Relocation could help Kmart

[Allan]

Relocation could help Kmart

Move to a renaissance zone would save on taxes

October 28, 2004

BY GRETA GUEST

FREE PRESS BUSINESS WRITER

Michigan has $45 million on the table to keep Kmart Holding Corp. in the state, but the nation's third-largest discount retailer could save millions more in taxes if it relocated its headquarters to a renaissance zone in Detroit or any of the 19 others in Michigan.

The state's zones are in locations from Marquette to Grand Rapids and Detroit. Detroit's zone is composed of 16 distinct geographic areas including Campus Martius, Tiger Stadium and sites east of Renaissance Center.

Detroit officials declined to comment Wednesday on whether Kmart is considering Detroit as a potential location for a relocated headquarters.

Grand Rapids officials have confirmed that Kmart employees have toured their city.

Kmart spokeswoman Caryn Klebba said the retailer "does not comment on rumor or speculation about a move that may or may not happen."

The bulk of the state incentives, or $44.7 million over 10 years, comes from a job retention program under the Michigan Economic Growth Authority. It is based on Kmart keeping 1,500 jobs with an average annual salary of $70,000 in Michigan for 10 years. Kmart also is said to be looking at sites in Georgia and New Jersey.

"The governor is determined to keep this company in Michigan," said commercial real estate expert David Farbman, Farbman Group copresident. "Losing Kmart would be a tough blow to the market both in the number of jobs lost and adding vacancy to an already difficult real estate market.

"They are weighing out the financials now. I think that, all things being equal, there's no incentive to leaving this market," he said.

If renaissance zone tax breaks are made available to the century-old retailer with roots in downtown Detroit, its total break could soar millions higher than what the state could offer. Companies operating in renaissance zones can skip paying the Michigan single business tax, personal income tax, state education tax, personal property tax and real property tax.

If they select a Detroit renaissance zone, the city's income tax and utility users tax also would be waived for a set number of years.

For example, Compuware Corp., which moved its headquarters from Farmington Hills to Detroit last year, received about $80 million in tax breaks to relocate in Campus Martius. The city also gave Compuware the property for its 15-story, $800-million building for $1. The tax breaks included $52 million for property taxes, $10 million in single business tax credits and $18 million in personal property tax savings on the building's equipment and fixtures.

If Kmart left Troy, where it moved in 1972, a renaissance zone would make the most sense for several reasons, experts said Wednesday.

"I think it would be a marketing coup if they decided to stay and move back to their roots," said Gary Ruffing, a retail consultant with BBK Ltd. in Southfield. "If they could find it economically feasible to stay in Michigan and return to Detroit, it would be a big plus. I think it is something they would be foolish not to consider."

Ruffing also said it would send a message to Kmart headquarters employees that they are important to the operation and worth keeping. An out-of-state move might say instead that Kmart is trying to ditch so-called deadwood employees without having to fire them, he said.

Kmart's Big Beaver Road headquarters building was constructed for 5,000 employees. Kmart now has fewer than 2,000 there and has been looking at its options since emerging from bankruptcy protection in May 2003. Kmart could sell the site across from the Somerset Collection shopping mall to developers. The company also has explored keeping its headquarters in Troy as part of a multiuse development, sources said.

Contact GRETA GUEST at 313-223-4192 or [email protected].

[Mojo]

I could never understand how come K-mart didn't look into this in the first place. Seems to me the tax incentives that the city can provide out weigh the 45 million that the state is throwing at them.

[baldy]

I would hope that not having to relocate people and the incentives would keep them in meto-Detroit. I'm really hoping for this to go up on the monroe block of C-mart.

Probably the best idea I've heard so far was to change the name back to Kresge's and remarket the store more like a Target. Granted it was just from people on forums like this and not from any K-mart people, but still a great idea because the really do need to change their image.

[Allan]

The Kmart HQ would be great in C-Mart. The Monroe Block is a huge block for a 2000 employee building though. Compuware has 4100 employees. If Kmart built a headquarters on the Monroe Block, it would probably be only seven or eight floors. I would like to see at least ten stories on that block. Unless the Kmart headquarters took up only half of the block. Perhaps such a building would be better suited to the Kennedy block? Or is that not large enough?

[baldy]

Personally, I would like to see the Monroe block split into different styles of buildings. One facing Monroe and the other facing Cadillac Square. Maybe even a third which faces the C-mart. This would add a little be of variety to such a large area. I really don't like the preception of sprawled out buildings in a downtown area. The first national bank building is the exception.

Frankly, for the Kennedy block, I hope they leave it as is for a while, a big grass lot! When they do decide to build on there, I hope it isn't too tall. Yes, you heard me right, not too tall. One of my many pet peeves is that with so much area available for redevelopment, you don't hide historical buildings that are prime examples of what the city once was. In this case, I would hope the dime building would still be visable from the park. A prime example of this is One Woodward. Not a bad building, but it blocks the Gaurdian. Fill in the skyline instead of covering up what we already have. I guess this is one of the reasons I really like where 150 west jefferson is placed. It didn't cover up the view of the Buhl building.

Sorry for the rant.

[Allan]

I agree. The problem is that if Kmart is offered the Monroe Block, they will be offered the whole thing, allowing them to build a low, sprawling building. The opposite problem happens with the Kennedy block. If Kmart is offered the Kennedy block, I fear that the new building would be too tall and block the Dime Building. Yet we don't want something so short that it looks bad (i.e. that stupid glass box next to the Guardian).