By MATTHEW KAMINSKI Updated Oct. 31, 2014 6:42 p.m. ET Cleveland ‘The Return” to northeast Ohio on Thursday night didn’t come off as hoped. Opening the NBA season in Cleveland after a four-year detour to Miami, LeBron James couldn’t lead the Cavaliers to a win over the New York Knicks. But that hardly dampened enthusiasm for the restoration of the “King.” LeBron is everywhere here—on giant billboards, carved into Halloween pumpkins and in a long Nike television spot huddling with seemingly all of Cleveland before a game. “I have to pinch myself,” says his former and current boss, Dan Gilbert, three months after the best basketball player on the planet chose to come home. “It’s unbelievable.” The morale and marketing boost for a Rust Belt city sometimes bitingly known as “the mistake on the lake” is a kind of redemption and affirmation for the Cavs owner. At 52, Mr. Gilbert has accomplished a few things beyond reeling in LeBron. The son of a Detroit bar owner, Mr. Gilbert started a mortgage business that he turned into Quicken Loans, amassing a fortune of $4 billion. He owns about 100 companies, multiple casinos and hotels, and much of downtown Detroit. Yet here’s what comes up first about him on Google: the 434 splenetic words he wrote four years ago in “The Letter.” When the Cavs star, an Akron native, announced in 2010 that he was heading to South Beach, it broke Ohio’s heart. Mr. Gilbert banged out a message to Cavs fans blasting “this shameful display of selfishness and betrayal by one of our very own.” Calling Mr. James “heartless and callous,” “narcissistic” and “cowardly,” Mr. Gilbert promised that Cleveland would win an NBA championship before Miami. LeBron won two rings in Florida. The men didn’t talk for four years. Outside the Midwest, Dan Gilbert of The Letter was seen as a spoiled billionaire throwing a tantrum. Here, he was one of their own, someone born in the Midwest where he stayed and succeeded, never leaving for sunnier climes. His rant tapped into a sense of anger and maybe into his own survival instinct. Mr. Gilbert’s businesses depend on attracting talent to Cleveland and Detroit, and his most important employee had quit. Supportive letters from Cavs fans poured in. He kept about 4,000. “It wasn’t even about LeBron,” he says the other day, sitting in the “All-Star” conference room at the Q, as everyone calls the Cavs home, Quicken Loans Arena. “It was about Cleveland. It was about the generational stuff, that betrayal” when young people leave behind the industrial heartland of their birth. This summer he apologized to Mr. James. Both men say they’re over it. In a letter published by Sports Illustrated in July announcing The Return, Mr. James wrote: “Our community, which has suffered so much, needs all the talent it can get.” Mr. Gilbert is the business face of “rust belt chic.” He can take more than a little credit for the improved look of Cleveland and especially Detroit, where many people now refer to downtown as Gilbertville. He claims no altruistic motives and is looking to make his ventures pay off. The question that hangs over it all: Is the nascent renaissance hype or the real thing? From the Q’s sixth-floor conference room, you look down on the recently opened and Gilbert-owned Horseshoe Casino complex. Beyond lies the East 4th Street strip with craft-beer bars and higher-end restaurants, like celebrity chef Michael Symon’s Lola Bistro. Not long ago this was the “wig district,” where businesses bought and sold human hair. Now there aren’t enough apartments to satisfy the demand. In the same July week when LeBron announced his homecoming, Republicans picked Cleveland to host their 2016 convention. When the city tried for the 2008 convention, “they wanted nothing to do with us,” says Mr. Gilbert. Looking in another direction across the Cuyahoga River that caught on fire a dozen times over the years is the smokestack vista of old Cleveland. The city’s eastern neighborhoods are plagued by crime and blight. Cleveland’s 8.7% unemployment rate is three points above Ohio’s average. Manufacturing jobs have fallen by half since 2010 and are unlikely to return. Its population of 396,000 is down from a little under a million in 1950. Yet economic changes in Cleveland lend some credence to Mr. Gilbert’s boosterism. Good jobs and smart young people are coming, especially to work in health-care and biotech businesses that have sprung up around the Cleveland Clinic. Driving a “brain gain” is an influx of educated young people: The number of 25- to 34-year-olds with college or graduate degrees grew by 23% in 2006-12, according to a study from Cleveland State University. “You see this shift in Cleveland” from an industrial to a knowledge-based workforce, says the study’s co-author, Jim Russell. “Not in Detroit.” On the Cleveland vs. Detroit question, Mr. Gilbert uncharacteristically turns diplomatic. He says the cities have a way to go, but he is “sure it’s bottomed” in both places and “momentum breeds momentum breeds momentum.” He likes and sometimes coins snappy phrases. Quicken has collected them in a colorful book called “ISMs” (just don’t call them Gilbertisms around him) that every new employee or visitor is handed on walking through the door. As in: “You’ll see it when you believe it” or “Spreadsheets are for measuring the past, not the future. Remember, 57.392% of statistics are made up on the spot.” Flying from Cleveland into Detroit one night last week, Mr. Gilbert points down to a new park and bike path along the Detroit River. Many of the buildings that light up the core of the old downtown belong to his Bedrock Real Estate Services, which has acquired more than 60 properties and nine million square feet for some $1.5 billion since 2010. He talks up a streetcar line under construction to link downtown with midtown Detroit and maybe one day the suburbs, funded by the state and private sponsors, including Mr. Gilbert’s company. Despite the rich-man