Supplier Dakkota shrinks Detroit plant, splits plans with Hazel Park

Since Detroit Mayor Mike Duggan and a Michigan FCA US LLC supplier unveiled plans for a $55 million parts plant last summer to be built on more than 30 acres, the endeavor has shrunk by at least 200 jobs.

Dakkota Integrated Systems LLC is splitting its previously announced 600,000-square-foot, east-side Detroit manufacturing facility. About half of those operations will be transferred to a site that's ready to go: the former Hazel Park Raceway north of the city border.

During a July 9 news conference announcing the 625-job investment that required tearing down a vacant Detroit high school, Duggan and Dakkota CEO Andra Rush described an ambitious timeframe. Dakkota had a tight deadline: Begin supplying parts to Fiat Chrysler by the fourth quarter of 2020. Dakkota expected to partially open the Detroit facility by spring, according to Duggan.

The company has not released any details of what it will produce at the site, but the company already is an integrator for Ford Motor Co. at another Detroit site, assembling interior parts. It previously sold its molding operations, but still is heavily involved in assembly.

But the Holt-based supplier later determined that timeline was too "risky" and "not really feasible to our customer, FCA," Dakkota COO Mark McCauley told Crain's last week.

The number of jobs at the now-300,000-square-foot Detroit plant is down to 419, according to the Detroit Economic Growth Corp., or "around 400" per McCauley. The city is touting the change as "more jobs per acre."

Due diligence on the former Kettering High School property along Van Dyke Avenue and the nearby Rose Elementary School site wasn't substantially performed until after the July news conference, according to Kenyetta Hairston-Bridges, the DEGC's executive vice president of economic development and investment services. The DEGC is Detroit's agency for business attraction, retention and development. Duggan charged the DEGC last year with assembling industrial land to create jobs.

"There was no way they were going to get that building down within the timeframe," Hairston-Bridges said, referring to the Kettering school that would have to be leveled to make way for a plant. "The decision to resize the project was really driven by their customer's timeline and … our inability to have a shovel-ready site. So the company began to look at: 'What portion of the business can we do here?'"

Dakkota is taking more than half of the land in Detroit it originally envisioned and the DEGC expects the supplier will now invest $40 million, a $15 million decrease. The supplier plans to buy 18.6 acres sometime this week, according to Hairston-Bridges and McCauley, after the city bought the entire site from Detroit Public Schools Community District for $2.6 million. Crain's requested an update on that deal Wednesday.

The city will keep the remaining 12.2 acres and seek another user. The site would work for a facility of 200,000 square feet or so, employing around 200, Hairston-Bridges said.

In Hazel Park, New York City-based Ashley Capital is redeveloping land after demolishing a horse racing track on a 95-acre property at 10 Mile and Dequindre roads. It had manufacturing space up for grabs, or built "speculatively."

"FCA was requesting a site to be identified and it had to be a site that was ready to go," Hairston-Bridges said. "Hazel Park has done some forward thinking there."

Dakkota is leasing 423,000 square feet in the more than 650,000-square-foot second phase of the former race track development, now called the Tri-County Commerce Center, said Susan Harvey, senior vice president in the Canton Township office of warehouse and industrial developer Ashley Capital. The building was completed on spec in October, and is the second of three buildings planned for the site, according to Harvey. Dakkota and two other building tenants are paying more than $6 per square foot per year on their leases.

Dakkota will employ around 225 in Hazel Park, McCauley said. He expects equipment be installed "right after the first of the year." McCauley did not provide investment figures for the Hazel Park space.

Meanwhile, the supplier started initial construction work around three weeks ago in Detroit. It expects employees and equipment to arrive on site in June, as part of a rolling construction process, and finish build-out by October.

Detroit-based Walbridge Aldinger Co., Dakkota's developer, declined to comment through a representative.

Dakkota builds suspensions, grilles and bumpers, overhead systems and other components for auto companies. It launched in 2001 as a joint venture between majority partner Rush Group LLC, based in Wayne, and Magna International Inc., which has its U.S. headquarters in Troy.

For FCA's Jefferson North and Mack Avenue assembly plants, Dakkota will supply instrument panels from its $40 million Detroit facility, McCauley said. The Hazel Park location will supply suspension and some overhead components, he added. But getting the Hazel Park facility up and running sooner also allows Dakkota to do early instrument panel builds there and then final assembly line work in Detroit, McCauley said.

Detroit City Council approved Nov. 26 a 13-year industrial facility development tax exemption and a 15-year Detroit Next Michigan Development Corporation Renaissance Zone abatement on real property tax, corporate income taxes and utility user taxes. Crain's requested an estimate of the total dollar figure of the tax breaks.

The state must also approve the tax breaks, which are similar to those given to Urbana, Ill.-based auto supplier Flex-N-Gate to build its $160 million plant in the I-94 Industrial Park, which opened last year.

Dakkota landed one of the first major contracts with Fiat Chrysler for the Detroit plants the automaker is expanding for $2.5 billion. Dakkota approached the city about needing to locate within 7 miles. Site selection and the news conference followed.

"There was no investigative work done on this site prior to this announcement on behalf of Dakkota," Hairston-Bridges said. "They said, 'This is where we want to be and where we want to do our project,' but they had not done due diligence at that time."

As they began exploring the site, McCauley said, the effort became more complex than anticipated. A large gas main ran through the property and demolition would take longer than anticipated, according to Hairston-Bridges.

Dakkota "didn't drive the announcement," McCauley said, and due diligence was shared between the company and city. But the decision was about how those complexities amounted to risk for FCA, "not that we felt that everybody's due diligence wasn't appropriate," he said.

Hairston-Bridges acknowledged concerns that the announcement may have been made prematurely, but said the city had identified the site and was working to get the deal done.

McCauley said last week that Dakkota will still follow FCA in letting Detroiters apply first for jobs. He said the company informed residents of the change in plans at a community meeting about a month ago.

Luke Bonner, an economic development professional and CEO of Ann Arbor-based Bonner Advisory Group, said it's not uncommon to see a project shift like this.

"I can tell you, given FCA's program down there, the supplier activity is gonna be fairly consistent," Bonner said. "And for those suppliers that are expanding because of that, it's likely they'll continue to expand. I still think it's an outstanding project for the city and, you know, ultimately there is more room for future expansion by Dakkota."

Asked for comment from the Duggan administration, spokesman John Roach said in an emailed statement that the shrunken Dakkota plant, while different from the original concept, "is good news."

"Another 419 jobs are coming to Detroit on a site smaller than originally envisioned with more jobs per acre," Roach said in the email.

The original plan was 625 jobs on approximately 32 acres, or 19.5 jobs per acre, while the amended version calls for around 22.5 jobs per acre.

Bonner said he has never seen jobs per acre used to measure the success of a project, and that he would use income tax revenue if he was the city.

"... We now have another large site we can market for future development and additional jobs," Roach said in the email. "... We will work with the DEGC to market the site with the Kettering Building for a future project and we envision having the developer be responsible for the demolition or reuse of the building."

Hairston-Bridges said the DEGC is looking at how to fund front-end site work such as environmental assessments as it identifies underutilized land that could be targeted for industrial use.

—Crain's reporter Kirk Pinho contributed to this report.