County Cries Foul on Rent, Threatens Move

The dispute lies in part with Detroit's current reputation. The city's office market is not doing well, with more than 30% vacancy in the CBD. "There's a lot of incentives for deals to get done, it's a stagnant market," says Mark Talley, a Detroit office broker with Grubb & Ellis. "The average office lease is less than $20. It's more like in the mid- to high-teens."

Edward Thomas, corporation counsel for the county, told the partnership in a letter June 22 that the county will not be renewing its lease in its five-story home. "As a matter of public trust, this administration cannot in good conscience renew a lease that imposes the excessive rental rates which have been historical charged," Thomas said in the letter, obtained by GlobeSt.com. "After much research, we believe the current rental rate for this building is grossly disproportionate in the market. In our estimation the county is required under the existing lease to pay nearly three times the amount we believe the annual rent should be for a similar building." The company has gotten bids at other buildings nearby, including $15.48 per sf at the Penobscot building and $13 per sf at the First National building.

A spokesman for the building owner tells GlobeSt.com that it's possible there will be a rent reduction. The partnership said in a statement June 27 that it will present the county with a revised proposal on Monday, July 2. "We are dedicated to working with the county to find a way to continue our relationship in a mutually beneficial manner, whether through a new lease or sale of the building," said the spokesman in the statement.

The county put itself in this position. In 1984, the county, facing tough economic times, sold the building to the partnership for $4.3 million. The county agreed to a triple-net lease, paying an average annual base rent of $3.7 million, plus all expenses and $133,000 for a ground lease. From 1986 to 88, the partnership spent more than $23 million restoring the building. In 1997, the county negotiated a 10-year lease with a base rent of $3.2 million, and the partnership entered into a 30-year promissory note with the county for the land purchase, with semiannual interest payments of $500,000 and a lump-sum payment of $59.1 million at the end of the note.

The county spokesman tells GlobeSt.com that the partnership has not made its $500,000 payment, and that the $31 million owed on the note should become due. County officials said in a statement that the partnership has offered to sell the building for $24.8 million, along with the waiving of the promissory note. "That means they want us to pay $56 million for a building that's appraised at less than $10 million," the spokesman tells GlobeSt.com. "We've paid more than $100 million over the life of the lease. In comparison, General Motors bought the Renaissance Center for $75 million. We feel we have a lot of options, a lot of people are pursuing the county."