Interview with Governor Rick Snyder: Detroit provides a “good example” for bankruptcy recovery

Detroit’s Recovery Road: an Urban Sample                                    Translated by Alina Dong

Editor’s Note:

The largest US municipal bankruptcy case has ended. One and a half year after announcing bankruptcy, Detroit is officially out of bankruptcy through legal procedures, and facing the task of restoring the normal operation and reinvigorating the industries. What kinds of growth potential does this emerging market of United States have 

Detroit is exploring its own way to recovery, which also provides a contemporary urban sample for other cities as well as the economic growth and social development of China’s urbanization process.

Chinese investments started their strategic deployment in Detroit two years ago. So far, what progress have these investments made? What are the current investment opportunities? Please take a look at the in-depth investigation from 21st Century Business Herald reporter.

Synopsis:

Detroit is undergoing changes, comparing to one and a half year ago when the city just filed for bankruptcy. The historic out of bankruptcy makes Detroit become a new rising power from a symbol of urban decay. It is exploring its own road to recovery, which also provides a sample for other cities.

By the end of 2014, after a year and a half of court proceedings, Detroit finally brought an end to bankruptcy.

Detroit, whose debt amount reached the peak of $18 billion, successfully cut $7 billion of unsecured debt. Emergency Manager Kevin Orr gradually transfers power to Mike Duggan, the newly elected mayor, and the municipal government and the city council begin to perform their duties.

"Detroit now absolutely is, and probably is one of the few emerging markets in the United States. The city is in a favorable position currently and will be successful in the future." Roderick Miller, the newly assumed President and CEO of Detroit Economic Growth Corporation (DEGC) told the 21st Century Business Herald reporter.

The reporter continuously heard people emphasizing that there is no association between private business investment and municipal bankruptcy, but they also admitted that the development of communities and investment environment after the end of Detroit’s bankruptcy, is the key to the rebirth of the city after experiencing a drastic change.

Comparing to one and a half year ago (mid-2013) when Detroit just filed for bankruptcy, the city is witnessing changes. The vacancy rate of buildings is gradually dropping; the retail industry is returning to the city, some large-scale infrastructure projects are in progress, the auto industry along with other high value-added industries in the city is attracting many young people, which creates new employment…the city is on road to recovery.

The unemployment rate can unveil a lot of problems. According to the U.S. Bureau of Labor Statistics, compared to the unemployment rate of 27.8% in July 2009, the number has dropped to around 12%, -- though it’s still higher than the national average of around 5.4%.

The data of the Greater Detroit area is even more exciting: the jobless rate in July 2014 has dropped rapidly to 9.4% (6.2% nationwide), compared with the peak of 16.3% (9.5% nationwide) in July 2009.

The Greater Detroit area is a region constituted of 11 counties that surround the city of Detroit. It gathers about 300,000 companies, including 13 Fortune 500 companies. The Detroit city is the heart of the Greater Detroit area.

From 2009 to 2013, the GDP growth of the Greater Detroit area was ranked 2nd behind Dallas among the U.S. Metropolitan areas. It has grown by 14% in the past five years, 9% above the national average, with an annual growth rate of over 1.3%.

Detroit’s exit of the historic municipal bankruptcy makes the city gradually become a new rising power from a symbol of urban decay. It is exploring its own road to recovery, which also provides a sample for other cities.

"Today, Detroit is a city laboratory." James Bieri, a Detroit resident and real estate broker, told the 21st Century Business Herald reporter.

The Return of Retail

After the city’s new mayor Mike Duggan took office, he has repeatedly stressed the importance of attracting population reflux. According to the statistics in 2013, the population of the Detroit city is 697 Thousand, far below 1.8 million in 1950 during the peak of urban development.

The city’s financial constraints caused a lack of public services, and the industrial decline prompted people to leave the city, which in turn resulted in decreased tax base and sluggish community. Therefore, Detroit was once called "dying city” by the US media.

Today, retail moves in, which becomes a positive sign on Detroit’s road to recovery.  Chain restaurants and supermarkets that are everywhere in other big cities, like Whole Foods, Meijer, Buffalo Wild Wings, and Applebee's, have recently entered the Detroit city one after the other, and some high-end restaurants are also opened up in downtown.

