The re-birth of Detroit was kick-started four years ago when billionaire Dan Gilbert, CEO of the USA’s largest online mortgage broker Quicken Loans, started investing in the Motor City.
In the past four to five years he has become one of Detroit’s single largest commercial landowners, so far spending $1.3 billion of his own money on more than 70 commercial and residential projects.
He has since persuaded other companies such as JP Morgan, General Motors, Chrysler, Microsoft and Twitter to follow. Since then major corporations, banks, businesses and the tech sector are keen to be part of this story of rebirth.
The two other major investors in Detroit are Roger Penske and Mike Gillage, owner of the Detroit Tigers. Roger Penske is the owner of the Penske Corporation, and other automotive-related businesses. He is also a corporate director at General Electric and was chairman of Super Bowl XL in Detroit.
Other examples of Detroit’s re-emergence are:
- New York’s famous Galapagos Arts Space is leaving Brooklyn after 21 years and moving to the Highland Park area of the city; this will have a huge impact on Detroit.
- In June 2015 Virgin Atlantic started flying twice daily from London to Detroit.
Local Economy – Leisure
Sport is big business in Detroit. The city now has American football, ice hockey, baseball and basketball teams and ice hockey team the Redwings are building a new stadium in the centre of town. Five years ago there was one sports bar downtown; now the waterfront is being redeveloped as a leisure area.
There are currently three casinos in Detroit. This sector is expected to continue to grow and attract out of state visitors. Detroit is being called the “Las Vegas” of the north east as new venues, and luxury and boutique hotels are being built.
Local Economy – Trade with Canada
An eight-lane commerce only bridge between Detroit and Windsor Canada for is currently under construction. Detroit takes 60% of its trade from Canada and this new bridge will increase trade further. There is also a low cost Detroit/Windsor tunnel and water shuttle taxi between the two cities. As the gambling, sports and leisure industries grow, the city expects to attract many more visitors from Canada.
Now is the time to invest in Detroit; it has been described as an emerging market that takes dollars. Debt levels are low and the majority of investors are buying with cash.
Currently Detroit real estate investment is mostly under the radar of big investors, but as hedge funds and the big asset management companies start to take an interest the prices will rise. There are tremendous investment opportunities with high quality, refurbished houses available from $40,000.00 producing high net yields of up to 20% and medium to long term capital growth.
ROI/Capital Growth Potential
We estimate a short term upside of capital growth over the next two to three years as investors continue to pour money into the metropolitan Detroit area. Now is the time to invest in this area for capital growth and long-term rental income.
An escalation in property prices is expected in the medium term over the next five to ten years. In the short-term, especially once the Highland Park-based Galapagos Arts Space opens, prices and rents in the area will grow. Highland Park will attract a lot of aspirational businesses to appeal to the young, trendy workers and visitors to the museum. Now is the time to invest in the area, before Starbucks and Gap start opening stores.
Overall, Detroit property prices will rise band there are numerous opportunities to build income producing property portfolios producing high net yields with low capital outlay.
The Rental Market and Tenant Retention
The Detroit foreclosure rate was notoriously high during the recession. As a result more people are renting than buying their homes, with people unable or unwilling to take out mortgages. This means that tenant retention is high and as jobs increase and more people move to Detroit as the economy grows, demand for good rental property will remain high.
Downtown rents are growing rapidly with monthly rentals for condos hitting $1500 to $2500 per month. Once the M1 Rail system is completed areas such as Highland Park will be only eight minutes from downtown and rents here will be considerably cheaper.
Who is Renting in Detroit?
There has been a noticeable influx of educated young people moving to city, working in the arts and tech industries, attracted by the amazing economic opportunities, cheap rents and the trendy vibe of the area. New York’s famous Galapagos Arts Space is relocating to Detroit and the influx of ex-New Yorkers is expected to be high. Detroit is secondly only to Silicon Valley in tech start-ups and the opportunities for entrepreneurs to profit from this and allied businesses is growing.
In 2006-7 the median price for a three bedroom, two-car garage house was $150,000 for 12 to 14,000 square feet. These houses now cost from about $40,000.00 and we have access to a good supply of fully refurbished, tenanted and managed the bedroom houses.