A Glimpse into the Past

see photos from 1921 trip out west

1921BOMA Detroit existed in 1907; however, we were not formally organized until October 15, 1908, and then incorporated January 8, 1934. Before there was a BOMA International, there were numerous local associations around the country. During these formative years, taxes and assessments were the most important issues, and competition between buildings was virtually nonexistent. The commercial real estate industry was very secretive, and managers were reluctant to provide information on rental rates and operating costs.

Industrial expansion was explosive during this period. A thriving enterprise run by Henry Ford that mass-produced a product that would change everything turned Detroit into the "Motor City." The automotive industry was thriving, and they erected and occupied their own office buildings, away from downtown. In 1913, the 16th Amendment was ratified, which allowed an income tax that over the years would have a fundamental influence on the structuring of real estate deals.

Also, the Federal Reserve System was established, offering some control over the all-important cost of money. BOMA provided the first industry-wide service in 1915 with the introduction of the Standard Method of Floor Measurement (which remains the industry standard), and the first standard Chart of Accounts in 1916.

In the 1920s, Detroit experienced a boom period with abnormally high office building financing and construction. The skyline of Detroit was rapidly changing and work was completed on the Ambassador Bridge, linking Detroit with Canada across the Detroit River. The first Experience Exchange Report (EER) was published by BOMA during this period, and the first nationwide occupancy statistics were released in 1924.

During the late 1920s and early 1930s, Detroit, and the nation, went through office-building hell, with the depression, stock market crash, bank closings, and much vacant space. The commercial real estate market simply ground to a halt as capital dried up. Carpet-baggers descended upon Detroit and convinced some of the financially weaker building owners that the solution was stealing tenants and moving them about at constantly lower rental rates. BOMA Detroit subsequently instigated an agreed- upon rental structure, with no free rent and a means for the exchange of information between member buildings. Non-member buildings substantially observed these new "rules". In 1933, BOMA won a wage and price provision in the National Recovery Act to protect building owners from disastrous cost increases.

In the 1940s, particularly during World War II, the Experience Exchange Reports helped to avoid rent control for office buildings. Detroit's abnormal vacancy rapidly disappeared, and the Detroit area boasted more prime contracts for war material than any other urban area in the country. The government's sudden need for office space, combined with building owners' patriotism (and fear of condemnation, in some cases), resulted in the leasing of much space for government occupancy at less than cost. Detroit buildings generally gained occupancy, but not profits, during the war. The question of rent was determined in Federal Court after the war. The verdict was a victory for building owners, as the court established a square foot rate over twice that received for similar space in the area. BOMA also served a critical role on the National Coal Board to allocate fuel supplies.

The late 1940s and 1950s saw another boom period for our industry, and ushered in the term "bedroom communities" as the suburbs pushed out from the city. The center of business was still in the heart of Detroit, and the economic revival brought new downtown developments. But nearly two-thirds of all industrial development occurred outside the downtown areas as developers followed the new roads away from expensive land in the urban core. The birth of the "shopping mall" occurred during this period as suburban Detroit created Northland Mall, an open-air, climate-controlled shopping plaza facing inward, away from the parking lot.

Economic expansion continued in the 1960s and the real estate investment trust was created, initially as a tax shelter, but soon becoming an investment structure that competed with the established real estate syndicates. The sixties also saw enormous growth in the suburbs as the middle class fled the city. The civil disturbances of the late sixties left an indelible mark on Detroit.

The 1970s saw the worst recession since World War II, as the economy suffered a body blow in 1973, with the OPEC embargo sending energy prices dramatically upward. Lines at the gas station were a common sight. During the depths of the energy crisis, the government implemented Emergency Building Temperature Restrictions to curtail the amount of energy expended to heat and cool buildings. BOMA acted as an intermediary between other real estate trade groups and the Department of Energy, and Congress ultimately passed legislation that gave businesses the opportunity to create their own energy conservation plans.

