Detroit pays lip service to neighborhood developers — so why does it keep getting in their way?

Monique Becker has seen firsthand almost every kind of building project in Detroit. She’s worked on major deals for bigger developers like The Platform and Shelborne Development . She’s taken on more modest single-family and duplex redevelopments as co-founder of her own firm, Mona Lisa Living, and guided dozens of other developers through the nuts and bolts of their projects as a licensed contractor and consultant.

At 30 years old, Becker has accumulated a much longer career’s worth of experience. And she is already frustrated by what she sees as roadblocks the city is putting in smaller developers’ way.

“A lot of cities are way ahead of us in terms of facilitating development,” Becker said. “There are so many examples of doing things differently, whereas we just keep trying to regulate more.”

Doing the kind of development she wants to do — smaller and more personal — makes less sense in Detroit than it does in other cities. It’s too hard to find financing and too time-consuming to get all the clearances. And too often, the city puts red tape in developers’ way.

“I really do love creating quality housing with a personal touch as opposed to churning out as many things as fast as possible,” Becker said. “I still want to and will be invested in doing things in Detroit. Detroit is home. But it’s not the only place.”

Development is a complicated, costly and risky endeavor. Big firms have an easier time making it work because they can access many more financing sources for their developments. They also have large staffs that can handle the tasks like invoicing and loan applications necessary to pull these projects off.

Small-scale developers don’t have these resources at their disposal.

Outlier Media spoke to five developers who have worked exclusively on smaller projects — mostly rehabs of single-family homes, duplexes, townhomes and single-tenant commercial buildings. All said the city is making it more difficult with its inflexible zoning code and needlessly complicated permitting process.

Development in Detroit “is death by a thousand cuts,” said one Detroit landlord who requested anonymity because they feared retaliation from the city. “Lots of folks like me get started, enjoy some success, and then the weight of the bureaucracy smothers them until they lose the will to keep working here.”

The landlord said they know “many” smaller developers that at one point did projects in Detroit but are deciding to invest elsewhere.

“They are either sitting on their portfolios and waiting while putting their money elsewhere or actively divesting from the city entirely,” the landlord said.

If Detroit alienates too many smaller developers, it may find itself unable to provide the full spectrum of housing options families want. Large firms tend to build apartment buildings, while smaller developers do single-family. It’s important to have a mix of building types so households at different incomes and needs can find a place that suits them, said Janell O’Keefe with the Center for Community Progress, which works with municipalities to address vacancies.

“A healthy housing ecosystem has players at every level,” O’Keefe said. “But the biggest challenge for small-scale developers is it’s not an easy world in terms of what dollars are available, what properties are available and navigating city regulations.”

Financing challenges

Development, even on a small scale, is expensive. A complete home renovation can cost $100,000 or more.

Some are able to make it work. Jabari Archer is a contractor and small-scale developer. He says he’s bought 22 homes from the Detroit Land Bank Authority, renovated them and now rents them out.

“It’s been all cash,” Archer said. “I’ve just worked jobs and then reinvested the money into the properties.”

Archer and others could do projects like this when property values and construction costs were lower. But rising costs have made it harder to pay for everything in cash. And developers say it’s almost impossible to get a construction loan in Detroit.

“The reason why I can make this work is because I bought in when property values were lower, so my overhead costs are frozen,” said one landlord. “But I am the exception to the rule.”

Construction loans are meant to cover the cost of building and frequently convert to traditional mortgages once the work is done, giving builders more time to pay them. But banks are reluctant to issue the loans because they’re considered riskier, especially with single developers or small firms with less capacity to manage a project.

“We haven’t had much success working with local banks,” Becker said. “If I could change one thing, it would be more access to low-interest loans or grants — perhaps tied to things related to health and safety compliance — and less requirements to get those grants.”

Bigger firms have many ways to access financing. The State of Michigan offers a number of grants and loans for big projects . Developers can get tax credits to redevelop old properties or build affordable housing , but these tend to go to a select group of developers with the experience and staff to apply for them. The city and state offer several kinds of tax incentives, almost exclusively for major developments . Well-connected people can even get millions of dollars earmarked in the state budget for their projects.

Small developers are almost always locked out of these opportunities.

John Roach, the City of Detroit’s director of public relations, cited a number of programs the city offers, which have helped generate more than $1 billion of investment in affordable housing since 2019.

He said in an email that those investments “have been critical in our efforts to prevent the kind of homelessness crisis seen in many other cities.”

A small, but not insignificant share of that money has gone to smaller developments. Roach said the Detroit Housing for the Future Fund has contributed $14.4 million to nine projects that have under 30 units.

The city has also provided $2.3 million to a repair program for small multifamily homes that could create up to almost 150 new units, and more than $200,000 to a second-story repair program that could create up to 24 apartments above commercial buildings.

