See inside Ford’s new tech campus, a century-old Detroit train station restored for $950 million

Ford Motor is turning an abandoned train station used for decades as an infamous symbol of Detroit’s downfall and blight into a new technology campus for the automaker and mixed-use property for the city.

Michael Wayland / CNBC

DETROIT – Ford’s latest project out of the Motor City is the restoration and reopening of an abandoned train station, for decades a symbol of Detroit’s downfall and now the automaker’s new technology campus.

The $950 million project encompasses the 18-story former train station called Michigan Central Station – once the state’s marquee transit building – an adjacent 270,000-square-foot building and other, supporting facilities.

The 30-acre “Michigan Central” campus and station was initially announced in 2018 and slated to open by 2022. However, the coronavirus pandemic and the extensive work needed to renovate the station delayed its reopening. Ford is celebrating the restoration of the century-old train station on Thursday.

Following the event Thursday, the ground floor of the train station building will be open to the public through June 16, before the first commercial occupants begin moving in this fall.

The new campus comes at a precarious time for Ford investors as the company continues to restructure its business. It also comes as many companies attempt to downsize office space and fill their current buildings with employees who grew accustomed to working from home during the pandemic.

A photo of Michigan Central’s main concourse prior to its renovation sits in the newly restored room toward the back of the building.

Michael Wayland / CNBC

Specifically in Detroit, a stark juxtaposition has emerged: In April, Ford’s crosstown rival General Motors announced it would be downsizing from its towering Renaissance Center headquarters along the city’s riverfront to two floors in a nearby building that’s under construction.

Yet Ford Chair Bill Ford said he believes the investment made in the historic train station is a crucial part of the automaker’s future, including in aspects of talent acquisition and retention.

“We’re in a war for talent, our industry and our company,” Ford, who spearheaded the project, told CNBC. “And you need to give talent two things: You need to give them, first, really interesting problems to solve, and then you have to give them a great place to work. With Michigan Central, we checked both those boxes.”

Bill Ford decided to purchase the dilapidated building after years of trips to Silicon Valley for his Fontinalis venture capital firm and during his tenure as a member of the eBay board of directors. He’s long been outspoken about the need for the traditional automotive industry to compete with newer tech companies in both product and talent acquisition.

Ford Motor released this image of Chair Bill Ford, great-grandson of company founder Henry Ford, when the automaker announced it would be purchasing Michigan Central Station in June 2018.

Ford

Ford said attracting top talent to Detroit is “getting better” but noted that “it’s a tall order” to convince workers from California or the East Coast to relocate to Detroit and work for Ford.

“If you can show them a place like Michigan Central, not just in its beauty, which alone is incredible, but then talk about the kind of things that will be going on there, then it becomes, I think, a really valuable resource for the company going forward,” he said.

Train station campus

The Michigan Central campus is located southwest of Detroit’s main business district in a trendy neighborhood known as Corktown. It’s about 10 miles down the road from Ford’s world headquarters in Dearborn, Michigan.

The Michigan Central campus in total spans 1.2 million square feet of commercial space, including retail, restaurants and hospitality. It was awarded $300 million in state, local and historic rehabilitation tax incentives, according to officials.

The restored grand waiting room inside Ford’s Michigan Central Station in Detroit.

Michael Wayland / CNBC

Ford officials went to great lengths to restore the station to its original glory after decades of vandalism and decay. The project involved 3D-scanning the rooms, matching materials and referencing historical photos to recreate parts of the building.

This was especially true for the first floor of the train station, where a grand room features massive windows, an arcade and a large concourse full of marble and terrazzo flooring, Mankato stone and other unique materials.

Architects and designers opted to leave some graffiti on walls to represent the station’s dormant years after closing in 1988.

As one measure of Ford’s determination, officials traced the facility’s original limestone to a quarry in Indiana only to find out it had since closed. Michigan Central worked with the owners to reopen the quarry.

Some graffiti from when Michigan Central sat dormant for more than 30 years was purposely preserved to represent that part of the station’s history.

Michael Wayland / CNBC

“It has been painstakingly and lovingly restored to, wherever possible, to its original condition,” said Josh Sirefman, Michigan Central CEO, during a tour of the project. “Before we start activating it with lots of things, it’s probably in its most pristine condition.”

