Christine Ferretti

The Detroit News

Detroit — A New York developer’s grand vision for the vacant Herman Kiefer Hospital complex and neighborhood includes a $143 million investment that begins with a small hotel and indoor skate park.

Ron Castellano’s plan for a walkable commercial campus on the sprawling site is inching forward as he takes ownership of the property this spring. The developer acquired the complex in a $925,000 deal approved by Detroit’s City Council in fall 2015.

Castellano’s Herman Kiefer Development LLC has a multiyear development agreement to rehabilitate and reuse the seven medical complex buildings and 462,605-square-foot main hospital, the former Hutchins and Crosman schools, as well as the JTPA nursing school.

He’s also taking on maintenance of 300 empty lots and 100 vacant homes in the Virginia Park neighborhood, city officials said.

Castellano recently held the first in a series of community meetings to share early plans for the complex and gather feedback from the southeast Detroit community.

The firm expects to close on its purchase in May after spending the last year and a half sorting out legal issues and negotiating development and benefits agreements for both the hospital site just off the Lodge Freeway between Taylor and Pingree, and the surrounding neighborhood.

“It’s a complicated deal. It’s taken a little bit of time,” Castellano told The Detroit News. “Now we’re sort of back on track and can start discussing and reaching out for all the possibilities for the site.”

As a first order of business, the development group will focus on a modest, four-story hotel with about 13 large rooms. The 11,000-square-foot building, one of seven existing “pavilions” on the hospital site, will accommodate up to about 40 guests.

It will feature flexible space with desks and work tables, a community kitchen and conference room. Castellano hopes to have it open by December.

Separately, he’s partnered with the Detroit-based skateboarding group Community Push on plans for a 10,000-square-foot skate park inside the old Hutchins school. It’s slated to open in October.

The firm also aims to transform a shuttered convenience shop near Clairmount and the Lodge into a new general store. A master plan remains in the works, but Castellano, who owns a home of his own in the development footprint, said the main complex would be exclusively commercial. There are no specific plans released for how the main building would be redeveloped.

Councilwoman Mary Sheffield said Herman Kiefer is one of two transformational projects — the other the former Packard Plant — expected in her southeast Detroit district.

“When you bring development out of greater downtown, it’s exciting,” she said. “We’re starting to finally see some movement and I think the community deserves that.”

However, the plan came before the board of a city agency last month at which one member wondered where the money is coming from.

“What are the different revenue streams that is going to support all of this?” said Maggie DeSantis, a board member of the Detroit Brownfield Redevelopment Authority. Castellano explained each piece of the project should raise enough money to support itself and also help fund another piece of the development.

“It’s a huge responsibility. But the information we have right now, we don’t have lot of details,” she said. “You are taking on a risk. It feels a little bit vague.”

Still, DeSantis and other board members of the brownfield authority approved an estimated $47.7 million in potential tax reimbursements over a 30-year period for the Kiefer project. The issue is now expected to go to the City Council for approval this month.

The potential tax reimbursements are based on any increased value of the land and would come from a portion of taxes collected from the future development. A tax reimbursement based on “brownfield development” refers to the extra costs a developer has to pay to clean up and build on a property that’s had previous development on it.

David A. Williams, a senior adviser to Mayor Mike Duggan on a jobs and economy team, said the city has confidence in Castellano’s phased approach.

“We’ve met with the developer on what we think is a very thoughtful plan,” said Williams, noting Castellano has finance partners and a background in New York with historic mixed-use renovations.

Williams noted the project is also on track to be the first operating under Detroit’s new community benefits ordinance. The law, approved in November, lays out a process for engaging the community to negotiate job guarantees and other factors for projects worth at least $75 million. The multiphase project is expected to produce at least 1,067 jobs.

The Herman Kiefer site, which had been owned by the city, has an eight-year timeline with required annual investments toward rehabilitation and development.

The neighborhood properties, largely owned by the Detroit Land Bank Authority, will have to be boarded and maintained after the closing. Castellano will have four years to exercise an option to rehabilitate some or all of the homes. Additionally, 20 percent must be renovated by or in partnership with a local community organization, Williams said.

Castellano bid on the Herman Kiefer project in spring 2014 and spent nearly 19 months working with the city’s administration on terms before it gained council approval in 2015.

Since then, he’s already fixed up leaks and piping in some of the buildings and recently boarded the old Crosman school near Clairmount and the Lodge Freeway. Nearby Hutchins should be secured this month, he said.

Detroit pays about $500,000 annually for security at the main hospital building, and at least $100,000 more for maintenance and utilities.

The city has been managing the expenses since the council approved the deal. But Castellano said he will be covering some of the costs retroactively prior to the closing. The specific amount is still being negotiated, he said.

The hospital opened in 1911 and is named after Herman Kiefer, a prominent local physician who was known for treating the poor. The contagious disease hospital was devoted to treatment of communicable diseases, tuberculosis and indigent maternity cases.

Detroit architect Albert Kahn later was commissioned to design an expansion that was completed in 1928. By 1930, the complex had 1,265 beds spread over six pavilions and the main hospital.

In 2010, the city considered shutting down Herman Kiefer for budgetary reasons. A year later, however, Mayor Dave Bing moved the Department of Health and Human Services there.

Shortly after, the department was shut down by the city and health service roles were taken over by a nonprofit.

The hospital ceased operations in October 2013.

Marquita Reese has spent more than 20 years on Clairmount in a home that’s been in her family for several generations. She’s three blocks from the main hospital and agrees the area needs work. But Reese said she wants to ensure the developer understands the history and needs of the neighborhood before he finalizes future plans.

“Improvements and construction are good, but they have to be focused, and they have to be purposeful,” said Reese, who attended a March community meeting about the project.

Reese said her 5-year-old son may enjoy having access to the skate park, and she’s hoping for an affordable grocery store, local pop-up vendors, produce stands and outdoor concerts.

More community meetings are expected in May, August and November.

cferretti@detroitnews.com

Staff Writer Louis Aguilar contributed.