After the 2008 financial crisis, Detroit found itself in an even more ominous situation than the rest of the United States.
As the Great Recession came to dismantle the U.S. housing market and automotive industry, a bad situation got much worse for Detroit, an already-struggling city anchored by its automotive production.
The year was 2008…
Detroit’s population was already in decline, and had been for decades. The continuously shrinking base of taxpayers was, on its own, a swelling financial hurdle for the city. Only then, the recession began to run its course.
Over the next few years, revenues continued to decline significantly for Detroit property owners, causing many of them to fall behind on their taxes. In fact, in 2011 alone, nearly half of all property owners in Detroit did not pay their property taxes – a staggering sign of the recession and the real estate market as a whole.
Combine that with the overall borrowing required to cover recession deficits, and the city was left in a hole it couldn’t climb out of. In the years following, things only got worse.
Detroit’s Chapter 9
Five years after the financial crisis, Detroit had found a new low.
On July 18th, 2013, Detroit filed for Chapter 9 bankruptcy. It is still, to this day, easily the largest municipal bankruptcy filing in U.S. history in terms of both debt (roughly $20 billion) and size of population (700,000).
Upon reaching this low point, the city sat there, filled with vacant industrial buildings and housing for an ever-diminishing population, living in infamy of better days. It seemed as if Detroit may forever be looked at only as a city that once was.
Detroit’s post-bankruptcy trends tell a fairly different story, however. In the wake of commercial development in 2013 and on, and as demand continues to rise, there are plenty of reasons for investors to keep Mid and Downtown Detroit in their sights going forward.
This time around… Is it for real?
In the years leading up to the city’s bankruptcy, a revival seemed well-underway. Property sales across major commercial asset types rose sharply, peaking, almost entirely across the board in Q3 of 2012 – exactly a year before the city declared Chapter 9.
Below, see the total number of property sales across Industrial, Multi Family, Office, and Retail properties in Detroit, Michigan from 2003 to 2015:
After the initial dust of the financial crisis settled, investors began steadily re-entering the market in 2009, perhaps in hopes of its rebuild. In 2012, property sales skyrocketed, with 749 total sales across Industrial, Multi Family, Retail, and Office properties, up from 431 the year prior. In Q3 of 2012 alone, there were a total of 264 sales across these asset categories.
In the midst of bankruptcy the following year, however, that growth slowed to a halt, with property sales decreasing by more than 200.
Nevertheless, when looking at post-bankruptcy commercial real estate investment and development in Detroit, the tables look as though they may actually be turning this time around.
While no single area has risen with extreme and defined significance, there has been heavy investment in vacant land, and heavy development across multiple asset types in Detroit’s Midtown, Downtown, and other smaller neighbors.
Buy to Build?
When comparing the property sale trends that followed the recession with the sale trends that followed Detroit’s bankruptcy, there is one glaring difference – investors eating up the city’s vast number of vacant lots.
Vacant land was not a part of the initial post-2008 investment push. This time around, though, vacant land sales absolutely soared.
Following bankruptcy, the city itself drew a larger focus to developing vacant buildings and land, looking at those properties as a resource – even a competitive advantage over other cities.
Sales of many assets, including vacant land, have tapered off a bit in the years since, a potential sign that investors are filling the market and development is actually taking place. The many recent and upcoming projects in Midtown, Downtown, and other neighborhoods of Detroit serve as great examples of this.
Mixed-Use in Midtown
The most recent sizable development to open in Detroit’s Midtown was Little Caesar’s Arena, which now stands as the home of the Detroit Red Wings (NHL) and the Detroit Pistons (NBA), and also serves as a 15,000-22,000 capacity concert venue.
The arena officially opened in September of 2017, and not only serves as an example of Midtown Detroit’s development, but serves as proof of the areas future development, also.
Stadium developments are often followed by an influx of investors, and Midtown Detroit is a perfect example of that. Many residential and retail developments have taken place in and around Midtown, with a number of large projects forthcoming.
Midtown West is a planned mixed-use development project being built upon the Wigle Recreation Center, which sits on over 7 acres of land on the west-side of Midtown. The project will include rental and for-sale residential units, 8,000 square feet of retail space, and an acre of public green space. Phase one of the project is planned to break ground in late-2018.
Brush Park, a Midtown neighborhood sitting just blocks from Little Caesars Arena, is seeing perhaps more development than any other neighborhood in Detroit. It is home to many new and forthcoming residential and mixed-use projects, notably that of City Modern, a residential development currently in the works between Brush St. and John St.
The idea of City Modern is to merge the, “historic character of Brush Park with contemporary design and modern amenities.” It will be a new experience for visitors that does not take away from the integrity of the historic neighborhood.
Downtown Detroit has many of its own mixed-use and residential projects breaking ground, such as the redesign of the long-vacant Free Press Building into a versatile residential building, and Dan Gilbert’s revamp of the city’s Book Tower. Gilbert alone has four major projects in the works in Downtown Detroit, almost single-handedly bringing the neighborhood back to life.
Some of Downtown Detroit’s most notable developments are actually happening along the city’s waterfront, though.
The Detroit Riverfront Conservancy, alongside the city, is turning vacant waterfront warehouses and land into a series of parks, open spaces, greenways, and streetscapes. While plans originally looked to include high-end condos and apartments, it appears that the city’s waterfront revitalization plans have been aimed more towards beaches and parks.
Often times, waterfront development on its own can have a nice effect on an area’s commercial real estate demand. Combine it with redesigned vacant properties and a bevy of new development, and suddenly, Detroit starts to look quite desirable as an investment market. That is without even mentioning the financial accessibility of the market, which over the last two years, had an average sale price per square foot of only 10.26% of the national average.
While it’s hard to ignore the recent history of the city, it’s also hard to ignore the signs of a potential turnaround. It could finally be time for investors to turn their sights to the Motor City.