Construction of a long-sought new Wayne County jail and courthouse complex is already running $40 million over budget as businessman Dan Gilbert’s real estate development company wrestles with the complexity of design changes and the rising cost of materials and labor — problems that doomed the last jail project in Detroit.
But unlike the infamous “fail jail” project on Gratiot Avenue, Wayne County taxpayers aren’t on the hook for escalating costs at the $533 million criminal justice complex project on East Warren Avenue near the I-75 service drive.
Gilbert’s Rock Ventures LLC is shouldering that burden under the deal the company struck last year with Wayne County Executive Warren Evans’ administration that gave Gilbert the “fail jail” site on Gratiot — 15 acres of prime real estate at the eastern entrance of downtown Detroit.
Matt Cullen, principal of Rock Ventures, confirmed the new jail project is currently projected to cost $573 million, though the company is working to lower construction costs as bids come in.
“We knew there was exposure to it going up,” Cullen told Crain’s. “I’m not happy we’re over budget. I hope we can reduce that.”
When Rock Ventures struck a deal in the spring of last year with Evans’ administration to build the jail and courthouse complex in exchange for getting the half-built Gratiot Avenue jail site, the company agreed to cover all costs exceeding $380 million — the county’s maximum contribution to the project after losing $149.2 million on the last jail project under former Executive Bob Ficano’s administration.
Cullen said the jail deal was crafted without a final design plan, much less bids for the exact cost of the project, leaving Rock Ventures exposed to a construction market that’s already strained by numerous regional mega-projects, including Gilbert’s downtown building boom.
“You don’t normally price something until you draw something or go out and get bids,” Cullen said. “Certainly the fact there’s so much construction going on in Detroit and the region doesn’t help either. That’s part of it as well.”
That is driving up construction costs, with some developers and contractors saying by as much as 30 percent.
Kevin Koehler, president of the Bloomfield Township-based trade organization Construction Association of Michigan, said building costs regularly change as designs become finalized.
“Once the design starts to be fleshed out, there are so many elements that can change and increase pricing,” he said. “It’s not completely out of the ordinary.”
In many ways, the jail project is new terrain for Gilbert’s ventures in real estate development in Detroit.
Unlike many of Gilbert’s downtown investments that entailed renovating decades-old office buildings for his Quicken Loans family of companies and private sector tenants, this project entails building a sprawling government complex on 11 acres that includes a 2,280-bed jail, 25 courtrooms and offices for judges, five hearing rooms, offices for the Wayne County sheriff and prosecutor, as well as a 160-bed juvenile detention facility.
“It’s way different,” Cullen said. “You’re kind of building a house for somebody else — and you’re building it for a lot of other people.”
Construction of the new county jail, courthouse and office complex is expected to be complete in 2022. Demolition work at the East Warren Avenue site began in December.
Excavation work is 55 percent complete and initial foundation and concrete work is 25 percent complete, according to Evans’ office.
When the new criminal justice complex is complete, Rock Ventures also will get the county’s Frank Murphy Hall of Justice courthouse and the county’s juvenile detention facility on Saint Antoine Street and two older jails on Clinton Street. Those buildings will likely be demolished for the redevelopment of the contiguous Gratiot Avenue property.
Just before the Fourth of July holiday, Wayne County announced a deal with a subsidiary of DTE Energy Co. to build a Central Utility Plant that will distribute electricity, gas, hot and cold water for between $32 million and $37.7 million.
Rock Ventures has agreed to cover $2.5 million of the cost; Wayne County plans to pay its $35.2 million maximum cost through higher than anticipated property tax revenues and operational efficiencies, Deputy County Executive Richard Kaufman said.
Depending on the final cost of the project, Wayne County could end up with a nearly $600 million state-of-the-art facility for $380 million in long-term bonded debt, Kaufman said.
“That’s both confidence and luck on our part,” Kaufman told Crain’s.