Sunday, October 27, 2013

Third or Fourth Look at Packard Plant Auction

The most unusable industrial site in Detroit may be turned into something usable again.  Detroit's Packard Plant, a huge sprawling tract of land bereft on police and fire protection whose size, location, and pollution have caused it to be abandoned for almost fifty years may finally have escaped real estate purgatory, as the latest developments offer hope that the site will eventually be cleaned up and put back into use.  Even if the winning bidder fails to deliver on Monday (and plenty of people are wondering about that), the property will go to someone who knows what they are doing and has plans for the complex. 
The plant probably would have sold a long time ago if all it needed was a little sweeping up.
The complex, which has been completely empty for at least 15 years and would be a prime zombie breeding ground for about 50 years, was sold at the tax foreclosure auction on Friday for a smidgen over $6 million.  That's kind of a big deal, since the most recent development prospect before the auction couldn't get his underwriting to fund the purchase at $1 million.  

The winning bidder, an osteopathic doctor from Houston, Texas, has no known connection to Detroit, to Michigan, or to real estate development projects.  Her husband, said that it was a legitimate bid and that a statement would be forthcoming on Monday, which is the same day that the money is due to the Wayne County Treasurer.  Obviously she had her $5,035.00 deposit in before the auction started.

Now, as both the Freep and the Detroit News have pointed out, the plant could have been bought at the September tax auction for about (cue Dr. Evil voice) "One million dollars."  That was how much the previous owner (who always seemed to be harder to identify than you would expect), owed in back taxes on the place.  Instead, it had no bids in September and defaulted to an opening bid of $21,000 (the sprawling 40-acre site is actually 42 parcels and the minimum is $500 a parcel).

Aerial View of the Packard Plant in Detroit on Thursday June 14, 2012. ROMAIN BLANQUART/ Detroit Free Press
The site features access to freeways and a railroad line.  You also have other abandoned buildings as neighbors so you could expand cheap.  All that asbestos won't go away by itself, however.

But something strange happened during the second auction round that just ended.  After starting slow and climbing up to $600,000 or so on the final day, two or three bidders suddenly took it up past ten times that amount.

Steve Dibert, a friend who writes about foreclosures and such on his MFI-Miami blog, raises the possibility of a conspiracy.  After all, the strange bidding pattern makes no sense.  This isn't like bidding on those Transformer cuff links on eBay, where you get all emotional and excited and bid more than you should because, you know, it's Optimus Prime and you can win this auction and your kids will love it.  You would expect people dropping such serious coin on an infamous chunk of real estate would have looked at environmental reports, reviewed the chain of title, conducted a site inspection, and in short conduct their due diligence without emotions determining their bid.  Unless you are a manufacturing enterprise, you are buying the property with the idea of eventually selling it to someone else, so your alternatives are the entire rest of the world.

It really is this bad.  Imagine 40 acres of Dresden after bombing it for a week.
MFI-Miami blog also argues that the bidding was extended past the deadline, which did not occur on other properties.  That would seem to support the conspiracy theory.  However, the rules of the auction give bidders at least five minutes after a bid to make another bid, and that flurry of late bids upping each other caused the auction to go past the deadline.  It was an automatic process built into the rules going in for all auctions, not a one-off decision by the Deputy Treasurer as is postulated.

But that still leaves everyone scratching their heads as to why something that would not sell before now sells for six times as much.  As observed above, these are presumably sensible business decisions, not eBay bidders.  At least two different bidders pushed it up past six million.  There is an implication that at least one other bidder dropped out at two million, and that the two bidders who didn't win were established commercial developers.  Why the sudden interest?  Maybe some company let it be known they might put a factory there if it was cleaned up and usable.  Maybe the doctor is acting as an agent for another entity who is also a legitimate developer.  Maybe all of these bidders did actually look at the site and did review the reports.  Maybe they went on the available urban spelunking tours undercover as part of their investigation.  We may never know any of this.  

What we do know, though, is that even if this doctor fails to come through, there is a commercial developer who bid with her from about two to six million.  And that developer would be offered the property at whatever point that it was just the two of them.  So, either way, someone is going to own the property who knows what they are doing, chose to bid on it and pays cash on the barrel.  Plus whoever wins has to secure the grounds within six months and keep up the ongoing property taxes or they lose it back to the county. You don't commit to that without a plan. Maybe that plan is to hold it until some state or federal money helps clean up the site (which might be a very long wait), but at least there is a plan.

Time will tell what that plan is, but this auction is best thing to happen to the Packard Plant in at least 20 years.