Amid national commercial real estate challenges, about two-thirds of the tower has scheduled tenants or planned use cases, officials said. That includes an unnamed restaurant and hotel, pending rezoning approval.

The adjacent building, known as the Detroit Public Schools Book Depository, already houses more than 600 employees from nearly 100 startup companies.

“It really is the beginning of the ecosystem that I want to create,” Bill Ford said. “There’s going to be a lot of experimentation taking place down there.”

Ford plans to house at least 2,500 employees in the building, primarily members of the company’s electric vehicle and connected services teams. Roughly 1,000 of those employees are expected to move into the station’s tower by the end of this year, Ford said.

Other building occupants could include local universities, other businesses and a restaurant. However, officials declined to release a full list of expected tenants. Google, a founding partner of the project, runs its “Code Next” program, which teaches students how to code, from the Book Depository building.

Ford said he expects future automaker employees to be able to collaborate with other occupants of the station’s tower as well as the startups occupying the Book Depository building.  

A photo of Michigan Central’s arcade prior to its renovation sits in the newly restored room toward the east end of the building.

Michael Wayland / CNBC

‘Legacy project’

Resurrecting the train station and surrounding campus is the latest project Bill Ford, a great-grandson of company founder Henry Ford, has undertaken in the Motor City.

He was instrumental in moving the Ford family-owned Detroit Lions from suburban Pontiac to a new stadium, appropriately named Ford Field, in downtown Detroit in 2002. He also was part of the team that brought the Super Bowl to the city in 2006.

And he redeveloped the company’s River Rouge Assembly plant into a “green” production facility amid calls to close it. It’s now a tourist destination for the production of the Ford F-150 full-size pickup.

Ford, who served as CEO of the automaker from 2001 to 2006, described Michigan Central as a continuation of such projects. He called the effort a “legacy project” for himself as well as for those who have been able to work on it.

“I’m very proud of both of those [prior projects], but I think this is going to kind of put an exclamation point on it because this will be a wonderful place to work but it will also be a wonderful place for the public to come,” Ford said.

The renovated “reading room” off of the grand waiting room at Ford’s Michigan Central Station in Detroit.

Michael Waylans / CNBC

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Friday’s S&P 500 and Nasdaq-100 rebalance may reflect concerns over concentration risk

It’s arguably the biggest stock story of 2023: a small number of giant technology companies now make up a very large part of big indexes like the S&P 500 and the Nasdaq-100. 

Five companies (Apple, Microsoft, Amazon, Nvidia and Alphabet) make up about 25% of the S&P 500. Six companies (Apple, Microsoft, Amazon, Nvidia, Alphabet and Broadcom) make up about 40% of the Nasdaq-100. 

The S&P 500 and the Nasdaq are rebalancing their respective indexes this Friday. While this is a routine event, some of the changes may reflect the concerns over concentration risk. 

A ton of money is pegged to a few indexes 

Now that the CPI and the Fed meeting are out of the way, these rebalances are the last major “liquidity events” of the year, corresponding with another notable trading event: triple witching, or the quarterly expiration of stock options, index options and index futures. 

This is an opportunity for the trading community to move large blocks of stock for the last gasps of tax loss harvesting or to position for the new year. Trading volume will typically drop 30%-40% in the final two weeks of the year after triple witching, with only the final trading day showing significant volume.

All of this might appear of only academic interest, but the big move to passive index investing in the past 20 years has made these events more important to investors. 

When these indexes are adjusted, either because of additions or deletions, or because share counts change, or because the weightings are changed to reduce the influence of the largest companies, it means a lot of money moves in and out of mutual funds and ETFs that are directly or indirectly tied to the indexes. 

Standard & Poor’s estimates that nearly $13 trillion is directly or indirectly indexed to the S&P 500. The three largest ETFs (SPDR S&P 500 ETF Trust, iShares Core S&P 500 ETF, and Vanguard S&P 500 ETF) are all directly indexed to the S&P 500 and collectively have nearly $1.2 trillion in assets under management. 

