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Developer makes progress on Detroit home rehabs, but struggling with Herman Kiefer campus
JC Reindl, Detroit Free Press
Updated 7 min read
A New York developer whose Detroit plans came under scrutiny has made progress in rehabbing dilapidated houses, although he is still struggling to find uses for the massive and deserted Herman Kiefer Hospital campus.
Developer Ron Castellano struck a deal with the city in 2015 to redevelop the old Herman Kiefer campus and rehab about 115 nearby Detroit Land Bank houses in the Virginia Park neighborhood. The campus is north of Henry Ford Hospital and visible from the Lodge freeway.
Castellano has until February 2025 to rehab all the houses, and to 2029 to find occupants for the old hospital campus. If he misses those deadlines, he potentially may have to give properties up.
Two years ago, Castellano narrowly made a deadline for rehabbing an initial batch of 15 houses. At the time, some in the neighborhood criticized the city's deal with him and pushed for a chance for residents buy some of the houses under his control. (The city had given Castellano the right to buy the houses for $500 to $1,000 apiece, plus $925,000 for the Herman Kiefer campus.)
Workers install soffits on the duplex on 1645 Taylor St. in Detroit on Tuesday, Aug. 29, 2023.
In a recent Free Press interview, Castellano said he is now working with local partners and community groups to finish the remaining rehabs and get the completed houses sold or rented out. Between his own operation and those of the new partners, more than 40 houses are now done, undergoing rehab or are slated for rehab, he said.
He and a business partner, Darius Smith, plan to showcase one of their rehabs on Pingree Street this fall in an episode of the "In With The Old" streaming series on HBO Max and the Magnolia Network.
Ron Castellano, owner of the complex (developer and architect), bottom left, stands outside a house construction site on Philadelphia Street in the Virginia Park neighborhood by the Herman Kiefer Health Complex on Monday, May 10, 2021, in Detroit.
Castellano, who also has a Detroit residence, said he is on track for one of the deal's midway deadlines to rehab 20 houses by Nov. 30 — not counting the initial batch of 15.
As for the massive Herman Kiefer campus and its 11 buildings, Castellano said he has fielded a lot of inquiries, but has yet to score many commitments from prospective occupants.
The 38-acre hospital campus also includes two nearby former Detroit public schools: Hutchins and Crosman schools. The campus has been vacant since Detroit's Health Department moved out in 2013. Castellano tried marketing the overall site as the Creative Commerce Campus Detroit, or C3D, but Detroit's post-pandemic market for office space has been challenging.
The layout of the 38-acre Herman Kiefer Hospital campus.
"The phone rings every week — different ideas, different tenants," Castellano said. "We’re fielding any calls, any ideas. Originally, we wanted to do 100% commercial. But ... I think if there’s some residential ideas as well in there, that would be great. We just want it occupied."
Outside the former Herman Kiefer Health Complex on May 4, 2021, in Detroit. Ron Castellano, owner of the complex (developer and architect), bought the complex form the city in 2015 and has laid out plans for a redevelopment of the property.
So far, he has landed at least one occupant: an exhibit of stacked shipping containers, designed to replicate Shakespeare’s Globe Theatre, which are set up in a parking lot. Separately, some cellular towers have been installed on the buildings and the site has hosted construction equipment training courses.
Another challenge facing Castellano is a claim by the Detroit Water and Sewerage Department that the Herman Kiefer campus owes over $717,000 in past due bills, mostly for drainage charges. Castellano disputes that amount and recently turned down the city's offer to settle for $650,000.
"DWSD’s legal team will continue to work with the owner and his representatives to resolve these bills," department spokesman Bryan Peckinpaugh said.
Partners brought on
To help with the house rehabs, Castellano has brought in three partners: the Central Detroit Christian Community Development Corp., the nonprofit 360 Detroit Inc. and a German-born developer who now lives in Detroit.
Early this year, the partners purchased batches of eight to 11 houses from the Detroit Land Bank Authority that Castellano held the rights to buy. The nonprofit groups paid $10,000 per house while the developer, Martin Herz, 39, whose rehab business is called Detroit Rock Solid, said he paid $20,000 per house.