"People pay more attention to the opening of retail chains in the city, because they have their own criteria in selecting the market, and they only consider investing in the markets when the standards are met.

We were not on the market lists of those retail chains, but now everything has changed. "Maureen D. Krauss, Vice President of Detroit Regional Chamber, told the 21st Century Business Herald reporter. Retail chains’ selection criteria are highly related to the amount of households in local communities and their income levels.

Take Starbucks coffee as an example. Detroit currently has a total of three Starbucks stores, while there are hundreds of Starbucks stores in Manhattan, New York. "Starbucks was not popular here, because of insecurity." said James Billy, who thinks the situation will change in the future.

In addition to the retail industry, service industries closely linked to good community also returned to the city, including Fortune 500 Company Fifth Third Bank, which transferred its headquarters to One Woodward Avenue at Detroit downtown, and the prestigious law firm Varnum that will move in this summer.

Both buildings belong to BedRock Real Estate Services owned by Detroit Investment tycoon Dan Gilbert. Dan Mullen, Vice President of BedRock, witnessed this trend.

"We're in deep downtown Detroit before the bankruptcy, and there is great potential. Bankruptcy did not hinder our development, but helped us to invest here." He said in an interview with 21st Century Business Herald reporter.

The returns of the service industry and population go hand in hand. According to the Detroit Regional Chamber, now the occupancy rate of residential housing in downtown Detroit is near full capacity.

Transformational infrastructure projects

Large-scale infrastructure construction is a transformational part in driving urban renaissance.

According to the statistics by the Detroit Regional Chamber, from 2006 to the end of 2013, Detroit attracted a total of more than $10.1 billion private investment, not including the most recent several major infrastructure projects. The statistics shows that from January 2013 to date, the announced private investment has exceeded $ 2.4 billion.

"Those long-term industrial investors are willing to come and talk to us, which is a completely different trend. They are looking at the return on investment over the next 5-10 years or even 20 years,” Said Krauss.

Just before Detroit filing for bankruptcy, an approximately 3.4 miles of light rail construction project started. Named M1, the north-south light rail will connect the Detroit from the center area to the new center in the North, as the main transportation corridors in the public area of a large city center.

This is the region's first public transportation infrastructure project since the completion of transportation system in downtown for a small range in 1987, as well as Detroit’s first attempt of public-private partnership.

It includes private financing from Dan Gilbert, Rick Karmanos, Roger Penske and Mike Ilitch, and public sector provides daily operations.

Similar to Gilbert, the Ilitch family is also a tycoon investor cultivating in Detroit for many years, whose main assets are located in the city midtown. Now, the new ice hockey stadium, built by the Ilitch family who owns the Red Wings hockey club of National Hockey League in Detroit, is given high hopes and considered as the construction that can bring real change to Detroit.

The not-yet-named new ice hockey stadium is located between the downtown and midtown, connecting Detroit's two most important business districts. The project, with a total investment of $650 million, is not only an ice hockey stadium, but also leverage in the entire business region through which all types of retail, entertainment and leisure industry and office buildings will grow.

"These two regions are the most populated and most expensive areas in the city, as well as the most important place in urban renaissance. The ice hockey stadium project connects the two zones, creating a core urban area, which will be the next hot spot for investment." Miller said.

Dennis Archer, who served as Detroit Mayor from 1994 to 2000, is fully aware that large commercial led urban development. During his tenure, he supports the construction of a football field and a baseball field, and meanwhile completed the construction of the three casinos. He used public investment that cost less to attract more private funding, which resulted in fiscal balance each year during his tenure.

“Detroit needs to attract private investment to start these large-scale infrastructure projects," Said Archer in an interview with 21st Century Business Herald reporter. "If you come to Detroit after two years, you will see a completely different city.”

Industry Diversification

As the traditional "Motor City", the upgrade of the automotive industry is more closely linked with the urban renaissance. The automotive industry is the blood of the city.