Greg Mangan assists commercial property owners for the Southwest Detroit Business Association, which helped administer the second-story repair program. Building owners can get grants up to $10,000, so long as they keep the new apartments affordable. Mangan said the grants were essential to making the renovations happen.

“The rents that they could garner weren’t enough of a return on investment to incentivize some of the owners to do it on their own,” he said.

Developers are fond of these programs. They just wish they weren’t so limited.

“I have seen some progress with these programs. Hopefully, that trend will continue,” Becker said. “But for folks doing this work right now, it’s just very challenging.”

Hassled by the buildings department

Developers told Outlier they typically have some of their worst interactions with the city through its Buildings, Safety Engineering, and Environmental Department (BSEED), which inspects properties and issues blight tickets.

They listed a litany of complaints about the department. BSEED recently began fining developers and holding back permits for what these developers consider minor issues that could easily be resolved without these tactics — like the number and positioning of fire sprinklers. Pulling a permit also requires navigating two separate online portals that are clunky to use.

Chase Cantrell, the founder of Building Community Value and a developer, has worked on his own projects and interacted with dozens of mostly small, minority-led development firms.

He described the permitting process as “incredibly inefficient.” His firm Speramus Partners developed a building on West McNichols Road that houses a brewery. Cantrell said around 10 different city departments were involved in his permit and came back with notes and corrections. It took many months for BSEED to issue the permit.

It’s also expensive. His permit cost more than $20,000.

“Most first-time developers have no clue of the cost,” Cantrell said. “And in a system that feels this inefficient, you wonder what you’re paying for. It’s definitely not speed.”

Those delays can spell doom for developers because they still have to pay holding costs — like property taxes, utilities and insurance — while they wait.

BSEED declined to provide someone who could describe the permitting process and how the department helps developers navigate it.

Developers complained most about the city’s rental registry ordinance, which requires landlords to register their rental properties with the city or face blight tickets. They then have to pass standard inspections, including one for lead.

Lead is a serious health hazard to young children and is pervasive in many of Detroit’s older homes . But developers say getting a lead clearance is prohibitively expensive. The city tests for the presence of lead both in the house and in the soil outside, where it’s almost always present, multiple property owners said.

Landlords simply aren’t complying with the ordinance. Of the city’s estimated 124,049 rental properties , only a little more than 8% have gotten a certificate of compliance.

BSEED Director David Bell said the city works with landlords to get the certificate, but didn’t go into specifics.

“Owners who make a conscious effort to come into compliance are met halfway and we get them to the finish line,” Bell said by email. “We also have at least two landlord compliance seminars per year to discuss the process and answer questions.”

Zoning frustration

Detroit’s zoning ordinance outlines what people can build on every single lot, down to the distance a building has to be from the sidewalk and the number of required parking spaces .

Developers almost universally think it’s too restrictive. Lots of basic things aren’t allowed, like basement units or detached garages, even on most homes. The code also doesn’t allow for carriage houses, first-floor businesses on duplexes, commercial buildings without adjacent parking — all things that could add vibrancy and density to neighborhoods.

And if it’s not allowed, an owner has to ask for permission, which requires architectural drawings, a special land use approval and often a variance from the Board of Zoning Appeals which means two board hearings, with administrative costs of around $1,200 each and several months worth of time.

“Going before the zoning board creates additional costs and additional uncertainty and additional time,” Becker said. “You have to go through this whole process before you can just convert an underutilized basement.”

Help on the way?

Change may be on the horizon, especially with zoning and land use. It’s just taking a while.

Detroit’s Legislative Policy Division has been working on a draft of an update to the zoning ordinance since 2018. It was last updated in 2005 . It could include many things on developers’ wishlist.

The most significant change would be the creation of a “form-based code” that would only regulate the dimensions of the building, not what’s inside.

“The code would say, ‘Here are the options in terms of the form,’” said Marcell Todd, director of the City Planning Commission. “If it can fit within these parameters, have at it.”

Todd said the policy division hopes to have a draft of the update ready by the end of the year.

Other changes are in the works as well. The Center for Community Progress is working with the Land Bank on its five-year strategic plan and with the city on ways to increase compliance. O’Keefe, a policy expert for the center, couldn’t share many specifics yet, but said the city is asking the right questions.

“We’ve seen the city recognizing some of these issues and is starting to work to eliminate those unknowns and the unpredictability,” she said.

In the meantime, some developers are taking their business elsewhere.

Mona Lisa Living purchased a 15-acre site in Mackinaw City where Becker and her business partner have redeveloped several rental homes, with plans to build more. Becker said the experience was starkly different from Detroit. They got a loan from a local bank and were welcomed by the city.

“It really felt like they wanted to be a long-term partner,” Becker said. “There’s a shortage of housing and a desire for development, and they’ve been really wonderful to work with.”

Detroit pays lip service to neighborhood developers — so why does it keep getting in their way? · Outlier Media