The David Stott building in Detroit.  Einar Einarsson Kvara /Wikimedia Commons

A Chinese developer plans to invest $3 billion in Nova Scotia, at a time when tenants at one of its commercial projects in Detroit are suing it for neglecting the property.

Businesses operating out of the David Stott building in Detroit are alleging that Chinese developer Dongdu International Group (DDI) has done nothing to fix problems since acquiring the building last September, complaining about lack of heating, inadequate fire suppressant systems, and elevators that have dropped two to three storeys with terrified passengers inside.

“It’s yin and yang from when they first bought the building,” says Ryan Snoek, who brokered the sale on behalf of the building’s former owners. In the beginning, he says, “DDI seemed very open and generous and willing to do things. But since then it’s been nothing but litigations and tenants leaving.”

As Nova Scotia’s business development agencies become more involved with the company, they would be “wise” to take a look at those stories from Detroit, says Lorn Sheehan, associate director at Dalhousie University’s Rowe School of Business. “You shouldn’t just close your eyes and ears to what the company may have done elsewhere,” he says.

In May, Nova Scotia Business Inc and the Greater Halifax Partnership signed deals with DDI, officially called memorandums of understanding, which formalize their working relationships with the company.

“I think that there’s a lot of potential for DDI to play a big role in our economy moving forward,” says Kyle Schmeisser from NSBI.

Rather than taking over crumbling skyscrapers, in Nova Scotia the company is buying huge tracts of wilderness for residential developments aimed at Chinese tourists, including 1200 hectares in St. Mary’s municipality, Guysborough County, as well as the Pacific Building on Halifax’s Barrington Street.

Stephen Dempsey, a local representative for DDI, says the company wants to attract Chinese investors and tourists to Canada’s “other coast”, with eco-friendly residential developments, a technology park, and eventually film production facilities.

See a video about the project on DDI’s website here.

Nova Scotia has been courting Chinese business for the past decade, and the province’s exports to China have increased more than 3.5 times in the past five years, according to an analysis of Industry Canada’s trade data.

 

DDI’s promise of a tourism boom is extremely appealing for communities like St. Mary’s, which falls within the sixth-most unemployed federal electoral district in Canada, according to an analysis of Statistics Canada data. Michael Mosher, the warden of St. Mary’s, says DDI’s housing developments could “double or triple” the municipality’s tax base, something only heavy industrial development could normally offer. “It’s a win-win for the municipality,” he says, adding the company seems very invested in the community.

 

St. Mary’s warden Michael Mosher on why they’re “hoping for great things” from DDI

 

But DDI’s first forays into North America, which began just a year ago, have been less than smooth.

Trouble in Motown

In Detroit, Lynn Kassotis, owner of the Skybar, a swanky lounge on the 33rd floor of the iconic David Stott building, says the problems started in January. That’s when the elevators started falling with her customers inside, something which happened multiple times.

“It was terrible for business,” she said. “I had people walking down 33 flights of stairs, on a busy Saturday night. In high heels. It was a nightmare.”

Kassotis, whose husband Emre Uralli owned the sparsely-occupied skyscraper before selling it to DDI, also alleges that DDI made them remove signs for valet parking and that security guards were “taking photos of our staff and intimidating them.”

Kassotis has sued the company for breach of contract because of alleged maintenance issues. The suit is ongoing, and allegations have not yet been proven.

Another prominent tenant, Detroit Yoga, is also suing DDI. In a post on its website in January, it alleged it was stopping classes because the landlord was “unable or unwilling” to heat the studio. Owner Jason Schramm could not be reached for comment.

DDI’s lawyer, Gregory Elliott, says that both tenants’ claims are false, adding that “it’s a 100 year old building” that had problems long before DDI took over – including when Kassotis’ husband owned it.

DDI has launched counter-claims against both Skybar and Detroit Yoga, suing them for not paying their rent. Kassotis says she’s paying her rent to the court because she doesn’t trust DDI.

It’s not unusual for a company to face lawsuits. But in this case it raises questions about the company as a landlord, particularly because the complaints aren’t isolated.

Another David Stott tenant who wishes to remain anonymous says he broke his lease in the spring because multiple maintenance issues were impacting his business.

While he admits the building already had problems before DDI came on, “as tenants we were led to believe that these were all things DDI was going to be fixing and changing. But since they’ve taken over not a single thing ever changed.  I’d even argue it got worse.”

Ken Creighton, DDI’s Detroit representative, declined to comment on individual cases and says the elevator has now been fixed.

WHAT DOES THIS MEAN FOR NOVA SCOTIA?

Regardless of what the company has done before, says Lorn Sheehan from Dalhousie University, the province’s business organizations have no choice but to engage with the company, because “they’re already here”, and could have huge benefits for Nova Scotia. But, he says, it’s still important to examine the company’s track record.

Paul Kent, president and CEO of the Greater Halifax Partnership, says he was not aware of the lawsuits against DDI in Detroit. But he pointed out that “what they’re doing in the United States is profoundly different” from their projects in Nova Scotia. In Detroit, “they’re taking depressed real estate that has been in hardship for a long time and refurbishing it, and that may well lead to some disagreements with players in the buildings,” he says.

Kyle Schmeisser from NSBI would not comment on legal issues, but says the organization is not making any financial commitments to DDI, and is “working with the company to see if it’s a good fit for the province.”

Kent says he expects cultural and business differences may cause bumps in the road, so they’re taking time to develop their relationship. “Because it has to be a trust-based relationship. If there’s a breach of trust, well, business doesn’t likely go forward. But so far, so good.”