First of two parts Spec­u­la­tors com­pli­cate re­shap­ing of Detroit

City’s most ac­tive pri­vate landowner, Michael G. Kelly, and oth­ers are po­si­tioned to in­flu­ence ur­ban devel­op­ment ef­forts

The Detroit News - - Front Page - BY CHRIS­TINE MACDONALD

Detroit — Michael G. Kelly fa­vors sweat­shirts to suits, drives a Ford F-150 and filed for bank­ruptcy about a year ago claim­ing he had only $431 in his check­ing ac­count.

He also con­trols prop­er­ties than any landowner.

The Grosse Pointe Woods in­vestor has qui­etly spent two decades amass­ing 1,152 parcels in Detroit, city records show. Most are bar­ren lots and empty build­ings picked up for $500 or so apiece at tax fore­clo­sure sales. The city says many are so di­lap­i­dated that Kelly’s firms owe $100,000 from 139 blight vi­o­la­tions since 2005.

“If you walked up to him on the street, you wouldn’t know that he was a land baron,” said Avery Wil­liams, a city at­tor­ney. “He’s a guy in blue jeans walk­ing around look­ing like he’s work­ing on some­body’s build­ing.”

Wil­liams called Kelly a “scav­enger” who preys on the “car­rion” of Detroit, but the city soon may have no choice but to do busi­ness with him and other spec­u­la­tors. Kelly’s com­pa­nies have land in ev­ery corner, uniquely po­si­tion­ing him to be a player — or im­ped­i­ment — that could drive up the price of land in Mayor Dave Bing’s Detroit Works Project to re­shape the city.

Kelly ac­knowl­edged he has a rep­u­ta­tion as a “bot­tom feeder,” but said he has a vested in­ter­est in Detroit’s come­back.

“Peo­ple went out West spec­u­lat­ing for gold. That’s what it is. You need spec­u­la­tors. It’s called in­vestors,” said Kelly, 47, who dis­puted city records show­ing he’s Detroit’s largest landowner but wouldn’t dis­close how many parcels he and his firms own.

Kelly is far from alone. A Detroit News in­ves­ti­ga­tion found more than 5,000 city parcels are owned by 10 pri­vate landown­ers and their com­pa­nies. Most amassed port­fo­lios buy­ing in­ex­pen­sive parcels by the dozen at tax sales and hold­ing on to them un­til they can be sold for profit.

John Mogk, a Wayne State Uni­ver­sity law pro­fes­sor who stud­ies land, said spec­u­la­tors threaten to “hold the city hostage” as Bing works to rein­vent Detroit. In the next few months, the mayor could out­line his plan to im­prove vi­able neigh­bor­hoods by more other Detroit

pri­vate aban­don­ing des­o­late ones, of­fer­ing in­cen­tives to res­i­dents to re­lo­cate and buy­ing land from pri­vate own­ers.

No mat­ter what he de­cides, Bing can ex­pect lengthy and costly law­suits from spec­u­la­tors, Mogk said.

They likely will sue the city for de­valu­ing their land if Bing re­duces ser­vices to un­der-pop­u­lated neigh­bor­hoods. They’ ll hold out for more mon- ey and con­test Detroit’s of­fers in court if Bing of­fers prop­erty own­ers cash to move, Mogk said.

Kelly al­ready has sued the city sev­eral times for sim­i­lar rea­sons and, in a 2002 suit that was dis­missed, a city at­tor­ney ac­cused the in­vestor of rou­tinely buy­ing land near pro­posed projects so he can de­mand top dol­lar.

Even Kelly’s relatives said he’ ll drive a hard bar­gain.

“He is only loyal to the dol­lar and that’s the only thing,” said an es­tranged brother, Eric Kelly, who feuded with his brother in pro­bate court over their mother’s es­tate.

