DETROIT – The old rules still apply in the Motor City. You drive American, not a boxy blue rolling yurt of a Honda. Aaron Seybert acknowledges this. He apologizes. Then he slides his import into traffic, leaves downtown and his JPMorgan Chase office behind, and begins the tour of the boarded-up storefronts and strip malls that he has come to bathe in money.
There are all sorts of theories in Detroit for why Seybert’s employer is dropping $100 million to help fix up parts of this city. It’s charity; it’s a secret deal with the Justice Department; it’s guilt over all the Detroiters the bank foreclosed on during the crisis; it’s a plot to privatize municipal infrastructure.
JPMorgan officials reject those theories. So does Seybert, who is the firm’s point man for distributing half of that $100 million to a pair of community lending groups, who will finance rehabilitation efforts across several neighborhoods just outside downtown. The working theory at JPMorgan, from Seybert up to the executive suite, is that spending $100 million in America’s most famously bankrupt city is a good investment. Good for Detroit, yes, but also good for JPMorgan. Best case, good for America.
Intentions matter less here than results. The bank is joining a growing class of Detroit business leaders, most notably billionaires Dan Gilbert, who built his fortune on mortgages, and members of the Illitch family, who built theirs on pizza, in a 21st-century experiment.
If they succeed, perhaps they’ll become a new kind of model for how private capital can help solve big problems in America, the ones Americans don’t seem to trust politicians to solve anymore.
‘What a bank does’
A while back, the chairman and chief executive officer of JPMorgan, Jamie Dimon, was traveling with his daughter in Africa. Dimon is one of the world’s most prominent investment bankers, having led his company through the financial crisis and, more recently, a series of run-ins with the Justice Department. His daughter was doing humanitarian work in Ghana. He had struggled all her life to explain what he did for a living. He figured she’d grown up thinking he pushed paper and talked on the phone.
“So I got to Ghana,” Dimon recounted, “and I’m driving through Ghana with her, and she’s telling me just horrible stories — that this road was started, and then they stopped. And all over the place, there are these buildings that were abandoned — all over the place. So it occurred to me, that’s what banking is.”
“I said, ‘Here’s what a bank does. A bank might lend that money, $2 million, to build that building. But before they lend that money, they’ve got to be thinking, is it properly built? Is it insured? What’s it going to be used for? Is it going to have a sustainable use – can they afford the rent? If something goes wrong, who’s going to finish that building?’ ”
Dimon told that story during an interview in Washington late last year. What got him thinking about unfinished buildings — about what bankers do — was Detroit.
“People invest in communities that are doing great,” he said. Detroit clearly was not one of those. Its population was shrinking, its infrastructure has decayed. Its economic engine, the auto industry, nearly sputtered out during the Great Recession, only to be saved by the federal government. Thirty years of American urban renewal seemed to have passed it by.
But what if a bank, by investing in a community, by working with local leaders, could help bend its path toward greatness?
“I believe that business and civic leaders, working together, can save Detroit,” Dimon said.
That was in December. JPMorgan’s announcement came in May, at a luncheon in the Garden Theater in downtown Detroit. The bank pledged $25 million over five years to speed the renovation of abandoned homes, $12.5 million to train residents for better jobs, $12.5 million to grow small businesses and improve city infrastructure. The biggest piece, $50 million, would go to a pair of community lending groups to support the redevelopment of a ring of neighborhoods teetering between knock-it-down blight and move-here-now nice.
Vast stretches of the city — ones that look in photos like they were ravaged by war or a zombie flu — won’t see a dime of that redevelopment money. Detroit is sprawling and automotive, nearly 140 square miles, large enough to swallow San Francisco, Boston and Manhattan, side by side. The area JPMorgan and its redevelopment partners are targeting is a sliver.After decades of decline, this is the strategy city officials have embraced for their comeback plan: Renew the city from the middle out, emerging smaller and healthier than before. Much of Detroit’s wealth has fled to the suburbs. Its population fell by a quarter from 2000 to 2010. There’s a paradox in its housing stock: It has way too many far-flung single-family homes and not enough of the dense, walkable apartments and condos higher-income urbanites covet.
