Detroit is bankrupt, why is downtown booming?

[spuwho]

Per the Wall Street Journal:

Billionaire's Detroit Buying Spree Starts to Spread
Development Has Been Picking Up in Detroit's Downtown Core

DETROIT—Locals call it the " Dan Gilbert effect," the recent buying spree of commercial buildings in downtown Detroit by the billionaire founder of Quicken Loans.

Now the phenomenon appears to be spreading.

Despite a fiscal plight that forced the city to seek Chapter 9 bankruptcy protection five months ago, the real-estate market has been picking up in Detroit's downtown core. Mr. Gilbert has led the charge by buying dozens of properties and moving in 3,800 of his employees from suburban offices and creating another 6,500 jobs downtown since 2010, according to the company.


Officials estimate residential occupancy in downtown Detroit is 97 percent. Campus Martius Park last month. Getty Images

But lately, other investors have begun buying trophy buildings and starting to develop apartments to meet the rising demand from workers who prefer downtown living. City officials estimate residential occupancy downtown is 97 percent.

The projects show that some real-estate investors are looking beyond the bankruptcy to an eventual rebound in Detroit. They are hoping that property values and rents will rise due to the region's resurgent automotive industry and the expansion of its medical community and nascent technology industry.

The city's economic development arm forecasts almost 1,000 new residential units coming on line downtown over the next five years. Next year, developers are expected to complete the renovation of the 19-story David Whitney building to house a boutique hotel, apartments, restaurants and a bar, city officials say.

The real-estate firm Schostak Brothers in September announced the planned construction of a 16-story office building for $111 million to house Meridian Health Plan, slated to open by 2017. The building would be downtown Detroit's first new high-rise since 2006. Company officials weren't available for comment.

In October, Dongdu International, known as DDI, paid a total of $13.6 million for two of Detroit's better-known buildings, including the former home of the Detroit Free Press, now slated for a residential conversion. The Chinese company is now under contract to buy a third, 10-story loft-apartment building for $2.77 million, an attorney representing the company said this week.

And just last week, the city's downtown development authority gave preliminary blessing to a proposed $450 million sports-and-entertainment arena backed by the Illitch family to house the Detroit Red Wings through a mix of public and private funding. The plan includes another $200 million in private investment for residential, retail and office space across a 45-block area.

To be sure, the city is far from healthy, weighed down by high unemployment, low incomes and a weak tax base. Detroit's office vacancy rate was 26.5% at the end of the third quarter, compared with the national average of 15.2%, according to commercial real-estate firm Newmark Grubb Knight Frank.

The city also lags behind most major American cities in its asking prices for leasing and its sales price per square foot. Meanwhile, there still hasn't been enough residential development to attract a critical mass of retailers.

"We're seeing significant investment but what we are lacking are big institutions," says Fred Liesveld, Newmark's executive vice president.

But investors who are optimistic about Detroit's future point out that office vacancy is down from the 33% it hit in 2010. Executives with Rock Ventures, Mr. Gilbert's umbrella group for more than 80 of his companies, give two or three downtown tours a day for visitors and potential investors. "We're thrilled about it," says Matt Cullen, Rock Ventures' president and chief executive.

In the past decade or so, other Detroit boosters have had some success in similar efforts to rehabilitate the city's downtown district, which lost hundreds of businesses to suburban outposts.

But it is Mr. Gilbert, who grew up outside the city, who has put the biggest stamp on downtown lately, in both the size and scope of his investments.

With investments totaling $1.3 billion, Rock Ventures now owns or controls more than 40 properties in downtown Detroit that span nearly 8 million square feet.

Mr. Gilbert's company bought two more downtown buildings in October. He is also in talks to pay $50 million for the construction site of a partially completed county jail and four other properties near the Greektown Casino, which Mr. Gilbert acquired earlier this year.

Of course, some of the new investors in Detroit have created competition for Mr. Gilbert. He was an also-ran in the competition for one of the buildings bought by DDI.

"The bankruptcy is a terrible thing to a certain extent," says Peter Wood, general manager and chief operating officer of DDI's enterprise center in Shanghai. "But everyone we talk to says there is a good feeling about the next move to a new direction."

[ChriswUfGator]

Because detroit de-sprawled, razing its often abandoned suburbs and going a long way towards shrinking back to its original footprint. It is still a city with a greatly reduced population compared to before its decline, but is nevertheless a vibrant place because despite their financial woes they've recognized the predicament they're in and have taken radical steps to fix the problem. Which have worked, actually. The city, meaning the actual city, not the MSA, is experiencing a bit of a resurgence.

None of that stops the financial problems for the municipal government, however, which are purely a function of having legacy costs associated with servicing a city of 2mm people that has now shrunk to less than 800k. When your tax base shrinks by 2/3 and you still have the same fixed costs you can't address outside of bankruptcy court, you'll wind up in bankruptcy court. Was just a matter of when not if.

[simms3]

Detroit's boom status is kinda' new news to me (I'm saying it's...eh, not really a boom).  All relative, I suppose.