“He will find a loop­hole loop­holes.”

in

Michael Kelly’s at­tor­ney, Ni­cholas Le­Fevre, said the in­vestor is easy to crit­i­cize be­cause he buys fore­closed prop­erty and those who lose their land need some­one to blame.

“Mr. Kelly is a dili­gent, hon­est and oth­er­wise savvy busi­ness­man who has now-and-again pros­pered in the uniquely chal­leng­ing en­vi­ron­ment of the city of Detroit,” Le­Fevre wrote in an email. “Rather than be­ing praised for his dili­gence, he is con­demned.”

Kelly is af­fil­i­ated with five com­pa­nies that buy prop­erty, and his em­pire was in jeop­ardy in 2009.

In Novem­ber 2009, he filed for bank­ruptcy claim­ing $800,000 in debts and listed as as­sets his in­ter­ests in at least 830 parcels. The trustee over­see­ing the bank­ruptcy ac­cused Kelly of hid­ing other prop­er­ties, in­clud­ing a vacation home in On­tario.

His prop­er­ties could have been sold to sat­isfy the debt, un­til a fre­quent busi­ness part­ner, Matt Tatar­ian, paid off Kelly’s obli­ga­tions in May.

Kelly has been buy­ing prop­er­ties ever since.

“I see him ev­ery­where … try­ing to buy some­thing or sell some­thing,” said re­tired Detroit de­vel­oper Ken Roberts, who has done busi­ness with Kelly over the past 15 years.

“He works hard. He’s on top of ev­ery­thing. He knows the game.”

Form­ing a busi­ness model

Kelly is the “most im­pres­sive sin­gle spec­u­la­tor” in the city’s re­cent his­tory, said Mar­garet De­war, a Uni­ver­sity of Michi­gan ur­ban plan­ning pro­fes­sor who has stud­ied land in Detroit.

He got his start news­pa­pers.

The St. Clair Shores na­tive said he learned Detroit’s streets by sell­ing sub­scrip­tions to pay for col­lege and was so suc­cess­ful he won a “car­rier of the year” award.

With the help of his fa­ther, Kelly used his ac­count­ing de­gree and opened a whole­sale tire busi­ness in 1988, state records show. In the early 1990s, he be­gan buy­ing real es­tate, be­com­ing a fix­ture at tax-fore­clo­sure auc­tions where bid­ding starts at $500.

The busi­ness model: cheap and in bulk.

Mogk com­pared the strat­egy to play­ing the lot­tery. Some of Kelly’s parcels hit big when the city or other de­vel­op­ers need his land for projects. If not, the ini­tial in­vest­ment is usu­ally so low that losses are min­i­mized.

Be­tween 2006 and 2009, Kelly and Tatar­ian bought 556 parcels at the Wayne County tax auc­tion, work­ing the room with a small en­tourage and a lap­top.

Kelly bought land nec­es­sary for other projects, in be­tween plots owned by the city, non­prof­its and other prom­i­nent own­ers. His com­pa­nies own nine parcels in the foot­print of a pro­posed sec­ond bridge link­ing Detroit and Windsor and 80 parcels near the Cole­man A. Young In­ter­na­tional Air­port, the site of ef­forts to in­crease a buf­fer near run­ways.

Kelly said he out-bids “hun­dreds, pos­si­bly thou­sands” of other in­vestors for his land.

“A scav­enger is not a suc­cess­ful bid­der in a com­pet­i­tive field,” Kelly said.

Kelly has “made sig­nif­i­cant money” over the past 20 years sell­ing land to the city for sev­eral projects, from hous­ing de­vel­op­ments to sew­ers and parks, said Rob­bin Mil­lard, who un­til his re­tire­ment in 2008 as­sem­bled land for the city.

In 2004, records show Kelly bought a par­cel for $675,000 and sold it the same day to Sec­ond Ebenezer Church for $1.5 mil­lion for its new build­ing off In­ter­state 75. Le­Fevre said Kelly held the prop­erty for years and in­vested “hun­dreds of thou­sands” of dol­lars be­fore record­ing the deed.