Competition from overseas manufacturers hit Detroit hard, and the term "Rust Belt" was coined. But it also brought about the first new development in downtown Detroit, as Ford Motor Company constructed the Renaissance Center on the Detroit River. During the 1970s, BOMA took on the Capital Cost Recovery Act, building energy performance standards, energy tax credits, handicap accessibility, the Public Buildings Act, and fire safety.

The 1980s was a time of easy money and overbuilding, spurred by tax incentives built into the 1981 changes to the tax code providing tax breaks. The 1981 Economic Recovery Tax Act drastically cut depreciation schedules, providing huge write-offs even on small real estate investments. Downtown Detroit saw new life with the development in the late 1980s of the Madden Building. The office development game was no longer confined to downtown as the northwestern suburbs saw more buildings going up and became economic centers less dependent upon the city.

The eighties were also a period of renovation, with serious financial incentives to redevelop properties. Even though much of the tax benefits were lost in 1986, owners generally realized that the older building stock contained some aesthetic qualities that were irreplaceable and were potentially a selling point to certain classes of tenants. Japanese institutions were buying investment property and providing financing. Then, there was the savings and loan scandal, which further dampened the interests of developers.

The 1980s found BOMA fighting legislative battles on a number of issues, beginning with the asbestos debacle. EPA mandates calling for the removal of asbestos as a health hazard cost building owners and managers billions of dollars. BOMA finally convinced the EPA in the early 1990s to modify its policy to say that leaving asbestos in place was a prudent policy. It also had a devastating effect on the value of older building stock with the tremendous building boom of the 1980s. Issues of the 1980s included sprinkler retrofitting, PCB transformers, hazard notification, and taxes.

In the dismal early 1990s, a real estate depression existed until 1995. Development in the suburbs was brisk and even downtown Detroit showed signs of new life in the late 1990s. REITS came of age during this period, purchasing some high-profile properties. But in the latter years of the decade, Wall Street investors were less interested. Commercial mortgage-backed securities (CMBS) were an unintentional offspring of the savings and loan crisis. The Resolution Trust Corporation had a good many commercial real estate loans to sell. In the process, techniques were developed to package these loans. Thus was born the CMBS and the conduit structure, a new source of investment capital for real estate, becoming an important part of the capital market.

We also saw the Internet dramatically change the way developers, brokers, and real estate service providers operate. A major legislative triumph for BOMA came in its lobbying efforts surrounding the American with Disabilities Act (ADA). BOMA was able to successfully modify certain provisions of the act, working with the Justice Department and Access Board, especially "areas of refuge" that would have cost the industry millions of dollars to comply. BOMA's library of ADA compliance materials, seminar series, in combination with its legislative efforts, set its place as the legislative voice of commercial real estate.

The Telecommunications Act of 1996 represents another victory for building owners, and BOMA continues to advocate competitive access rather than mandatory access. Other issues for BOMA in the 1990s included building codes, indoor air quality, phaseout of CFC's, telecommunications, utility deregulation, and tax legislation.

BOMA members survived the Y2K segue into the new millennium. Year 2000 advocacy achievements included leasehold improvements and the useful lives of real estate assets, window cleaning standards, indoor air quality, international codes, and forced access regulatory efforts. After years of "anything goes" growth, we face mounting development concerns, and the continuing challenge of technological advancements.

As we look forward, real estate professionals are enjoying a hard-earned era of real estate prosperity. In the face of multiple changes and demands, our industry has demonstrated an ability to react swiftly and profit handsomely. Detroit's commercial real estate industry is continuing to show signs of recovery and BOMA of Metropolitan Detroit is proud to be a participant, not just an observer.

Thanks to Jack Caminker, (BOMA Detroit President, 1959), William Palmby, RPA (BOMA Detroit President, 1984-86), Kim F. Sulek, RPA (BOMA Detroit President, 1995-96) and BOMA International, for their contributions to the above.