Developer Martin Herz on the second floor of the duplex on 1645 Taylor Street in Detroit on Tuesday, August 29, 2023.
The partners are now in various stages of fixing up the houses. But because most of them are duplexes and in very poor condition, the rehab work is costly and stretching out for months.
“They are all in (an) incredibly dilapidated state," said Lisa Johanon, executive director of Central Detroit Christian CDC. “I wish we were faster, but putting the money together is a challenge."
Herz, working with a local contractor, recently finished rehabbing a duplex at 1657 Taylor St. that took them six months. They now are starting on two similar nearby duplexes from the batch of 11 that Herz bought. All of them are around 100 years old and essentially need a complete rebuilding that can cost upward of $200,000.
"They were completely unlivable," said Herz, who moved to Detroit from Munich, Germany, in 2016. "Some of them had fire damage; some of them were open to the elements for years. You take them down to the studs and you just rebuild them.”
Herz listed the finished duplex for sale about a week ago for just under $325,000. Each unit has three bedrooms. Herz said he owns and rents out similar duplexes in the area for $1,350 to $1,500 a month per unit, typically to families or to young people with housemates.
The renovated duplex on 1657 Taylor Street in Detroit is for sale on Tuesday, August 29, 2023.
The nonprofits have yet to complete any rehabs. However, Johanon of Central Detroit Christian CDC said they will aim to sell theirs at a lower price point.
"Our goal is to have affordable housing," she said. "People are being priced out of their neighborhood, and that’s not right. And people can’t afford that price. So our goal is to sell them in the $100,000 range. And even that’s out of range for a lot of folks, but it still would be considered affordable. We’re not in it to make a ton of money."
Nevertheless, Johanon said the developer's willingness to work with groups such as hers seems to have assuaged some of the earlier concerns in the neighborhood. The other group, 360 Detroit, is run by resident George Adams Jr.
“I think it has definitely appeased people," she said. "George was very instrumental in bringing that to a head and having people recognize the inequity. And it wasn’t Ron’s fault — it was the city. The city is the one who gave him everything. And so this is a good step in the right direction.”
Castellano said he is in discussions with three more local groups to rehab 20 or so more houses.
Inside of the renovated duplex on 1657 Taylor Street in Detroit on Tuesday, August 29, 2023.
Market values up
Castellano said all but about four of the initial batch of 15 houses have been sold or are renting out. The majority that sold went to owner-occupants, he said, and the prices were generally $190,000 to $205,000.
Inside of the renovated duplex on 1657 Taylor Street in Detroit on Tuesday, August 29, 2023.
“This isn’t a huge moneymaker in terms of the real estate," Castellano said. "These aren’t like, ‘Let’s patch some walls and stuff.' It’s basically rebuilding a house."
While home prices in Virginia Park have been on the upswing in recent years, the market was more depressed when Detroit City Council approved the deal with Castellano eight years ago.
“These are pretty rough houses. At the time, no one wanted them; they couldn’t sell them — they tried many times," Castellano said. "And instead of tearing them down, I’ve taken care of them over the years and now it’s time to put them back in service.”
Second floor of the duplex on 1645 Taylor Street in Detroit on Tuesday, August 29, 2023.
In December 2021, City Council voted down a proposal that would have restructured the housing aspects of the 2015 deal, citing a lack of guarantees that residents would benefit from the proposed terms.
Stairway of the duplex on 1645 Taylor Street in Detroit on Tuesday, August 29, 2023.
A Detroit spokesman said that under the city's development agreement for Herman Kiefer, by February 2029, Castellano must either have made a cumulative investment of $75 million in the campus or have activated 80% of the building floor area. That deadline is three years later than the original date, set before the COVID-19 pandemic and its damper on demand for office space.
“I am pretty optimistic that something is going to be coming around very soon," Castellano said about Herman Kiefer. "There is not a lot of sites left in Detroit. So we are, hopefully, up next."
