Bedrock Real Estate Services and Meridian Health plan to jointly purchase the 1.1 million-square-foot Compuware Corp. headquarters building at Campus Martius in Detroit for $140 million to $150 million, Crain’s has learned.
Meridian’s Sean Cotton, chief administrative officer, said the Detroit-based managed care company plans to move its nearly 1,000 employees into four floors by the end of 2015 and to expand into another two floors by 2019, when the company is expected to double in size.
At closing next month, Cotton said Meridian and Bedrock will form a yet-unnamed joint venture that will purchase the landmark Compuware building from the IT company.
Selling the headquarters building has been part of Compuware’s “corporate transformation plan,” Compuware CEO Bob Paul said.
When the deal closes, it will be the largest single-building office deal in Michigan this year, and the second largest overall deal in terms of cost, second only to the $177.5 million sale of the Southfield Town Center to New York City-based 601W Cos. in May.
The building is also expected to change names.
Bedrock is a real estate firm founded in 2011 by Dan Gilbert that specializes in purchasing, leasing, financing and managing commercial space. It has located more than 120 tenants to downtown Detroit.
The Compuware building purchase, which also includes an attached 3,000-space parking deck, will give Dan Gilbert co-ownership of the 11-year-old building where Quicken Loans Inc., of which he is founder and chairman, has leased about 240,000 square feet across four floors since 2010. The company will occupy an additional floor and 60,000 square feet.
The parking deck also is also home to the Cadillac Center Station of the Detroit People Mover.
“For more than a decade, the Compuware Building has served as the nucleus for Detroit’s transformation into a dynamic, high-tech corridor, thanks to Compuware’s extraordinary vision,” said Gilbert, chairman of Rock Ventures and owner of Bedrock, in a statement.
“We look forward to partnering with Meridian and the Cotton family, who are significant stakeholders in Detroit’s ongoing resurgence, to ensure that two of Michigan’s fastest growing and new economy companies will remain and grow their employee bases in downtown Detroit for the long-term future.”
Compuware will occupy approximately 130,000 square feet. And Plante Moran, one of the nation’s largest certified public accounting and business advisory firms, recently opened an office on the building’s third floor.
It was not known how many of Compuware’s more than 800 Detroit employees would remain in the building. The company employs 2,975 worldwide.
“Selling our headquarters property has always been a key component of our corporate transformation plan as a mechanism to best leverage our assets in achieving sustainable, long-term success for our company,” said Paul.
“I want to stress that this transaction in no way diminishes our current or future commitment to the city of Detroit and its revival,” said Paul in a statement.
“The signing of a long-term lease to remain in the building is a clear indication of our commitment to the city. We’re extremely proud of the leading role we have played in Detroit’s ongoing turnaround. Looking forward, we will continue to support the community and invest in the city’s rebirth, including the M-1 rail project and other important initiatives.”
On Sept. 2, Compuware announced an agreement to sell the company to the Chicago-based private-equity firm of Thoma Bravo LLC for $2.5 billion, a deal that Paul said would keep the company’s headquarters in Detroit.
Compuware’s shareholders will vote on the proposed building sale on Dec. 8, a vote that is regarded as a formality.
Compuware was founded in 1973 by Peter Karmanos Jr., Allen Cutting and Thomas Thewes. It went public in 1992 and moved its headquarters from Farmington Hills to Campus Martius in Detroit in 2002.
For years, Compuware had been criticized by some of its institutional investors for having built an expensive modern office tower for about $350 million and continuing to own it.
The building was among the factors cited during a takeover bid launched in December 2012 by New York City-based Elliott Management Corp., an activist hedge fund that accused Compuware management of wasting resources.
That $2.3 billion bid was dropped in January after Compuware sold some noncore business units, enacted layoffs in other underperforming units and gave Elliott representation on the board of directors.
Meridian’s road to building ownership
Meridian currently leases space in two downtown buildings for its 980 employees – One Kennedy Squareand the Gilbert-owned 1001 Woodward building.
Meridian manages Medicaid and Medicare plans in Michigan, Illinois and Iowa with more than 540,000 covered lives that is growing annually at a double-digit clip. The company also owns a pharmacy benefit management company.
Last year, Meridian announced that it would build a 320,000-square-foot headquarters downtown developed by Livonia-based Schostak Bros. & Co. Plans for the $111 million, 16-story building — on a 1.96 acre parcel bounded by Monroe, Bates and Farmer streets and Woodward Avenue and Cadillac Square — were scrapped earlier this year due to changing economic factors and the cost of new construction vs. leasing.
“We were going to build our own building and did an analysis on it and the economics didn’t make as much sense with what was available to lease,” said Sean Cotton.
During the summer, Meridian’s top executives, who primarily are members of the Cotton family, including CEO David Cotton, M.D., and Jon Cotton, president and COO, began talking about lease vs. purchase options for their flagship headquarters.
“Jon talked with Matt Cullen (president of Gilbert-owned Rock Ventures LLC) and we both met with him and talked about purchasing the Compuware building together,” Sean Cotton said.
Sometime during the summer, Meridian and Rock made an offer to Compuware and negotiations lasted several months before an agreement was reached, he said.
“We are pretty happy to partner with (Quicken and Dan Gilbert),” Sean Cotton said. “We both are committed to downtown Detroit. Our employees will be very excited to stay in Campus Martius and be all in one building.”
Over the next five years, Sean Cotton said Meridian will invest an additional $24 million for renovation and furniture to build out the six floors it will occupy by 2019.
Sean Cotton said Meridian looked at several alternate locations, including the Comerica building at One Detroit Center at 500 Woodward Ave.
“The Compuware building just made the most economic sense,” he said.
Quicken involvement
The deal will significantly boost Quicken’s tallies for Gilbert’s real estate investments in Detroit.
Gilbert owns more than 60 properties — buildings and parking decks — totaling more than 9 million square feet. He has spent more than $1.5 billion purchasing properties and renovating them, according to the most recent figures.
“It’s the center of his (Gilbert’s) holdings,” said Fred Liesveld, managing director of the Southfield office of Newmark Grubb Knight Frank. “It’s the most modern building downtown and it sets the natural order of things properly. That’s the rightful owner of that building.”
Gilbert is also founder and chairman of Rock Ventures.
“It was the missing puzzle piece and will be the lead instrument in his ensemble of buildings,” said Ryan Snoek, regional director of Detroit-based Luke Investments.
Matt Lester, founder and president of Princeton Enterprises, said the purchase of the building, while not a surprise, represents another important milestone in Detroit’s comeback.
“It may represent a tipping point whereby even the most ardent cynics probably have to admit that Detroit is on a roll and nothing can stop Dan in his quest to revitalize Detroit,” Lester said. “It’s yet another ‘get on board’ or ‘get out of the way’ move courtesy of Dan Gilbert.”
The only other major Compuware headquarters tenant is Covisint Corp., which occupies about 63,000 square fee. In October, Compuware announced that its board of directors approved the distribution of all its equity stake in Covisint, a company Compuware spun off last September in a $64 million IPO.
Covisint is expected to move out of the building by April 1 for another location that has not yet been determined. Cullen said he hopes the company remains downtown.
Bedrock will oversee management, leasing, and day-to-day operations of the building following closing, expected by the end of this year.
The Compuware building was constructed at the former site of Kern’s department store just south of the old Hudson’s building. It was designed in the late-modernist architectural style using glass, granite and limestone.
Detroit-based SmithGroupJJR, San Francisco-based KMD Architects and Detroit-based Rossetti Associates Inc. were the project architects.