Yet its metropolitan area remains the nation’s 14th-largest economy, a bona fide major-league town, albeit one where you can buy a family-size house for $10,000 or less. The downtown is clean and vibrant and draws a young, hip crowd. You can think of Detroit as being like a besieged medieval city, where the knights have abandoned the outer walls and holed up in the central castle tower. Now they hope to win back the courtyards.
The hope is that JPMorgan, by galloping into the market with a big investment, can help attract a lot of other investment. That the market will view the bank’s spending not as charity, but as a sign of confidence in the revival, a signal that, yes, these neighborhoods are on the mend, middle-class incomes are poised to move in, and there will be money to be made.
“Hopefully, it could really kick-start stuff,” Dimon said in an interview soon after announcing the investment. “Hopefully, it will be more than $100 million. Hopefully, it will be teaching people to fish.”
That’s why the word of the day, when you roll through town in Seybert’s Honda Element, is “leverage.”
Starting a snowball rolling
Seybert grew up outside of Mount Pleasant, Mich., a college town north of Lansing. His mother is a nurse. His father develops affordable housing. Seybert, 33, earned a law degree before entering the affordable housing game himself. He was working for a Lansing nonprofit organization when he first really saw Detroit. It jarred him. “It was very, very different from what I grew up with, and I had a hard time putting it into context,” he said. “Detroit is a place that doesn’t hide its scars.”
The scars grew on him. Detroiters grew on him — “there’s a certain resiliency to the people who live in the city” — and the opportunities in the city gnawed at him. He went into local development financing and burrowed into the city’s tight-knit community of commercial real estate dealmakers. Then he joined JPMorgan, where he’s now a vice president. He works in what’s called the New Markets Tax Credit game, putting together deals where the bank buys tax credits from community development groups in exchange for an equity stake in a project. He does up to $200 million in deals every year around the Midwest.
On this summer day, he pulls into a valet zone beside a small park on the edge of downtown. The Broderick Tower rises above him. Inside, the lobby is marbled and brassy, restored to resemble its opening day in 1927. A young woman wanders through in a T-shirt with the logo of the alt-rock band Guster. Seybert calls the elevator. It opens on the 33rd floor, in a penthouse suite where the master bedroom looks down into the outfield of the Detroit Tigers’ baseball stadium. The Broderick’s manager tells you every apartment is filled, and there’s a wait list to get in. The apartment’s Web site lists an available unit on the 19th floor, priced at $1,725 a month, and one on the 29th floor for $4,300.
When Seybert first toured the Broderick several years ago, it was abandoned. Electricity didn’t flow past the fifth floor. Kids would sneak in at night to stage raves.
The ballpark was a draw. A developer thought the area was ripe for an upscale apartment tower. Seybert had recently joined JPMorgan, and as his first deal he wanted the bank to invest in the project. He had scouted the developers, weighed the downsides, calculated the possible reward. Still, it took months. He would run numbers and send them up the ladder. His bosses would check them out, then ask for more numbers, again and again, until finally they were satisfied it was worth the risk. His bosses never said “no.” They always said, “Prove it.”
“People thought this deal was never going to get done,” Seybert says. “It took some convincing.”
What JPMorgan and its partners are trying to do today is repeat that deal, dozens of times over, in neighborhoods where the odds of revival are longer.
One architect of the Broderick Tower deal was a community lending group called Invest Detroit. It’s one of two groups (the other is Capital Impact Partners, a national outfit) that will divide JPMorgan’s $50 million redevelopment pie over the next five years. Essentially, the bank is giving Invest Detroit flexible, long-term loans to finance real estate projects. Invest Detroit, with Seybert’s help, is recruiting hedge funds, banks and other sources of money to exponentially increase the amount of buying and building they can do with that money.
