A new balance sheet. That’s what David Friedman, president and chief executive officer of Farmington Hills, Mich.-based Friedman Integrated Real Estate Services, says Detroit now has following the city’s bankruptcy filing last year.
“I don’t think that the bankruptcy has slowed growth in downtown Detroit at all,” Friedman said. “There is now an urgency regarding downtown Detroit. People are more focused on the city. They want to be a part of the rejuvenation of the city. We are getting investors from all over the United States to put their money into Detroit.”
And Friedman isn’t the only person to report this. Dennis Bernard, founder and president of Southfield, Mich.-based commercial lender Bernard Financial, said in an interview with Midwest Real Estate News earlier this year that the bankruptcy has actually been a positive for the city of Detroit.
The city had to address its serious financial problems, Bernard said. The bankruptcy filing, while bringing plenty of negative press toward Detroit, was the first step in this process, Bernard said.
Today, as investors return to downtown Detroit, people are learning a truth about the city and its suburbs: There is potential here.
“This is a really nice community. A lot of people don’t understand that,” Bernard said. “And you know what? It’s nice to be a part of changing and improving something. You can make a difference here. I am making a difference. If I was lending money in Chicago or New York or L.A. or San Francisco, any of those cities, what I was doing wouldn’t make a difference. Here I can.”
Positive news
No one would argue that Detroit doesn’t still face serious problems. The population in downtown Detroit is still far too low. The city’s finances are still in disarray. And there are still too many housing foreclosures and vacant buildings plaguing the city’s neighborhoods.
But there is hope today. And that hope is seen in the rising amount of commercial activity in downtown Detroit.
A recent office report from Friedman Integrated Real Estate Services provides a good example.
According to the report, which looks at 2013 office activity in Detroit and its surrounding communities, the occupancy rate in the area’s office market rose to 81.2 percent by the end of 2013. That’s up a bit from an occupancy rate of 80.5 percent at the end of 2012.
Friedman reported that total investment office sales in the Detroit market rose to an impressive $300 million at the end of 2013. That, as Friedman reports, is much higher than anything the city has seen since 2007.
The market also saw positive net absorption of more than 1 million square feet in 2013. The combined total absorption in 2012 and 2013 represented the best two-year period for the market since 2004, Friedman reports.
What’s behind this good news? Friedman reports that the automotive industry is attracting foreign investors. Foreign investors have invested an impressive $1 billion in the state of Michigan, Friedman says.
“Today, investors are looking to buy all forms of real estate in Detroit,” said David Friedman during an interview with Midwest Real Estate News. “A year ago, when we went to bankruptcy, we got calls from major investment banks asking what the opportunities would be. If anything, the bankruptcy has had a positive impact. It has increased everybody’s awareness of a great city. Everyone wants to be a part of the recovery.”
More good news for Detroit came from the Spring 2014 Detroit Skyline Review released by JLL. This study of the top downtown office properties in Detroit found that an influx of new tenants has during the last three years halved the total vacancy rate within these trophy office spaces.
At the same time, office rents in these key downtown office buildings have recovered to pre-recession levels, according to the JLL report.
The JLL report studied 20 Detroit trophy properties that cover nearly 10 million square feet. Some of the key buildings in the report include the Renaissance Centers, the First National Building and 1001 Woodward.
JLL reported that in the past three years, the vacancy rate in these sapces fell from 26 percent to 11.5 percent. Asking rents grew from $22-a-square-foot to $22.59-a-square-foot.
Friedman just wishes that there were more office buildings in downtown Detroit.
“There wasn’t a lot of real estate built down there. You wish there was more,” Friedman said. “But the office buildings today have a lot of play on them. All of the multi-family buildings are being traded, too. People are buying vacant land. The mixed-use developments are getting a lot of play.”
Young professionals are also looking at downtown Detroit today, with many of them moving into the heart of the city. This is a trend that will continue as a growing number of tech start-ups set up shop here.
“There are a lot of young people looking for apartments,” Friedman said. “They can’t find them. There is a shortage of multi-family space for the Millennials. There is a great urban city with a lot to do. There is the riverfront, the arenas, the markets. There is so much going into the city of Detroit. There is now a wider cast of activities for younger people.”
An emerging downtown
Dan Gilbert, founder of Quicken Loans, has done much for downtown Detroit, buying several buildings in downtown Detroit with the hope of luring young professionals to the area. But Bernard says that other investors are now showing interest in the city, too. And in an interesting tidbit, Detroit has become the fourth-most popular U.S. city for Chinese investors, a fact reported earlier this year by outlets such as CNN Money and Forbes.
“We’re a nation that likes underdogs and comeback stories,” Bernard said. “We are an optimistic nation. We like that Detroit was once a great city, fell on hard times and is now coming off the mat.”
Bernard said that lenders have contacted him, asking if they should do business in Detroit. He, of course, tells them that they should.
There is a benefit for those lenders who do loan money in Detroit. There is a smaller number of lenders in the city now. This means that lenders who do work here will gain access to better deals. They can work with better real estate projects and a higher quality of borrowers, Bernard said.
They can then earn a bit more spread, Bernard added.
At the same time, each month brings better news about the domestic auto industry, Bernard said. That industry is still a key one in Detroit.
“Every week someone else is buying a building in Detroit,” Bernard said. “It’s no longer only the Danny Gilbert story. He started it. He is the driving force. But now it’s become a regional thing. Companies are moving to Detroit. Tenants are moving to the city.”
There’s a shortage of engineering talent in the Detroit area, engineers that the auto companies badly need. Bernard says that this is a good thing. It means that the auto companies and the auto suppliers are busy.
And the best news? Bernard says that Detroit’s comeback is just beginning. He expects the good news here to continue.
“I used to hate waking up in the morning and reading the paper. It was always about what company was going out of business and what company was laying people off,” Bernard said. “Now it’s fun to get up in the morning, have your coffee and read the local paper. What company is expanding? What company is hiring? Who bought a building in downtown Detroit? We haven’t had that kind of experience here in a long time.”
Friedman says that the word is finally getting out that Detroit is on the rebound.
“The majority of people still have a view of the city of Detroit as a place that doesn’t exist,” Friedman said. “Every time I bring a lender in or an investor in from out of state, they are blown away by what has gone on here in a short period of time. They can’t believe it.”