In 2000, Kelly bought a beauty sup­ply shop and tire busi­ness on Liver­nois for $225,000 and, again, sold it the same day for $515,000. In 2007, he sold a lot on East Seven Mile for $235,000 that he bought from the county for $38,000 a year be­fore.

Last sum­mer, the city paid Kelly $37,000 for a run-down, two-story colo­nial and a tiny house nearby on Montlieu that he bought at a county tax auc­tion for $500 apiece in 2008.

sell­ing

Buy

Through his at­tor­ney, Kelly said the profit is ex­ag­ger­ated be­cause he had to pay taxes and other fees be­fore sell­ing them to the city for the buf­fer around the air­port.

Detroit has first dibs at the auc­tion, and it’s un­clear why of­fi­cials didn’t buy the parcels first. The city even kicked in $2,200 for mov­ing ex­penses to Kelly’s com­pany for the houses.

“You leave the door open, he’s go­ing to take ad­van­tage of it,” Roberts said.

At an Oc­to­ber auc­tion, Kelly paid $5,000 for seven tax-fore­closed prop­er­ties in the neigh­bor­hood that the city likely will need to com­plete the buf­fer. Again, Detroit of­fi­cials could have bought the prop­er­ties first, but didn’t.

Knack for spot­ting win­ners

In more than a dozen law­suits, Kelly and his com­pa­nies are ac­cused of tak­ing ad­van­tage of prop­erty own­ers. But even they ac­knowl­edge Kelly has a knack for spot­ting win­ners, some­times no big­ger than a putting green, in a sea of losers at tax sales.

In 2009, auto sup­plier Bridge­wa­ter In­te­ri­ors sued a Kelly com­pany that bought a small par­cel in the mid­dle of its fa­cil­ity that mis­tak­enly went to the county for un­paid taxes. Kelly paid $95,000 and wanted $2 mil­lion, said Carl Rashid, an at­tor­ney for Bridge­wa­ter In­te­ri­ors. When the firm wouldn’t pay, Kelly started evic­tion pro­ceed­ings, Rashid said.

The com­pany sued and even­tu­ally got the prop­erty back be­cause of the county’s mis­take.

“It was bril­liant on his part,” Rashid said. “When you go to the tax sales they just list the parcels.

“How was he able to de­ter­mine the par­cel went right through the fa­cil­ity?”

Kelly’s at­tor­ney, Le­Fevre, de­nied seek­ing $2 mil­lion.

Jimmy Way, gen­eral man­ager of The Pretty Woman Lounge strip club near Seven Mile and Van Dyke, said he’ ll never for­get his deal­ings with Kelly.

One of Kelly’s com­pa­nies paid $1,100 in 2006 at the county tax sale for a sliver of land that ran down the mid­dle of Way’s park­ing lot out­side the club’s front door. Way had used it for years, with the neigh­bor­ing busi­ness owner’s bless­ing, but didn’t re­al­ize it went up for sale for un­paid taxes in 2006 af­ter the neigh­bor died, he said.

A rep­re­sen­ta­tive from Kelly’s com­pany wanted $35,000. Way said he wouldn’t pay, and one day showed up to work to find a bull­dozer had dug up the small stretch of as­phalt and his guard­house on the strip of land was filled with ma­nure.

Way even­tu­ally paid Kelly’s com­pany $19,000. The le­gal fees cost Way an­other $30,000.

“He makes his liv­ing prey­ing like a damn leech on other peo­ple,” Way said.

Kelly said Way used “our prop­erty” for more than two years and made “vast sums of (money) from his adult en­ter­tain­ment busi­ness” with­out “com­pen­sat­ing us.”

Many go to fore­clo­sure

Kelly

and

his

at­tor­ney

said

David Coates / The Detroit News

Kelly keeps a low pro­file and would not pose for a pho­to­graph. Here he is seen driv­ing from his home late last year.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.