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Assessing Detroit’s Real Estate Market Outlook

Detroit is just now stabilizing after its highly publicized bankruptcy.
EQUITYMULTIPLE is a platform built for modern investors, offering exclusive, pre-vetted commercial real estate deals to accredited investors.The company was founded in 2015, in partnership with Mission Capital. The combined team has closed over $70 billion in real estate transactions.
EQUITYMULTIPLE is a platform built for modern investors, offering exclusive, pre-vetted commercial real estate deals to accredited investors.The company was founded in 2015, in partnership with Mission Capital. The combined team has closed over $70 billion in real estate transactions.

Detroit is making a big comeback, exemplifying the American tendency of industrious cities to recover cyclically. Communities, neighborhoods, and entire cities with proud histories come upon hard times, adversely affected by macroeconomic shocks that hit their local economies particularly hard. Property values drop, but the spirit of the place doesn’t leave for good – eventually, if the ingredients are right, entrepreneurs move in and begin a virtuous cycle of real estate investment, buoyed by the unique culture and aesthetic of the place. Witness Seattle’s Georgetown, Oakland’s Jack London Square, Milwaukee’s Third Ward, Brooklyn’s Bushwick, and countless other neighborhoods across the country; what is old and forgotten becomes new and exciting again. There is no grander or more ambitious movement of this kind than what we are currently observing in Detroit, MI.

Once the auto manufacturing capital of the world – Detroit is just now stabilizing after a high-public public bankruptcy, the ravages of the subprime collapse, and a huge outflow of manufacturing jobs. Now, nearly 10 years since the Great Recession began, Detroit’s downtown core is being rapidly restored and revitalized, as investors from Detroit and elsewhere are putting substantial capital toward meeting multifamily housing demand, and bolstering the job growth that’s been steadily building over the past ten years. Quicken Loans CEO and Detroit native Dan Gilbert and other corporate leaders are investing in the area, in search of high yield on investment, and an opportunity to restore some of the past glory to this city rich in history and industry.

NBA’s Detroit Pistons are finally moving downtown and are planning to move into Little Caesar’s Arena, which is expected to be completed in September 2017 and is estimated to cost $700M+ ($34.5M comprised of public investment). The stadium will be able to host approximately 20,000 people and can feature ice hockey, basketball, and concerts. The Pistons agreed to donate $2.5M over 6 years to create more than 60 basketball facilities and to donate 20,000 tickets per year to city residents and youth. Under the agreement, the Pistons agreed to employ 51% of Detroit residents for the construction jobs for their practice facility, award 30% of the value of all construction contracts to local Detroit businesses, host free youth basketball camps, and other events to promote youth basketball in Detroit. Moreover, the city offered a tax reimbursement of expected to be worth $18.7M to help build their new practice facility[1].

Broad Economic Growth

Since 2010, the Rock/Quicken Loans family of companies has acquired over 9 million square feet of real estate, created 6,500 jobs in the city, and recruited over 120 companies and businesses as tenants.

Blue Cross Blue Shield of Michigan has added over 2,000 jobs, bringing its Downtown team to over 5,000 employees.

Most recently, the world’s largest global automotive seating supplier, Adient (ADNT), announced that they will move their headquarters to Detroit, expecting to generate 115 new jobs and approximately $17.2M in income and and property tax revenue over the next 12 years.

In 2014, the Center for Automotive Research (CAR) forecasted that U.S. automotive employment will increase by up to 35,000 jobs, with 9,000 additional jobs at the OEMs (original equipment manufacturers) and 26,000 positions at the suppliers.

Since 2006, over $9 billion has been invested in real estate development projects in Greater Downtown. Between 2013 and 2014, $5.2 billion was invested in a total of 258 projects.

In 2016, metro employers created 37,000 jobs, a 1.9% gain. The growth was led by office sectors. The Southeast Michigan Council of Governments (SEMCOG) estimates that 221,500 local jobs are linked to the Detroit/Canada border, with more than $300 million in trade crossing each day.

“Moody’s Investors Service, in its July 30, 2015 analysis of the City, upgraded Detroit’s issuer rating to B2 from B3 and revised the outlook to positive from stable”

Detroit currently has a lower unemployment rate than even before the crash. The unemployment rate even dipped below 5.0% in 2016[2].

Total nonfarm employment in the Detroit-Warren-Dearborn MSA was 1,985,600 in September 2016, up 39,600. This is a 2.0 percent increase over the year. During the same period, the national job count increased 1.7 percent.[3] Net change has been positive since June 2010 as shown below.

Growth in Tech and Business Services

Techstars, the startup accelerator that helped launch 422 technology startups, now has a special mobility focused program in Detroit[4].

Michigan has 36 VC firms within its border, with five headquartered in Detroit. The total AUM (assets under management) is estimated to be over $6 billion. More than ? of these firms have invested in Detroit startups. While Michigan will not be confused with California anytime soon with respect to venture capital activity, the VC community is growing: in Q1 of 2017, nearly $90M of VC transactions took place in the state, moving it up from 26th to 21st in the nation.[5] Detroit generated 26% growth in high-tech jobs and boosted its STEM employment by 8.4% in 2016, landing at 9th on Forbes list of top U.S. cities for tech job growth

Detroit’s infrastructure is set to receive an upgrade with Rocket Fiber’s Gigabit Internet in Downtown Detroit with a $36M investment, which will offer 100 times faster internet at an affordable price.

Michigan is the best state to live in, according to Thrillist. And while their list appears to put too much stock in booze production and availability of high-cholesterol foods, they do have something of a case.

Industry Specific Employment Stats

The professional and business services had the largest annual employment, adding 18,400 jobs since September 2015, which is a 4.7% growth, higher than the 3.0% national rate. The education and health services sector had the second largest gains with a gain of 9,100 jobs from September 2015. This growth of 3.0% again exceeds the national growth of 2.8%.

Multifamily Stats

Due to soaring demand, vacancy in the Detroit metro has fallen to one of the tightest rates in 16 year despite the largest supply growth in Q4 2016 since 2006. The numerous jobs available is causing household formation to accelerate and is squeezing vacancy rates just below 4.00%.

Consequently, monthly effective rents have steadily increased in the past few years, with average apartment rents increasing nearly 6% year over year in 2016. As more white collar jobs are created in and around the downtown core, demand for renovated and new Class A housing will only increase. EQUITYMULTIPLE is currently offering a multifamily portfolio investment opportunity from an experienced national real estate investment and management firm.

As we say goodbye to 2023, there's a compelling argument to keep your portfolio anchored in growth stocks next year.