JC Reindl

Detroit Free Press

The sprawling ruin of the Packard Plant on Detroit’s east side has been a magnet for metal scrappers, a post-apocalyptic movie set and an emblem of the city’s past industrial glories and more recent distress.

Now, for the first time in many decades, the old factory could be an active construction site.

A planned 10- to 15-year redevelopment of the property could get under way if Detroit City Council acts next month on a tax-freeze plan that would cover the project’s first phase, said Kari Smith, director of development for Arte Express Detroit, the firm belonging to plant owner Fernando Palazuelo.

“We expect it’s going to take a number of years to pull a profit — but that’s not our main goal,” Smith said. “Our main goal is the architectural renovation of these buildings and the benefits that this transition is going to have for the community.”

The start of construction would be a key milestone for the Spanish-born Palazuelo, who attracted considerable curiosity and media attention after picking up the blighted Packard Plant for $405,000 in late 2013 in a Wayne County tax foreclosure auction. He then pledged the improbable — to restore and reopen the factory complex as a modern mixed-use commercial, residential and cultural development.

But 2½ years later, no redevelopment has actually taken place at the historic 40-acre site on Detroit’s east side. And many remain skeptical that the enormous effort will ever succeed — or even get off the ground — given the nearly half-billion-dollar price tag of the project that Palazuelo has envisioned.

Palazuelo restoring Packard bridge with historic photo

His Arte Express has reported spending about $3 million on the project, including costs of the 24-hour security patrols that stopped the previous scrapping, trespassing and arson epidemics on the site.

Mayor Mike Duggan’s office would not comment on the latest plans revealed by Arte Express and referred the Free Press to Detroit City Council, which is on recess and scheduled to reconvene on Sept. 6.

Councilwoman Mary Sheffield, whose district encompasses the Packard site, said she is aware of the tax-freeze proposal and likes the idea to help boost development in the area.

“It’s exciting just to see this scale of development outside of Midtown and downtown,” she said. “I see it as a catalyst development. Hopefully things will begin to spread out of that area.”

This initial work would involve Phase I and Phase II: a gut renovation of the former Packard Motor Co.’s corporate offices into modern office space, and the creation of a recreational complex whose details are still to come. Work crews could start on the first phase as soon as council approves a plan to freeze the site’s property taxes at current levels for 12 years, Smith said.

A Phase III and IV would take shape later and involve various entertainment and cultural attractions, including a proposed techno club, hostel, artist live-work space and European-style spa. More phases would then follow.

To be sure, progress has so far gone slower than Palazuelo first anticipated. He also has missed several self-imposed deadlines for building an apartment for himself inside the Packard Plant to observe construction. (Those apartment plans have been pushed back until buildings are actually finished.)

Palazuelo’s biggest hurdle is still assembling the financing — an estimated $400 million to $500 million to achieve his Packard Plant dream. Arte Express claims to have the $11 million to $12 million for the project’s initial phase and an undisclosed sum that is needed for Phase II, yet beyond that, financing plans are more tenuous.

Palazuelo has redeveloped more than 100 old buildings in his native Spain and current home of Lima, Peru. But never before has he tried an undertaking of the Packard Plant’s size and complexity. He visits Detroit about once a month, although he was not in town last week and had his project manager, Smith, share details of their progress.

“We have a lot of buildings out here to renovate,” Smith said. “We are looking forward to actually getting to work.”

Phase I

Phase I would involve restoration of the four-story, 120,480-square-foot administration building on the plant’s north side that was the automaker’s headquarters office. This once-ornate building has been heavily damaged and vandalized of all its original marble. Restoration will cost $11 million to $12 million, Smith said, and could be mostly finished by late 2017 if work can start this September, when they anticipate City Council would take up the tax-freeze request.

The phase’s financing is already secure and largely comprises private equity from Arte Express Detroit’s parent company in Peru, she said.

Already there are tenants for about 70% of the administration building’s future office space, Smith said. Their names will be announced at the project’s ground-breaking ceremony — tentatively set for October — and include marketing, architectural and environmental firms, as well as a job training center and Arte Express Detroit’s own office.

Phase II

Full details have yet to be released for Phase II. Smith said it will create a recreational complex with a racing component and be situated in a building across from the administration building, on the other side of the plant’s East Grand Boulevard bridge. Construction could begin as early as next spring if all goes well.

“It’s a way to have more to do on the east side of Detroit for the residents who are here,” Smith said.

