Private sector leads the way on new light rail in Detroit

Architect’s rendering of the M-1 light rail. Image via M-1 RAIL Summer 2012 Project Update.

A group of private sector leaders in Detroit are looking toward a new light rail project to help revive the fortunes of the former car capital.

The group is so confident in the potential of a line, known as the M-1 light rail, they’ve put up nearly $90 million in private funding to make the project a reality. If successful, the group would set a new precedent for the “rail as economic development” paradigm, and provide a new model for cities across the country looking to catalyze smart growth.

The proposed line would run 3.4 miles along Detroit’s Woodward Avenue from the New Center neighborhood to downtown and the riverfront, connecting some of the city’s biggest attractions and job centers. The line would run curbside along Woodward Avenue and provide connections to Detroit’s People Mover and Amtrak station, as well as a planned regional bus rapid transit system.

Unlike traditional transit projects, the M-1 line is being spearheaded by a private organization, rather than a government agency. That group, known as M-1 RAIL, is led by some of Detroit’s most prominent business leaders, including Quicken Loans founder and chairman Dan Gilbert, Penske Corp. founder Roger Penske and the Ilitch Family, owners of the Detroit Tigers and Red Wings. (Jim Ketai, who leads Dan Gilbert’s real estate company Bedrock Real Estate Services, and Eric Larson, who handles the Ilitich Family’s real estate holdings, are both members of LOCUS’ Steering Committee). Together, the group has raised nearly $90 million in private funding towards the estimated $137 million total cost of the project. The group also plans to create a $10 million endowment to fund initial operations and maintenance of the line.

The project cleared a major hurdle in late December when the Michigan state legislature voted to establish a regional transit agency between Detroit and its suburbs, clearing the way for $25 million in federal funding for the M-1 project. U.S. Department of Transportation Secretary Ray LaHood, a longtime supporter of the project, had conditioned federal funding on the creation of this new agency, which will assume operation of the line once it is up and running. The remaining cost of the line is expected to come from other federal grants and tax credits. Backers claim the entire project will be built without city or state money.

From the beginning, the M-1 rail line has been about more than transportation. Project backers have touted the project as a tool for revitalization in the historic core of Detroit, claiming that an investment in fixed-guide way infrastructure (as opposed to buses) will “foster additional private development, generating new residential and retail options, creating new jobs and adding significantly to Detroit’s tax base.” Indeed, project backer Dan Gilbert and his company Rock Ventures have already been eagerly investing in properties near the planned line. (To see video of LOCUS Steering Committee member and Bedrock Managing Partner Jim Ketai discuss his company’s involvement in Detroit’s renaissance, click here).

If successful, the M-1 project would provide a new model of transit investment at a time when traditional funding sources for transit projects have not kept up with rising demand. While this model is ultimately a form of value capture—borrowing against future property value increases resulting from new transit investment to fund construction of the transit project—the M-1 project goes further than other examples by putting the risk – and the reward – almost entirely on the private sector. For the backers of M-1, the $90 million in private money that they have raised demonstrates their belief that the line will be a good bet financially, and evidence from elsewhere backs them up. Similar projects in Portland, New Jersey, Dallas and elsewhere have helped generate investment worth many times the initial project cost, all while revitalizing neighborhoods and spurring smarter growth.

Backers of the M-1 project hope the line will help Detroit compete for economic growth in today’s economic landscape. Cities across the country are experiencing revitalization driven by young professionals and empty nesters drawn to the vibrancy and walkability of urban areas. Detroit’s leaders know that to appeal to these residents they must provide amenities like rail transit, and with the M-1 project, they’ve combined self-interest with civic pride in order to make it happen.