Over the past five years, the US auto industry has recovered and exceeded the pre-recession production levels. General Motors has moved its global headquarters back to the Renaissance Center Complex near the riverside in Detroit downtown, which not only led to the development of the surrounding business, but also made the city benefit from the full recovery of the automotive industry.

Reconstructed Fiat - Chrysler, Ford and General Motors also have invested millions of dollars in the region in the past one and a half year.

William A. Smith, executive director of American Axle & Manufacturing (AAM), a tier 1 supplier of automotive components, told the 21st Century Business Herald reporter that they are going to build a new facility center that includes manufacturing, logistics, technology and training functions in the city of Detroit, which is expected to create over 1,200 jobs.

"There are profound changes in the automobile industry, which create considerable employment opportunities... Optimistically speaking, every one newly-added auto industry job will bring ten jobs to other related industries," Archer said.

Jerry Xu, president of the Detroit Chinese Business Association, told the 21st Century Business Herald reporter, the auto industry recovery in North America is very robust, and the Big Three’s recent several new models have pretty good sales volume, the recovery of “Motor City” still takes time, though moving forward.

A lot of Chinese capital has spotted the opportunity of car industry recovery, and have began the strategic deployment in Detroit and surrounding areas, including the successfully listed auto parts maker Nexteer, which is backed by the Chinese capital, and the CITIC Dicastal, which invested $140 million in Michigan.

Jerry Xu pointed out that China's auto industry still has large scale opportunities with low risk.

"Chinese investors still think there are huge risks here, which come with huge benefits." Jerry said, "This perception is not 100% correct…if you invest after knowing the situation here, there are potentially high returns in the process of rejuvenation, lowering risk and now it is a very good opportunity to be seized."

Over the past few years, more than 100 Chinese companies have invested over $1 Billion in Michigan, most of which were in the automotive industry.

 "We are very proud of our history and tradition, though we are also developing many new industries, including health care and IT industry, and they have become new growth points. Many startup companies are growing here, too." Said, Michigan Governor Rick Snyder in an interview with 21st Century Business Herald reporter. 

It is important for Detroit to absorb and diversify its industrial structure in order to prepare for next crisis. Midtown Detroit gathers medical research and education industries, while Downtown Detroit has become the center of IT, advertising and other emerging industries. 

Gilbert’s investment map in the city can unveil some of the strategy: In addition to Bedrock Real Estate Services company, he also holds Quicken Loans, Detroit Venture Partners (focusing on investing in emerging industries such as startup IT company) , and Rocket Fiber, a recently established company that is designed to provide ultra-high-speed internet service. "We want to make people feel that it is great to live here." Mullen said.

                                             Interview with Rick Snyder: Detroit Provides a "Good Example" for Bankruptcy Recovery

                                                                                                                 Translated by Alina Dong

Michigan governor Rick Snyder was the major force in approving Detroit municipal bankruptcy, since when the city embarked on road to recovery.

“I find it a very exciting, true successful story. We are very proud of what we have achieved,” said Snyder in his interview with 21st Century Business Herald.

Snyder declared a state of financial emergency in Detroit in March 2013, and appointed Kevyn Orr “Emergency Manager” to oversee financial operations. On January 23, 2014, Snyder announced a plan to bringing 50,000 highly-educated immigrants to work in the city, in an effort to increase the population, employment and tax incomes in Detroit.

Snyder is also the center of topics as GOP’s presidential and vice-presidential candidate in the upcoming 2016 election. He said during the interview that there’s no plan to run any campaign yet, but he’s really proud of being able to save Detroit. “Detroit’s revival is a story that we can always talk about, because it reflects Michigan’s development, reflects how we can work together to do better, and reflects how I trust the model that the city made.”

The significance of exiting bankruptcy

21st Century: You were always a strong supporter of Detroit into bankruptcy. Now are you satisfied with the outcome? What does it mean to Detroit and people here that the city’s out of bankruptcy 

Snyder: I’m very satisfied with the results we have. Detroit underwent a very smooth bankruptcy, and we particularly we need to thank those (creditors—Editor’s Note) who made a huge sacrifice. Now Detroit is an advantageous position, and can be regarded as one of the most exciting cities in the U.S. that have huge growth potential.

