Detroit discussed vacant land sale with Sam Zell, Blackstone

Aug. 12--The investment banker representing the City of Detroit had talks with billionaire real estate investor Sam Zell and investment firm the Blackstone Group about selling them the city's vacant property -- but the investors weren't interested, the Free Press has learned.

The revelation comes as the value of Detroit's abandoned and blighted property -- which the city considers assets in its Chapter 9 bankruptcy -- is in dispute.

Creditors argue that city-owned property is a source of significant value that is being ignored in the city's bankruptcy restructuring blueprint, called a "plan of adjustment." The creditors argue the approximately 22 square miles of vacant or blighted property the city owns could be sold -- with the proceeds distributed to creditors and even reinvested in the city.

But Ken Buckfire, president of the city's investment banking adviser Miller Buckfire, testified that city-owned land "to some extent has negative value," according to a deposition transcript obtained by the Free Press.

Buckfire said he pitched the idea of selling all the city's vacant property to Zell, Blackstone and other investors in summer 2013.

"Everyone said no, they couldn't afford it, didn't see the value, didn't think it would happen anytime soon and had no interest," Buckfire said.

Zell, chairman of Chicago-based Equity Group Investments, invests in a broad range of real estate. Zell -- a graduate of and major donor to the University of Michigan -- is worth about $4.5 billion, according to Forbes.

Blackstone's portfolio includes private equity and hedge funds, restructuring investments and real estate. The company reported revenue of $6.6 billion in 2013, with net income of $2.9 billion.

Representatives for Zell did not respond to a request for comment.

Peter Rose, a Blackstone spokesman, said he's not aware of any discussions between Buckfire and Blackstone. He said the firm is not considering Detroit for real estate investments.

Buckfire said he approached Zell and Blackstone to explore "whether or not we could find some large enterprise that had an interest in basically buying all the land for the purposes of redevelopment."

The value of the 22 square miles of vacant and blighted property is expected to be debated during a trial beginning Aug. 21. After hearing arguments U.S. Bankruptcy Judge Steven Rhodes will decide whether to approve the city's sweeping restructuring plan.

The city's opponents in bankruptcy -- bond insurers Financial Guaranty Insurance Co. and Syncora, and several hedge funds -- contend they are receiving unfair treatment and that the city has not squeezed enough money out of its assets.

FGIC, which could lose more than $1 billion, estimated the city's blighted real estate at between $1.1 billion and $1.2 billion.

The insurer's financial consultant, Houlihan Lokey'sSteve Spencer, acknowledged in a report that "city property values have plummeted" in recent years and blight-removal requirements might mean his assessment overestimates the value of the city's property.

Spencer noted, however, that Detroit Mayor Mike Duggan's recent campaign to auction Detroit houses to responsible homeowners brought in about $2 million for 30 homes.

"Recent home sales suggest a prospective resurgence in property values that could further increase value realization," Spencer wrote.

Despite encouraging signs in the auction, the city contends that property values will continue tumbling in the immediate future.

Ernst & Young consultant Caroline Sallee estimated that taxable values would fall by 2% to 4% each year from 2016 and 2020 and then drop 15% following a massive reappraisal effort.

"Based on historical data showing how the city came out of past recessions, the evidence does not support a quick rebound," Sallee concluded in a report paid for by Detroit.

Contact Nathan Bomey: 313-223-4743 or [email protected]. Follow him on Twitter @NathanBomey.

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