In late November, Warren Buffett met with Dan Gilbert, founder and chairman of Quicken Loans, and took a tour of his latest investment: the distressed and bankrupt city of Detroit. The pair climbed into a chauffeured Chevy Suburban and headed downtown to the hulking Compuware Building, where Quicken Loans (No. 5 on Fortune’s Best Companies to Work For list) has been headquartered since 2010. It’s boom times at Quicken Loans — the firm is the fourth-largest lender in the nation and has grown considerably (in 2006 it was the 34th-largest lender).
Gilbert also heads Rock Ventures, an umbrella company comprising more than 100 businesses (mostly in Detroit) and the Cleveland Cavaliers basketball team. It was through basketball that Buffett and Gilbert first met. Lately his energy has been channeled into reviving his beleaguered city. Inside the cavernous Compuware lobby, glass elevators whisked us up to the 10th floor. A meticulous scale model of downtown dominates the big boardroom. Gilbert turned to Buffett and said, “This model — I’m not kidding — it cost more than 30 of the properties.”
Since 2011, Gilbert, 51, has been buying up the city’s skyscrapers by the block. Matt Cullen, president and CEO of Rock Ventures, says that Gilbert has invested $1.3 billion in downtown Detroit real estate (40-plus properties). To get a sense of the scope of his investment, Gilbert has illuminated the interiors of every building he owns; nearly half the model glowed.
“Retail this way?” Buffett asked. Gilbert gave him an overview of his plans, including stores downtown, his hotel in Greektown, and several blocks nearby mostly given over to county jails. Gilbert’s $50 million deal to buy the city’s penal buildings was slated to close later that day, netting him another 15.5 acres. Gilbert says he thinks the town hit bottom years ago. “We were buying for eight to 10 bucks a foot,” he said to Buffett. “Now we’re selling for 25 and even higher. Some are trading in the 60s and 70s.”
After seeing a few more of Gilbert’s properties, they moved on to the Madison Building, which houses Twitter’s Michigan office along with dozens of startups. There, Buffett offered Gilbert a pitch: the largest-ever basketball bracket. Buffett’s idea is to work with Quicken Loans to put on the game, which would award a billion-dollar grand prize to the entrant who creates a perfect bracket during the NCAA tournament. The kinks and liabilities need to be worked out, but Gilbert wants in. “I get right of first refusal,” he said.
Gilbert is no stranger to the calculated gamble — he bought the Greektown Casino-Hotel last spring. Buffett predicts the odds of any one person winning are between 20 million and 50 million to one. To Gilbert, Detroit’s a safer bet.
This story is from the February 3, 2014 issue of Fortune.