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Post: What happens to the Motor City (and RenCen) if GM drives away?

wyliepoon

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http://www.financialpost.com/story.html?id=1585476

What happens to the Motor City if GM drives away?

Nicolas Van Praet, Financial Post Published: Monday, May 11, 2009



Detroit is growing anxious over the possibility that General Motors Corp. could vacate its glass-towered corporate headquarters and leave Motown after the automaker's chief executive refused to rule out the move.

But what would you then do with seven gleaming skyscrapers housing 5.5 million square feet of office space in one of the most economically depressed cities on the continent?

"We're looking at, frankly, everything within our business" as we slim down, Fritz Henderson, GM chief executive, told reporters Monday when asked if the company was considering moving from the Renaissance Center in downtown Detroit. "We don't have any such plan. But if we did, it would be motivated by business rationale, which would be cost, efficiency and speed."

GM, operating on US$15.4-billion in loans from the U.S. government and another $500-million in Canadian public funds, is racing to revamp its business and avoid a bankruptcy-protection filing that could come at the end of the month. The company is trying to convince bondholders to swap US$27-billion in debt for a 10% stake in the company. Despite initial objections by lenders, the offer cannot be sweetened under orders from the U.S. Treasury, Mr. Henderson said.

GM bought the Renaissance Center, a group of seven interconnected towers on Detroit's waterfront across from Windsor, Ont., last year for US$625-million and has used it at as its worldwide headquarters since 1996. The complex is the roughly the size of five bank towers in downtown Toronto. Its centrepiece building is 73 stories high.

More than sheer size however, the Renaissance Center is loaded with symbolism. Built in the wake of Detroit's 1967 race riot as a way to revitalize the downtown core, the complex in many ways epitomizes U.S. auto manufacturing and hope for the city itself.

"What visible progress the city of Detroit has seen this decade - and there has been some - has been largely due to GM's presence in the RenCen," Detroit Free Press Columnist Tom Walsh wrote Monday. "A wholesale decamping of GM from the [towers] would be a staggering blow to a downtown already struggling with a high and growing vacancy rate."

Jim Fouts, the mayor of Warren, Mich., said last week GM could move to his city, where it already has its main engineering and design operations. Other suggestions have included Wilmington, Del., where the automaker is incorporated and frequently holds its annual shareholder meetings.

For Detroit, GM's exit would leave a scar that could be difficult to overcome. For the company itself however, finding a buyer for the buildings could be equally challenging.

"If you're selling an empty building right now, even in the good markets it's very very difficult," said Ross Moore, vice-president of research for property agency Colliers International. Commercial real estate values are down 30% from peak across the United States on average. Assets with "hair on the deal" problems, like a big anchor tenant leaving, will fetch even less, Mr. Moore said.

GM said earlier this year it would cut 10,000 of its 73,000 salaried workers. The ranks of its top executives will also shrink from 1,300 to 1,100. Many of those employees work in the headquarters.
 
The corporate tax rates in Delaware are very low - most major banks and insurance companies have either headquarters or significant operations in Wilmington because of the favourable corporate tax structure there.
 

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