“You want to see leverage,” David Blaszkiewicz, Invest Detroit’s president, says when Seybert stops off at the group’s headquarters downtown. By which he means, you want to see your initial investment prying a lot of other investment out of the financial community. You want to see a wave of economic activity that attracts more activity, in a virtuous cycle. You want to get to a point where nonprofits like Invest Detroit don’t need to make up the difference between the rent developers need to be profitable and the rent they can actually collect. “The whole interest is to get ourselves out of the subsidy game,” Blaszkiewicz says, “and let the market take over.”
The way the community lenders describe it, there are two types of neighborhoods that need redevelopment in Detroit. The dominant type needs major upgrades — they’re where you see a lot of city demolition these days. The other type is on the fence — areas with some blight but more bright spots. It’s those on-the-fence neighborhoods that Invest Detroit is targeting, in hopes of tipping them solidly toward the middle class.
Seybert drives through those neighborhoods over the course of a day. He drives north from downtown, past the campus of Wayne State University and the flagship store of premium watchmaker Shinola. He drives south and west, toward a new medical clinic on the site of an old car lot, and then back through an area called Corktown, where the bones of the old Tiger Stadium lie near a string of hot-right-now restaurants. He drives past vacant lots and tired old stores with bars on their windows. These neighborhoods are all a mix of dead and vibrant. That’s why they’ve been chosen.
“All the pieces are here,” Seybert says, his pink checked cuffs peeking out beneath a navy sport coat. “This is a neighborhood where we can accelerate things.”
The tour ends back downtown, in a quiet conference room in the bank’s offices. JPMorgan is a massive financial institution — the sum of dozens of banks across the country that grew and merged over time and that, last year, pulled in $97 billion in revenue and $18 billion in profit. By those numbers, the $100 million Detroit investment isn’t much of a risk — it’s a rounding error, even if every dollar goes to waste. The bigger risk to the bank would be the total collapse of Detroit’s economy: the bank, which has roots in the city going back 80 years, employs 3,600 people in Michigan across 300 branches. Last year it was the largest consumer mortgage lender in the state.
The broader test is whether a big enough injection of private money can move markets to deliver positive change. “Bank capital is shareholder capital,” Seybert says. “We’re not a foundation here. I feel very strongly about this. Community development needs to be sustainable, and we expect a return on our investment.”
Seybert recently spent a couple days in New York, meeting with money managers he says were interested in spending some cash in Detroit. So far, none of them has signed up.
Critics suspect that hunt for profit shows a more sinister goal – to privatize public assets. The $100 million includes $5.5 million for a city streetcar project and other infrastructure initiatives. Writing in Salon.com, David Dayen warned that “Detroit really is another piece of a very large puzzle JPMorgan Chase and other financial giants want to construct around public-private partnerships and seizing the value of assets taxpayers built.”
“At face value, JPMorgan looks like a benevolent benefactor helping Detroit through its time of need,” Dayen added later in the piece. “But underneath the surface, they have designs on turning that generosity into profit, at the expense of the region’s citizens.”
As you’d expect, city leaders welcome the bank’s involvement. “When JPMorgan invests $100 million in your city, it attracts a lot of attention,” Mayor Mike Duggan said in an interview. “People all think this is the same thing, it’s time to buy low on Detroit.”
Will the leverage strategy work? “I hope so,” he said. “I plan to ask for a lot more. I want them to invest more money.”
Seybert knows where to end the day: with the developers he hopes will invest the sweat equity to turn his targeted neighborhoods around. He knows them like Dimon’s consummate banker would. He knows the land they are eying for their next projects. He knows what might go wrong and what would happen if something does.
He also knows how to get them to open their clubhouse earlier than usual on a warm afternoon.
A while back, some of the developers decided they needed a place to relax after work. So a few of them bought a bar, housed in an old bank lobby. They retreat there and sip Michigan whiskey.
Seybert calls the owner and asks him to open the place up.
He walks to it, a few blocks through downtown. A few developers are waiting for him inside, drinking already. They beckon him in and hug him, like family.