|Belle Isle Main Canal -- 1900-1920 (Library of Congress)|
Governor Snyder's office announced a deal today to sell Belle Isle to Grand Rapids based property developer, Grand Luxury Estates. A spokesperson for the governor, Hal Itocis noted that under the current consent agreement an appointed financial management team in Detroit holds the authority to sell city assets to meet financial obligations. The consent agreement resulted from efforts between the city and state to forestall the Public Act 4 appointment of an emergency manager to run the city. Also, Itocis emphasized the city's current budget shortfall, and the grave implications of a municipal bankruptcy filing.
When asked about the rational for disposing of one of Detroit's prize assets without prior notice or bidding from other potential buyers, a member of the city's financial management team appointed by the governor, Neo Conservatorio, replied, "Belle Isle as it stands... or just sits there really... Belle Isle is nothing but a big vacant lot sitting out there in the river. There are very few improvements worth noting, and the only thing that makes it an 'Isle' is the fact that it's stranded out there. There's really nothing 'Belle' about it. Basically."
In addition to city operating expenses, the city's financial obligations include debt servicing on municipal bonds issued for capital improvements and "financial stabilization." The outstanding principal on these bonds amounts to $5.6 billion (about 3.3 times the annual $1.7 billion city budget). Interest payments and derivative expenses amount to about $132 million per year. Principal payments come to $88 million, for a total debt cost per year of $220.4 million, which makes debt-servicing the second largest item on the city budget.
"Bankruptcy is not an option," Conservatorio said, "It's not just the police, fire, trash collection and all that city stuff we're talking about here."
Conservatorio explained that bankruptcy would mean default on principal and interest payments for the city's bonds. Underwritten by banks such as Citigroup, JPMorgan, Loop Capital, Morgan Stanley, SBS and UBS, a bond default would mean these banks face diminished profits. Of course, credit default swaps purchased by the city will likely prevent default on the bond payments -- the issuer of the credit default swaps, in essence an insurer of the bonds, will make the principal and interest payments should the city default, but under that eventuality, the insurer requires the city to make accelerated, lump sum payments -- similar to a mortgage balloon payment.
"That would be the worst case scenario." Hal Itocis said. "In that case the banks just won't get paid, they will lose money, and then all hell breaks loose. Basically."
Itocis described the scenario this way: if the city defaults on its bond payments, the city's credit rating will be downgraded, possibly to junk bond status, which would require the city to pay elevated interest rates on future bond issues. In addition, if the city fails to make its accelerated, lump-sum payment then the insurer might tumble (remember AIG?), and there will be no firewall to protect underwriters -- banks such as Citigroup, JPMorgan, Loop Capital, Morgan Stanley, SBS and UBS. If no one pays the banks, they will take a hit to their balance sheets and ultimately face diminished employee bonuses. That is a scenario that neither Hal Itocis nor Neo Conservatorio was willing to comment on. Given the close ties between bankers and politicians fostered by generous campaign contributions and revolving door employment opportunities offered to "retired" politicians, most lawmakers consider pleasing bankers one of the foremost obligations of their office.
The deal to transfer Belle Isle to private ownership will conclude this week when Governor Snyder, Mayor Dave Bing, and the CEO of Grand Luxury Estates, Peter B. Small, meet in Lansing to seal the deal, and share a fancy meal with French wine and delicate pastries at the "The Palm" steakhouse in Lansing. The parties to the deal did not invite members of the press to the deal closing, but urged reporters to attend the dinner at "The Palm" if they can cover the cost of a meal, including French wine and fancy pastries. Most news organizations declined this invitation, but several Fox News reporters will attend. They expect to enjoy the French wine and fancy pastries paid for by Rupert Murdoch. Fox promised to share their fair and balanced report of the meal, and to offer unsubstantiated assertions about the benefits of the deal for Detroit and buyers of luxury estates at large.
Grand Luxury Estates expects to break ground on development of Belle Isle immediately. "There's no point in waiting around to transform that big vacant lot into value for the city," CEO Small said. "The motto of our brave Governor Rick Snyder is 'relentless positive action' and Grand Luxury Estates echoes that sentiment. We believe that free enterprise, universally applied will transform the city of Detroit in ways most residents can not even imagine," Small declared, adding with a hop in the air and a click of his heals, "Just wait, Detroit!"
|Artist rendering of a proposed estate on Belle Isle |
(photo: Grand Luxury Estates)
In a press release, Grand Luxury Estates said the planned development of Belle Isle will include 200 estates, each 4800 square feet or more, with private pools, tennis courts, and assault rifle ready shooting ranges featuring the Canadian shoreline as a backdrop. Amenities will include a P.G.A. level 18-hole golf course to replace the existing "travesty of a course;" several new marinas with accommodations for yachts as large as 180 feet; and three helipads for commuting residents.
To sweeten the deal for cash-strapped estate buyers, a ten-year property tax abatement will be offered, and after ten years Belle Isle will be ceded from the city and transferred to the Grosse Pointe tax roles to save administrative costs for already overburdened Detroit. The governor expects this move will save the city over $10,000 dollars.
The press release also noted that the developer intends to install twelve-foot titanium-clad steel gates and an armor-reinforced guardhouse at the base of the Douglas McArthur Bridge, and patrols will circle the island continuously in boats capable of hitting speeds of 80 knots. The animals who reside at the Nature Zoo will be set free in Hart Plaza, the release indicated, but hunters will have access to the former zoo animals via special automatic weapon permits, available at City Hall, thus minimizing potential danger to pedestrians from the animals.