Dan Gilbert’s fingerprints are all over downtown Detroit, and taking Quicken Loans public is unlikely to change that any time soon.
Dan Gilbert can continue his real estate spending spree on Detroit if his mortgage behemoth goes public as planned — and continue it in a more robust fashion, if he so chooses.
Rocket Cos. confirmed previous reports last week when it filed what’s known as a Form S-1 with the U.S. Securities and Exchange Commission, a document that declares a company’s intent to sell shares on the public stock exchange, in this case, the New York Stock Exchange with the ticker RKT.
The value of the Rocket’s pending initial public offering, or IPO, is unknown but could be tens of billions of dollars, with billions flowing into the 58-year-old Franklin resident’s Rock Holdings Inc. holdings company as he retains 79 percent of the combined voting power of Rocket’s four proposed classes of common stock and stacks its board with his appointees — if it goes forward as currently envisioned. Jay Ritter, an economist at University of Florida and IPO expert, told Crain’s that the Rocket valuation should be around $20 billion, possibly giving Gilbert a $4.2 billion haul, depending on the precise ownership structure of Rock Holdings. While he is just one economist with one valuation, the point remains: That’s not handing over control or spending power. That’s amassing it.
“So it’s cash going to the piggy bank of Dan’s holding company, which gives them a lot of flexibility,” said Erik Gordon, clinical assistant professor in the Stephen M. Ross School of Business at the University of Michigan in Ann Arbor. “He can use that cash to make acquisitions. It’s going to be at the holding company level controlled by Dan. He could buy some other companies, he could start some projects.”
Power and influence
That cash infusion, along with cash reaped from the year-plus divestment from what was his Jack Entertainment LLC gaming operations (including Greektown Casino-Hotel for $1 billion) that generated even more billions for him, will continue to make him the single-most powerful and influential person in the city.
“Clearly, he gets from this IPO greater than every dollar he has put into Detroit today,” said Richard Hosey, a former senior vice president for Bank of America NA who now owns Detroit-based Hosey Development LLC. “He could do just with the liquidity, everything he has done — although there are not another 100 buildings to buy.”
Roderick Hardamon, CEO of Detroit-based developer URGE Development Group, who is also a former North American head of Citi Alternative Investment Services, said another benefit of the IPO is the attraction of institutional investors to Detroit.
“Just think of what’s going to happen when an institutional investor starts thinking about investing in Quicken, then you understand how much that
sparks interest in other tangential assets and other opportunities when someone dips a toe in,” he said. “While he risks losing some autonomy, it could attract other individuals and investors whose interest perhaps wasn’t here before.”
And outside of institutional investors, the IPO could have ripple effects on the local economy as Rocket employees own stock, creating a lot more local wealth, said Nicholas Colas, co-founder of DataTrek Research LLC, based in New York City.
“It can create a very nice flywheel effect for a local economy where real estate values go up because people’s private stock becomes public, and they can sell some and reinvest that in the community with homebuilding, home buying, neighborhood renovations and improvements,” Colas said.
But the effect of public companies doing well can cut both ways: In Seattle, the housing boom caused by the success of companies like Amazon.com Inc. and Microsoft Corp. has led to skyrocketing apartment rents and home values, making the cost of living too high for far too many.
“If it explodes the way Microsoft or Amazon did, it can create an inflationary cycle for real estate prices, which isn’t necessarily good,” Colas said.
In addition to Gilbert’s newfound billions in liquidity alone, his Bedrock LLC real estate development, ownership and leasing company will continue to pump hundreds of millions in revenue into his and his investors’ pockets every year.
Precisely how much is not known, but Quicken alone paid $69.5 million to Bedrock in 2019, $66.2 million in 2018 and $60.5 million, according to the SEC filing.
That’s only for Quicken office leases and doesn’t include the $61 million in parking Quicken paid to the company over that time period, not to mention the hundreds of millions in other lease revenue Bedrock receives every year.
While Gilbert, Quicken and Bedrock’s fortunes are undoubtedly intertwined, the real estate company (which declined comment for this story) stands on its own and is not a not-for-profit organization solely reliant on the fluctuations of Gilbert’s pocketbook and largess.
According to data from DBRS Morningstar Inc., the valuations of just six Gilbert-owned trophy assets in his 100-plus property portfolio have more than doubled in value, from purchase prices totaling $306 million to $608.5 million during their most recent appraisals after renovations and stocking them with new tenants.
