Dennis Bernard, founder of Southfield, Michigan-based Bernard Financial Group, has long believed in Detroit, even before the city’s downtown began to attract an ever-increasing share of investment dollars.
And, yes, the COVID-19 pandemic did slow some of the momentum that downtown Detroit has seen. But Bernard said that he is already seeing signs of that pre-pandemic momentum returning to the heart of the city.
“Detroit has been surprisingly resilient since the start of the pandemic,” Bernard said. “Maybe we were right. Maybe Detroit after 50 years really is back. It’s hard to tell if your own self-promotion is true. But seeing how resilient the city has been during these tough times? It seems that our belief in the city was appropriate.”
Resilient, though, doesn’t mean impervious. Like all major markets, Detroit has seen its struggles during the pandemic. The key, though, is that Detroit is working through them.
Andy Gutman, president of Southfield, Michigan-based Farbman Group, agreed with Bernard that downtown Detroit has been resilient during the pandemic.
And, like Bernard, he agreed that this doesn’t mean that activity, both in terms of investment and development and people walking the streets, hasn’t slowed during the pandemic. But Gutman is predicting an even brighter future for downtown Detroit as the pandemic continues to recede.
“We pride ourselves on our toughness in Detroit,” Gutman said. “Our grit and our scrappy nature are things that we are proud of. That has held up well during this time. It was 10 years ago that you started seeing the comeback of Detroit. Now Detroit is viewed as a city that people want to visit, want to be a part of. The pandemic slowed that down, but it hasn’t stopped our momentum. As we roll out of this pandemic, once we can tear off the masks and come together, the city will be vibrant again.”
The COVID slowdown
The office market in downtown Detroit, of course, has slowed during COVID-19. Like in most downtowns, Detroit’s office buildings remain largely empty. But on the positive side, office leases have been closed during the pandemic. Many companies have extended leases, a way to put off making bigger office decisions until they start bringing employees back to the office.
“We are fortunate in that,” Bernard said. “Our office market is still seeing activity. We are not going to have big vacancy numbers.”
The downtown Detroit multifamily market has seen some softening during the pandemic, too, Bernard said. Many younger renters returned to their family’s homes, willing to ride out the pandemic in wider-open spaces. They also wanted to save money. It didn’t make much sense for them to spend on monthly rent if many of the restaurants and bars in downtown Detroit were closed.
But in April and May this changed. Bernard said that multifamily owners in downtown Detroit saw a dramatic increase of leasing in April and the first part of May.
“Places that were getting one or two appointments a week were suddenly getting 15 or 16 a week,” Bernard said. “As things start to reopen in downtown Detroit, we’ll see even more activity returning to multifamily.”
One of the reasons for the resiliency of downtown Detroit’s commercial real estate market? Bernard said that downtown Detroit was not overbuilt, even during its recent hot streak. There hasn’t been an overabundance of new office and multifamily buildings built when compared with the demand for them.
This is true of downtown Detroit’s hotel market, too. There isn’t a surplus of hotel rooms in downtown Detroit. Far from it. As Bernard says, the demand for hotel rooms in the city far outpaces the supply.
That has helped even the hotel market here during the pandemic, a sector that COVID-19 has devastated in most cities.
Bernard said that his company is financing two hotels in Detroit that have maturing mortgages. Bernard Financial is also providing financing for the construction of a new hotel in the city.
“If you had told me six months ago that we’d be providing this financing, I would have said ‘No way,’” Bernard said.
This begs the big question: Will people return to living in downtown Detroit after the restaurants and bars open and companies ask their employees to return to the office?
Bernard said some people won’t. After they moved from downtown Detroit, they sank their money into single-family homes. As Bernard says, COVID-19 was actually great for the single-family housing market.
“Some of the people who were downtown aren’t going to come back,” Bernard said. “Some moved out to the suburbs and other cities. But we will see other people come back, especially when the office starts to repopulate in September and October. People coming back to the offices will make people want to live in downtown again.”
And the eye test? Bernard says that he is already seeing more activity in downtown Detroit.
“During the height of the pandemic, it was a ghost town downtown,” Bernard said. “You saw tumbleweeds rolling down Woodward Avenue. Now that is changing. We got very lucky. Everyone was worried about what would happen to Detroit during this. But there had been a lot of caution before the pandemic when it comes to building. We weren’t overbuilt. We don’t have a lot of spec buildings. We have been able to absorb what we created.”
Signs of hope
Gutman pointed to the multifamily sector in downtown Detroit as an example of the commercial real estate market’s resiliency. Yes, some renters have moved from apartment units in downtown Detroit or its surrounding neighborhoods. But many others have stayed, Gutman said.
“Look at Chicago. Chicago has its own set of issues that differ from Detroit,” Gutman said. “Detroit cleared out a lot of its problems with its bankruptcy filing. Chicago still has those problems on its shoulders. So we’ve seen more people move out of downtown Chicago during the pandemic. We haven’t seen people move out of Detroit in the same numbers.”
Gutman said that there is still development taking place in Detroit. There’s also a busy pipeline of projects that should begin construction once the pandemic further eases, he said.
And some of this development will take place in downtown Detroit, Gutman said.
Gutman said that Detroit Mayor Mike Duggan made it a priority to boost safety and encourage development in the city’s downtown. The city knocked down abandoned properties and made sure all areas of downtown were well-light.
At the same time, Dan Gilbert has invested heavily in downtown. That encouraged other investors to follow.
“The investment in downtown is paying off,” Gutman said. “It is bringing people back to downtown Detroit. Detroit now has a cache to it. Before the pandemic, people wanted to be downtown. The nightlife was good. We had restaurants opening that rival the offerings in other major cities. That is all going to return as the city opens up again. There is so much pent-up demand from people who want to be out and about again.”
Like Bernard, Gutman says that more people are returning to downtown Detroit, whether to eat at its restaurants or work in its offices. But the amount of foot traffic in the city’s center is still far from where it stood before COVID-19 hit, he said.
The key, of course, is to get employees back into their offices. Once that happens, more traffic will return to downtown Detroit, Gutman said.
“Companies are still putting off dealing with their office leases during the pandemic,” Gutman said. “They are still trying to figure out what they need to do. Employers want their people to return and collaborate with each other. You can only do so much over Zoom. I think some companies will downsize their office space because of the pandemic and an increase in employees working remotely. But companies will still need their office space. Very few companies will get rid of physical offices.”