Adding to Phase II’s complexity is the fact that its specific land parcel was inadvertently left out of the Packard Plant bundle that Palazuelo bought in the county’s 2013 tax foreclosure auction. That means the land is still owned by the City of Detroit. “It was a big surprise to us,” Smith said of the botched auction.

Arte Express is in talks with the Detroit Economic Growth Corp. regarding the best way to either develop or purchase this parcel.

A DEGC spokesman declined to comment last week on the situation for this report, or answer why the parcel wasn’t simply given to the developer because of the error.

Phase III

Subsequent phases of redevelopment could begin as early as 2018. Phase III calls for an aggressive rehab of a five-story section of the plant next to the administration building into live-work spaces for artists, an art exhibition gallery and a ground-floor restaurant. The number of live-work spaces has yet to be determined.

Phase IV

Arte Express would partner with renowned Berlin techno club owner Dimitri Hegemann for this particularly unique phase of the project slated for a seven-story building next to Phase I and Phase III.

While Hegemann previously expressed interest in Detroit’s empty Fisher Body Plant No. 21 at 6051 Hastings St., he has turned his attention to the Packard site. This phase would create a ground-floor music venue, another restaurant, a large hostel and, on the redeveloped building’s top floor, a European-style spa.

“According to Dimitri, he’s going to be bringing in a lot of young people from Berlin who are extremely interested in Detroit,” Smith said of the entertainment and hostel concept. “Berlin, of all the cities I’ve been in, loves Detroit more than any other city.”

The famous German is also interested in the concept of gaining a special nightlife designation to allow a Packard Plant venue to serve alcohol past Michigan’s 2 a.m. last call. Alcohol can be served at all hours in parts of Berlin, where club-goers often don’t even arrive until 1 a.m.

Future phases

Palazuelo’s team sees Phase IV as a midway point — not the project’s end. They still hope to add a Packard car museum, perhaps open a Tommy (Hitman) Hearns boxing gym, build out more residential on the plant’s north side and attract some light manufacturing and distribution companies to the south side.

‘Biggest development’

Developer Peter Allen, also an adjunct lecturer of real estate at the University of Michigan's Stephen M. Ross School of Business and the A. Alfred Taubman College of Architecture and Urban Planning, reviewed Arte Express’ redevelopment plans last week.

“This is the biggest development in terms of size and complexity that we’ve seen — to my knowledge — for decades,” he said.

In an interview, Allen said it appears that Palazuelo and his team are taking the right steps to get the project started. If they can successfully refurbish and lease out the administration building, their redevelopment could gain important credibility for its future financing needs, Allen said.

Nevertheless, he said any Detroit project of the Packard Plant’s scope needs significant public subsidies to succeed, such as the proposed 12-year tax freeze as well as potential historic tax credits and “new markets” tax credits.

“I’m not rubber-stamping this thing as a great deal — proceed,” Allen said. “I am saying he’s doing everything he ought to be doing and he’s doing it the right way.”

Palazuelo did encounter a setback early this year when one of his Peru-based financial supporters backed out of a $80-million commitment for the project. But Smith said that issue does not affect funding for Phase I.

“The situation over there is getting better,” she said of the Peruvian economy. “They haven’t dropped into a severe recession, which it looked like in the beginning. So the funder that was once there may join again in the future.”

A successful redevelopment would be a big deal for the neighborhoods around the blighted factory ruins. This part of Detroit is far detached from the greater downtown area that has been experiencing revitalization and the opening of newly renovated office buildings, new market-rate apartments, fashionable restaurants, coffee shops and trendy retailers.

So far, none of that momentum has reached the Packard Plant’s area of the city.

Even without finished renovations or rent-paying tenants, the Packard Plant has been generating some revenue from the numerous movie crews and photographers who come for its dystopian-like setting.

About 25 to 30 such crews have passed through since Palazuelo took ownership of the property, Smith said. The visitors have included a British photographer whose live tiger accidently got loose in the plant last year and a team from Paramount that has been on site this summer for an undisclosed film project. All location fees go toward the project’s redevelopment, Smith said.

Just don’t try to book the Packard Plant for your destination wedding — at least not yet. Arte Express has received about 20 wedding location requests, but turned down all of them because of safety concerns.

But there could be wedding bells in the future.

“Once things are cleaned up, we would love to offer a space for events such as wedding receptions,” Smith said.

Contact JC Reindl: 313-222-6631 or jcreindl@freepress.com. Follow him on Twitter @JCReindl.