accessories (sports teams, Warren Buffett as BFF), Mr. Gilbert is a no-apology, third-generation Detroit kind of guy. Employees include a few of his elementary-school pals. He speaks with a slight rasp. He stands 5-foot-7, wears his mostly dark hair slicked back and sports a grayish stubble. He has a thin smile and a warmly dry sense of humor. Joe Pesci might play him in a movie—if Joe Pesci could do working-class, Jewish self-made billionaire. At his office in Detroit on a Friday afternoon, Mr. Gilbert dresses down, in jeans and a blue Cavaliers polo shirt. A treasured memento is a short story he wrote as a 10-year-old, and recently found, about “three business pigs” who deal with mortgages. On the back, he points out, “this is going to kill you, I had written out point spreads of NBA games.” Before he owned a team or a casino, he got into youthful trouble as a freshman at Michigan State for running a sports betting ring. A city that once claimed to be America’s wealthiest, Detroit began its long tailspin in 1967, when race riots left 43 people dead and hundreds of buildings destroyed by fire. Mr. Gilbert recalls that his father didn’t go into the city to open his bar because of the rioting. “I remember asking, I swear, ‘I thought riot was a good time.’ ” Every subsequent decade, the city unveiled grand projects, usually taxpayer funded, hailed as harbingers of revival. The Renaissance Center office complex opened in 1977, the People Mover train in the 1980s, and downtown stadiums were built for the Detroit Tigers and Detroit Lions. None of it worked. The population fell from 1.8 million at its height in 1950 to 700,000 today. Last year Detroit became the largest U.S. municipality to file for bankruptcy. Like many Detroit businesses, Quicken Loans grew in the suburbs. But five years ago, when leases were due for renewal, Mr. Gilbert made a bet almost as audacious as his decision in 1998 to close all his mortgage-lending branch offices overnight and handle mortgages over the Internet: He decided to move to Detroit’s mostly abandoned downtown. “Man, some of the most beautiful architecture in an urban core is in Detroit,” he says. “They just needed a little love, these buildings, and a little bit of capital.” Quicken Loans first rented space, then Bedrock snatched up one building after another to house 12,500 employees while leasing to other businesses. “They call it the perfect storm, I’d call it the perfect sunny day,” he says. “We were moving, we needed the space, all these beautiful buildings were available, they were cheap.” His press aide interrupts, “Don’t use that.” Laughing, Mr. Gilbert rephrases, “they were ‘value priced.’ We started doing it. And now I guess we’re all in.” In 2010, when Quicken Loans moved in, there were 48 big empty buildings downtown. Now there are 13. The business case is that young, educated workers want to work and live in a vibrant urban core. With this “underlying macro trend,” companies in the suburbs will have to adjust or suffer, he says. “Now the question will be: Do these Midwest cities take that trend and either screw it up and don’t take advantage of other things that would complete all that, or do they? Never before did you have that kind of opportunity as you do now.” As a real-estate bet, it could mean big profits for Mr. Gilbert. He is unapologetic. “It’s not charity,” he says. “You’ve got to have investors believe it’s going to return.” He lightly pounds the table to emphasize his points. Yet even if he does well, it doesn’t necessarily follow that Detroit will. Yes, cool bars and stores seem to be opening every other day, but the city will still have a hard time overcoming its urban ills, including dysfunctional politics, high taxes and crime. Some of the highest property and personal city taxes and most intrusive regulations in the nation drove business and people out of Detroit, and they remain untouched. Policing is only slowly improving and the schools are bad. “I always think what are the things that can derail this,” Mr. Gilbert says. “Well, if you have government put in some crazy regulation stuff that makes no sense.” What about politics? On that score, the Gilbert optimism returns: “There’s never been a better political environment, at least since I’ve been around.” The pro-business Gov. Rick Snyder has “been great for the state,” and Mayor Mike Duggan, who took office in January, is “great for the city. One’s a Democrat, one’s a Republican, but sometimes I forget which is which.” Gov. Snyder (the Republican) is up for election on Tuesday and locked in a tight race with Democrat Mark Schauer. “If Snyder were to lose,” says Mr. Gilbert, “the message that would send to the rest of the investment world—the fact that we had this guy who faced bankruptcy and got Detroit through it, the state’s unemployment and every number you look at is better, and we didn’t re-elect him—that would not be a good thing.” The psychology involved in the Detroit and Cleveland comebacks is hard to measure. Young people who choose the cities insist they are heading in the right direction, touting them as places of opportunity and dynamism. Mr. Gilbert says the Midwest offers another intangible: a “work ethic that to me is the best in the country.” The coasts are “more transient, a little more about ‘me,’ ” while the people “here are hard working, loyal.” The founders of tech startups Groupon, Google and Craigslist came from Michigan, talented people who, like LeBron, fled the rust belt. “We so easily let our kids leave” to make their fortunes elsewhere, Mr. Gilbert says. “If you are in a brain economy, how would you not want them here, getting great educations and keeping them here? Give them a job that makes sense in the new economy and an urban core and they’re back.” He thumps on the table again. Mr. Kaminski is a member of the Journal’s editorial board.
Posted on: Thu, 06 Nov 2014 00:58:37 +0000
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