under a veil of secrecy. In part, that's because the agency maintains that its records can't be requested under Michigan's Freedom of Information Act.
But the agency certainly has produced and assisted in a number of wins for Detroit: the refurbished Book Cadillac Hotel, Ford Field, Comerica Park, the riverwalk, the city's three casinos, and scores of residential buildings and businesses. It has launched programs and initiatives to the benefit of areas outside of downtown, such as its involvement with the REVOLVE program and by providing small-business loans.
The exemption to public records disclosure, however, makes it difficult to independently verify if the agency's wins translate into long-term results.
Critics also contend the nonprofit devotes the majority of its attention to downtown projects, and not to Detroit's neighborhoods.
"You have a tale of two worlds going on," says Michael Sarafa, president of the Bank of Michigan and co-publisher of The Chaldean News. "The neighborhoods are still largely, from an economic standpoint, ignored." Sarafa says he believes Mayor Mike Duggan's administration is making an effort to change that.
Even so, the DEGC has developed a reputation from some activists and preservationists as an entity committed to demolishing buildings rather than saving them. Some would claim, in honor of former DEGC chief George Jackson, the nonprofit stood for "'Demolish Everything,' George Cries."
The DEGC rejects those assessments, saying its strategy "aligns well with the strategies of other cities that have been challenged by the loss of manufacturing jobs, suburban sprawl and other factors." The agency provided written responses to a series of questions from Metro Times.
"Downtown successes have received significant publicity largely because of their size and impact," the agency says. But, it added, "DEGC has always had active projects in other parts of the city, from industrial parks along I-94 and in Southwest Detroit, to infrastructure improvements and incentive programs along East Jefferson, facilitation of manufacturing investment in major industrial employment districts, retail and streetscape improvement along Livernois Ave., retail support in West Village and Grandmont Rosedale, and independent grocery store projects in many neighborhoods."
When asked to highlight some of its biggest accomplishments over the last 10 years, the DEGC said to review its annual reports, as the "highlights of DEGC's activities are described in them."
But why, for instance, the DEGC holds the title to mostly vacant property on Detroit's east side according to city records, was not explained. The DEGC says it "does not own the parcels in question."
What's more, in recent weeks, the DDA announced that it might engage in a financial gamble known as an interest rate swap. The authority says it's considering borrowing $200 million to finance the costs of a new Detroit Red Wings arena, a surprising development that came to light just weeks before a likely groundbreaking ceremony. But the DDA, through its spokesman (who is also the DEGC spokesman), declined to directly comment on the possible ramifications of such a move, saying any further discussion would be "premature" until a vote was finalized.
The DEGC's involvement with some Detroit public authorities runs deep. The agency says it "conducts activities and makes recommendations to the boards of those authorities at the direction of the boards themselves." As administrators, the DEGC prepares agendas and board packets for each meeting. Basically, the agency does everything up to voting on matters before the authorities' boards of directors.
Tracking down those with intimate details of the DEGC's inner workings also proved to be a Herculean task: A number of former board trustees, former employees, and business owners who've worked with the DEGC in the past declined requests for comment on the agency.
Created in 1978 by then-Detroit Mayor Coleman A. Young, the DEGC grew out of a citizens' task force assigned by the mayor, who said the agency was tasked to answer a question as pressing then as it is today: How can Detroit grow its tax base and create new jobs for residents?
Young described the benefits he saw in the public-private partnership in an annual report, located at the Detroit Public Library, saying the city's progress toward "economic revitalization is due in part to the substantive efforts of [the DEGC's] dedicated, results-oriented officers, board members, and staff." At the time, the nonprofit employed roughly 30 people and, according to its financial statement, generated $1.51 million in revenue, with about $1.35 million in expenses. It received the bulk of its financing through pledges from the city and state, as well as various foundations.
From the outset, the DEGC made its presence known. In 1979, it reportedly contributed a $300,000 loan to keep the Book-Cadillac Hotel afloat for the imminent 1980 GOP national convention in Detroit. Within a year, negotiations for the controversial GM Poletown plant began, another project the DEGC had a hand in.
Regarding its position as the support beam for several public entities, Robin Boyle, professor and chairman of Wayne State University's department of Urban Studies and Planning, describes the DEGC as a "holding company." A city official called the boards the DEGC oversees the "alphabet soup," due to the slew of development agency acronyms associated with the DEGC. Its relationship with Detroit delivers the nonprofit a roughly $4.5 million annual cushion in contracts to operate, in exchange for operating expenses.
Fast-forward two decades. Despite efforts to revive it, the Book Cadillac failed anyway and had to be resuscitated by the DEGC during the 2000s through an extraordinarily complex deal that has proved troublesome for Detroit pension funds who provided financial support.
Those efforts were "handled through the auspices of the Detroit Economic Growth Corporation," Boyle says. "To give it a title, it was dealmaking."
The DEGC says it has an important role in the city's efforts to attract new business and residents. The use of an independent nonprofit to administer a number of different public authorities "was considered an innovative and progressive step forward" when the agency was launched, the DEGC says.
Since then, the DEGC says, it's become a common practice. The arrangement provides business and developers a "one-stop" agency to "facilitate and coordinate the needs of a business before a number of different public authorities," the DEGC says.