21st Century: Has Detroit found its own way to economic recovery and growth?

Snyder: Absolutely yes. Detroit is on the road to recovery to once again become one of the greatest cities in the U.S. If you go to the downtown and midtown areas of Detroit, you’ll be excited to see many projects, large and small, going on there. Detroit is also attracting young people from other parts of the U.S. and even the world to work and live here. We almost have rented out the housing in downtown and midtown areas.

21st Century: One theory is that Detroit is one of the few “emerging markets” in the U.S. What do you think?

Snyder: It is, and I can see the changes and developments in Detroit every day. I want to say that Detroit now has the largest market opportunity, and an important signal is that we see a lot of investments from China, such as the Chinese capital in some building constructions.

21st Century:  Detroit is not the only city that’s struggling in bankruptcy, so what’s the significance of its exit of bankruptcy to other cities in the U.S.?

Snyder: I believe Detroit provides a good example. What Detroit shows is that we can do amazing things to bring a city back to the positive track with a concerted effort from everyone.

Balancing fiscal budget

21st Century: I attended the Policy Conference hosted by the Detroit Regional Chamber a couple days before, and heard Mayor Duggan mentioned his concern about Detroit’s financial situation repeatedly. What do you think of the Federal and State Governments’ support of Detroit?

Snyder: The Federal and State Governments are both very supportive of Detroit’s recovery, and are Detroit’s partners in the construction of many projects. I believe Detroit will probably continue to get their support in the future.

21st Century: Currently Detroit is still in a lack of surplus. How should you improve its financial situation?

Snyder: I think the most pivotal is the growth of city, including increasing the urban population, and attracting more business. Now we do see that business investment with amounts as high as billions of billions dollars is entering Detroit, and people begin to come back to the city, which will significantly improve Detroit’s financial situation. What I’d like to emphasize is that people in Detroit should be proud of themselves for successfully balancing the finance and gain surplus, which hasn’t happened for a very long time in the past.

21st Century: You just released the latest statement government budget proposal. Specifically how would the state government provide support for Detroit? And what are the main channels?

Snyder: We did a lot of things to support the recovery of Detroit, and will “share revenue,” which means that the state government shared a part of its revenues with the municipal government. I’m working on the plan now. We’ll help fund transportation and road construction, as well as improving public safety services, health care, and education. We have a long list of financial support plans, not only for Detroit, but also for other cities and counties in Michigan.

Elements for city recovery

21st Century: We’ve seen Mayor Duggan do a lot of things in the past to bring Detroit out of the shadow of bankruptcy. How do you evaluate his work in the past year?

Snyder: I think he did a lot of good things. In fact, the state government and the municipal government worked together to complete a lot of things, because we hope to help with the city recover. What we worked on together include putting the streetlights in Detroit city back to work, improving public safety environment, and fixing garbage recycling system. These issues are responded first in terms of providing emergency service. Meanwhile, the state government also provided significant support in helping cleaning old buildings.

21st Century: The unemployment rate in Detroit has once reached about 16%, the vacancy rate is high, the population is declining, and the income level is decreasing year after year. Among all the significant indicators of a city’s recovery, which do you think are important, and which are key indicators?

Snyder: All of these are important indicators. The mayor currently put increasing the city’s population as the most important goal, which would takes certain amount of time to achieve, but it is a good indicator in evaluating a city’s recovery. We also do great job in terms of those indicators within Michigan.

21st Century: For a city once considered as “near death”, what are the main elements in recovering? 

Snyder: It’s a big question. For example, the new hockey arena will be a whole entertainment industry area, instead of a hockey area. Projects like the bridge connecting Detroit and Canada and M-1 Rail are the most important development projects in the city.

We will also catch on in other areas, including attracting more investment and providing more training on technical skills jobs. Michigan is leading in the entire U.S. in terms of job training.

The construction of infrastructure obviously has the immediate effect, but providing appropriate job training may be equally important, or even more important.

 

(消息来源:21世纪经济报道 特派记者 叶慧珏 | News Source: 21st Century Business Herald Accredited Journalist - Emily Ye)