For example, Ally Detroit Center was bought for $100 million in 2015 and is now worth $185 million less than five years later. According to Trepp LLC, a New York City-based firm that tracks commercial mortgage-backed securities debt, the skyscraper had a net cash flow of $14.8 million last year, up from $12.6 million in 2018.
That’s just one building.
Opportunity Zone tax shift?
He could defer what would be an eye-popping capital gains tax liability in Opportunity Zone investments, which allow him to park his gains and pay no taxes on them, said Joseph Kopietz, member of the Real Estate Group for Detroit-based law firm Clark Hill PLC.
“The other benefit where a lot of the people look at is if you hold in that Opportunity Zone investment for 10 years, you get to sell with no gain on that investment,” he said.
Those zones, which have been criticized for their deployment into areas in Detroit and elsewhere that were already teeming with economic development activity prior to their enactment, allows for reduction and deferment of capital gains taxes.
In short, some argue, the capital gains tax benefit folded into the 2017 Tax Cuts and Jobs Act tax code overhaul could have been more acutely targeted at U.S. Census tracts where investors may need more of a two-handed shove than a gentle nudge to put cash into things like real estate developments and business investments. In addition, others say more oversight is needed of how the funds are used.
Gilbert’s team came under scrutiny last year over an investigation suggesting that the billionaire’s team exerted its considerable political and economic muscle to net federal Opportunity Zone tax breaks when they weren’t warranted.
An October story in the nonprofit news outlet ProPublica says that a census tract laden with Gilbert-owned real estate in and around downtown did not meet certain requirements of the new break on capital gains taxes, yet it became a Qualified Opportunity Zone anyway.
Gilbert is one of the founding members of the organization that pushed to have the Opportunity Zones enacted into law.
Not sitting still
Gilbert has been mum on the IPO and how he plans to deploy the capital he generates for himself, presuming it goes forward.
He suffered a stroke in May 2019 and has rarely been seen in public since, minus an appearance and speech at the Crain’s Newsmakers of the Year luncheon in February, just before the pandemic struck.
But his development activities have continued, and will in the future.
Most recently, he brought on board Chicago-based Magellan Development Group LLC as a development consultant on the skyscraper underway at the former J.L. Hudson’s department store site, which is expected to rise 680 feet. A pair of large cranes are arriving at the site starting Monday to work on the tower and so-called block, a 232-foot building immediately to the north of the skyscraper. The price tag officially has been $909 million, but the budget has fluctuated and a precise cost has not been disclosed in recent years.
He and fellow billionaire Stephen Ross are working on a graduate school initiative with the University of Michigan on the site of the former Wayne County Consolidated Jail project downtown, with an estimated tentative price tag of $750 million for it, currently called the Detroit Center for Innovation.
The Monroe Blocks project immediately east of Gilbert’s headquarters in the One Campus Martius building downtown has faced design challenges but most recently had an estimated cost of $830 million for its high-rises including office, residential and retail space.
He and development partners are also planning more than 900 residences on the site of the former Brewster-Douglass housing projects just outside of downtown Detroit in an effort that would easily cost more than $300 million.
Those four verified projects, totaling no less than $2.79 billion, don’t include others like the $311 million redevelopment of the Book Tower/Book Building
on Washington Boulevard and a smattering of others in buildings he has amassed over the last 10 or so years.
Whatever Gilbert continues to do in real estate and for the city, a stable of developers has been working in neighborhoods across the city on real estate investment and other efforts. And will continue to do so, as well.
Whether it’s in the West Village neighborhood or Virginia Park or the Livernois/McNichols area or Jefferson Chalmers, said Hardamon, who is now working on a development on Grand River near Trumbull called the The Osi, that work will continue. Focusing too much on Gilbert’s efforts “devalues all the other work and effort of the myriad number of developers who are rebuilding Detroit. That army of individuals isn’t doing the Hudson’s tower but are doing the West Village and Liv6,” he said.
“… There is a very diverse group of individuals who have been pushing forward,” Hardamon said.
“We have all benefited from the headlines and attention that Gilbert, Quicken and Bedrock have attracted, but there are folks that were doing deals before then. He shined a bright light on it and encouraged others to invest and commit, but there is a significant effort and a cadre of active developers who are not Gilbert who are in total doing massive amounts of development with individuality and creativity who will drive this latest wave of development so it’s not reliant on one individual.”
Dustin Walsh and Nick Manes contributed to this report.