Design firm sues Detroit developer over pay in $125M Leland Hotel, City Club rehab
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Real estate developer Michael Higgins is under financial pressure for the slow start of renovations to the old Leland Hotel in downtown Detroit and the historic building's legendary Leland City Club venue.
His planned $125 million overhaul of the 22-story building at 400 Bagley, which is partially occupied with residential tenants on month-to-month leases, was announced in early 2018 — well before the COVID-19 pandemic. The project was once expected to be done in 2020, but construction hasn't begun.
Detroit-based Kraemer Design Group is now pursuing the Leland's corporate entities for $687,502, which it claims in a new lawsuit is the unpaid balance for its architecture and design work for the stalled renovations.
The designs call for a full rehab of the visibly deteriorating building, including to all commercial spaces and Leland City Club, with the remaining floors redone as 340 apartments. The majority of the new units would be market-rate apartments, although 20% would be set aside at below-market rents for those with qualifying incomes.
According to the lawsuit filed last week in Wayne County Circuit Court, Kraemer Design gave Higgins' project a full year to obtain construction financing for the project, which presumably would have included funds for the design work.
But that deadline came and went earlier this month — the construction design documents were completed Oct. 14, 2021, according to the lawsuit — without the financing in place, the lawsuit says. Now the firm wants its outstanding balance paid — with interest.
In recent phone interviews, Higgins said the project was delayed by the pandemic and unanticipated challenges in obtaining financing assistance from the Michigan State Housing Development Authority.
The project is now looking to the U.S. Department of Housing and Urban Development for assistance rather than the state housing authority, he said. That HUD financing could potentially happen in the next six to eight months, he said, still allowing for a 2023 construction start.
"We are moving ahead on the project, on the financing," Higgins said. "It’s not going as fast as we had hoped, but we still are in that process."
A spokesperson for the Michigan State Housing Development Authority, known as MSHDA, wouldn't discuss any specifics Monday about the Leland project, saying in a statement only that some developments "require extra effort to get over the finish line."
"MSHDA has been and continues to be committed to engaging with the developer and the city to find the best approach for this project," said spokesperson Katie Bach.
Higgins said he was surprised to see Kraemer Design go to court right away for the money. The firm also filed a lien on the property.
"We did two big projects with them, which they were paid off," Higgins said. "They (the projects) all took a little bit longer than anticipated, and they know we’re moving on this, so I was surprised they took that action. But we’ll work it out."
A legal representative for Kraemer Design Group said Monday that the firm declined comment for this article beyond the lawsuit filing.
Illustrious history
The Leland was designed by Chicago theater architects and opened in 1927 as the 720-room Detroit-Leland Hotel.
It was renamed Leland House in 1964, when it was renovated to have more than 400 apartments in addition to hotel rooms, plus an outdoor swimming pool that was eventually filled in, according to a city report on the building's history.
Higgins bought the building in 1980 and Leland City Club opened on the second floor in the mid-1980s.
The building is on the National Registry of Historic Places and the hotel stopped hosting overnight guests roughly 11 years ago.
The City Club venue and nightclub is normally open Friday and Saturday nights and occasionally Thursdays and Sundays. Insane Clown Posse is scheduled to perform at the club this Sunday night for a show titled "A Celebration of the Macabre."
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“We have gothic, but we also have techno," Higgins said of City Club's typical themes and music genres. "It depends on which night it is and who the DJs are.”
Tenants month-to-month
There were roughly 150 residents living in the Leland building when the renovation plans were first announced in early 2018.
That number is now below 60, Higgins said, and all are on month-to-month leases. The tenants will be allowed to stay once construction starts, and they will likely be eligible for one of the newly renovated reduced-rent apartments, he said.
"The city was pretty insistent that they did not want anybody put out, and we agreed to that," Higgins said. “The city has had some bad experiences with that happening.”
A diner still operates on the ground floor. It is Dagwood's Cafe and Diner, although the name of the former diner, Luci and Ethel's, is still printed on the building's exterior.
Higgins' two other downtown apartment buildings are the 124-unit Broderick Tower, 10 Witherell St., and the 23-unit Elliott Building at Woodward and Grand River.
Work is underway on his new $25 million, 43-unit housing development on East Jefferson, tentatively called Jefferson Van Dyke 2, which is on pace for completion in 2024, he said.
Contact JC Reindl: 313-378-5460 or jcreindl@freepress.com. Follow him on Twitter @jcreindl.
This article originally appeared on Detroit Free Press: Design firm sues Detroit developer over pay in $125M Leland rehab