Linked to the Nasdaq-100 — the 100 largest nonfinancial companies listed on Nasdaq — the Invesco QQQ Trust (QQQ) is the fifth-largest ETF, with roughly $220 billion in assets under management. 

S&P 500: Apple and others will be for sale. Uber going in 

For the S&P 500, Standard & Poor’s will adjust the weighting of each stock to account for changes in share count. Share counts typically change because many companies have large buyback programs that reduce share count. 

This quarter, Apple, Alphabet, Comcast, Exxon Mobil, Visa and Marathon Petroleum will all see their share counts reduced, so funds indexed to the S&P will have to reduce their weighting. 

S&P 500: Companies with share count reduction

(% of share count reduction)

  • Apple        0.5%
  • Alphabet   1.3%
  • Comcast    2.4%
  • Exxon Mobil  1.0%
  • Visa                0.8%
  • Marathon Petroleum  2.6%

Source: S&P Global

Other companies (Nasdaq, EQT, and Amazon among them) will see their share counts increased, so funds indexed to the S&P 500 will have to increase their weighting. 

In addition, three companies are being added to the S&P 500: Uber, Jabil, and Builders FirstSource.  I wrote about the effect that being added to the S&P was having on Uber‘s stock price last week.  

Three other companies are being deleted and will go from the S&P 500 to the S&P SmallCap 600 index: Sealed Air, Alaska Air and SolarEdge Technologies

Nasdaq-100 changes: DoorDash, MongoDB, Splunk are in 

The Nasdaq-100 is rebalanced four times a year; however, the annual reconstitution, where stocks are added or deleted, happens only in December. 

Last Friday, Nasdaq announced that six companies would be added to the Nasdaq-100: CDW Corporation (CDW), Coca-Cola Europacific Partners (CCEP), DoorDash (DASH), MongoDB (MDB), Roper Technologies (ROP), and Splunk (SPLK). 

Six others will be deleted: Align Technology (ALGN), eBay (EBAY), Enphase Energy (ENPH), JD.com (JD), Lucid Group (LCID), and Zoom Video Communications (ZM).

Concentration risk: The rules

Under federal law, a diversified investment fund (mutual funds, exchange-traded funds), even if it just mimics an index like the S&P 500, has to satisfy certain diversification requirements. This includes requirements that: 1) no single issuer can account for more than 25% of the total assets of the portfolio, and 2) securities that represent more than 5% of the total assets cannot exceed 50% of the total portfolio. 

Most of the major indexes have similar requirements in their rules. 

For example, there are 11 S&P sector indexes that are the underlying indexes for widely traded ETFs such as the Technology Select SPDR ETF (XLK). The rules for these sector indexes are similar to the rules on diversification requirements for investment funds discussed above. For example, the S&P sector indexes say that a single stock cannot exceed 24% of the float-adjusted market capitalization of that sector index and that the sum of the companies with weights greater than 4.8% cannot exceed 50% of the total index weight. 

At the end of last week, three companies had weights greater than 4.8% in the Technology Select Sector (Microsoft at 23.5%, Apple at 22.8%, and Broadcom at 4.9%) and their combined market weight was 51.2%, so if those same prices hold at the close on Friday, there should be a small reduction in Apple and Microsoft in that index. 

S&P will announce if there are changes in the sector indexes after the close on Friday. 

The Nasdaq-100 also uses a “modified” market-capitalization weighting scheme, which can constrain the size of the weighting for any given stock to address overconcentration risk. This rebalancing may reduce the weighting in some of the largest stocks, including Apple, Microsoft, Amazon, Nvidia and Alphabet. 

The move up in these large tech stocks was so rapid in the first half of the year that Nasdaq took the unusual step of initiating a special rebalance in the Nasdaq-100 in July to address the overconcentration of the biggest names. As a result, Microsoft, Apple, Nvidia, Amazon and Tesla all saw their weightings reduced. 

Market concentration is nothing new

Whether the rules around market concentration should be tightened is open for debate, but the issue has been around for decades.

For example, Phil Mackintosh and Robert Jankiewicz from Nasdaq recently noted that the weight of the five largest companies in the S&P 500 was also around 25% back in the 1970s.

Disclosure: Comcast is the corporate parent of NBCUniversal and CNBC.

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