I could see a city the size of Jacksonville having just as much going on in a slightly better than average year as Detroit's downtown does now.  In fact, some cities that are much smaller do have more going on.  Charlotte for a long while.  Nashville in the current, arguably.  Certainly Austin.  Salt Lake City for a while, potentially still.  Orlando for a while.  There are even surprises that we don't hear about, like Milwaukee, which always has some new highrise going up, a new museum, or a new warehouse district exploding (to the point of attracting an urban Whole Foods for instance).

I think Detroit is just a political lightning rod, in either direction.  3 old buildings get bought for bottom barrel prices by local families who have free cash to be philanthropists and with plans for restoration, and all of a sudden there's a national article highlighting the boom going on over there.  Conversely, one more city leader gets indicted on multiple charges and there's a national news story about how Detroit's on the brink of death.  When really, lots of cities across the country have more positive going on, and often have lots of bad things too, and because they aren't Detroit we don't have to hear about them all the friggin time.  Overall, though, Detroit is kind of a goner, in my opinion.  Maybe even Cleveland at this point too.  Even Buffalo has more going on now and seems to be pulling itself up, and we all know Pittsburgh has turned itself completely around.

[tufsu1]

Detroit's boom status is kinda' new news to me (I'm saying it's...eh, not really a boom).  All relative, I suppose.

perhaps you should go visit their downtown

[thelakelander]

Yes, this is old news. Gilbert and a group of other local businessman have been pouring tons of money into DT Detroit for a good decade now. 

[spuwho]

I pulled this up because of the macro issues involved.

- Local millionaires/billionaires invest in urban core
- Other investors follow the money and do likewise
- Move people of their firms downtown to work and increase productivity
- More people want to live downtown in return
- This in turn drives urban residential growth
- Which drives urban redevelopment (retail, food, etc) to service those new residents
- Which brings even more people to the core to work those service jobs

It won't solve the global issues instantly around Detroit as noted earlier, but it has the ability to reboot a development wave that starts at the core and moves outward. It may take decades to foster.

Lake, I am surprised you are dismissing it. Here is a good example of people making long term investments in a urban core setting. They aren't looking for that silver arrow that will fix everything, they are making the incremental investments that are required to rejuvenate an urban core.

[thelakelander]

^I'm not dismissing it. I was just responding to tufsu1 and Simms3's posts.

I've actually written several articles about what they've been doing over the years.  Because they've been written as things were actually happening, they don't read well as a single overall summary. Here are a few:

2013

Four Innovative Ideas for DIA's New CEO (2 of the 4 ideas are Detroit-based)
Last week, the Downtown Investment Authority selected Aundra C. Wallace of Detroit's Landbank Authority to serve as its first CEO. Here are four creative revitalization initiatives underway in Detroit that should be packed in his suitcase for the drive down south.
http://www.metrojacksonville.com/article/2013-jun-four-innovative-ideas-for-dias-new-ceo/page/1


Retooling Detroit: What Can Jacksonville Learn?
What can urban Jacksonville learn from grass roots revitalization efforts in Detroit? For decades Detroit has been a poster child of the misfiring american dream but amid block after block of post-industrial decline there are signs that motor city is jump-starting its economy. Years of under investment have left a blank canvas for social entrepreneurs and small business owners keen to revitalize a broken metropolis. Monocle heads to downtown Detroit to sample the green shoots of recovery

http://www.metrojacksonville.com/article/2013-may-retooling-detroit-what-can-jacksonville-learn



2011

Revitalizing Neighborhoods: Midtown Detroit
Metro Jacksonville explores a neighborhood with a goal of attracting 15,000 young professionals by 2015: Midtown Detroit.
http://www.metrojacksonville.com/article/2011-may-revitalizing-neighborhoods-midtown-detroit



2010


Urban Decay and Rebirth: Detroit's Brush Park
It's never too late for a neighborhood to turn things around. Once a prime example of Detroit urban blight and decay, Brush Park has finally reached its tipping point after several failed redevelopment efforts. Could a rebirth happen in inner city Jacksonville?
http://www.metrojacksonville.com/article/2010-oct-urban-decay-and-rebirth-detroits-brush-park



2009

Elements of Urbanism: Detroit
While Detroit is nationally recognized as America's poster child for blight and economic decline, Metro Jacksonville takes a look at one aspect the city has successfully brought back to life: Downtown Detroit.
http://www.metrojacksonville.com/article/2009-sep-elements-of-urbanism-detroit



2008

A Tale of Two Parks (comparison of Detroit's Campus Martius Park and Jax's Main Street Pocket Park)
A quick visual lesson on the Do's and Don't's of urban park planning.
http://www.metrojacksonville.com/article/2008-sep-a-tale-of-two-parks


Rail without the FTA: Detroit (Due to the amount of private local money invested, the Feds did add additional cash for this project a few years after this article)
Private-sector money behind a $103 million light-rail transit loop on Detroit's Woodward Avenue could cut 20 years off the planning process of bringing light rail to America's Motor City. Is anyone in the Mayor's Office and JTA paying attention?
http://www.metrojacksonville.com/article/2008-mar-rail-without-the-fta-detroit


The Detroit People Mover: The Skyway's Sister System
Like Jacksonville's Skyway, the Detroit People Mover is an elevated and automated people mover system serving the downtown core.
http://www.metrojacksonville.com/article/2008-feb-the-detroit-people-mover-the-skyways-sister-system


2006 (One of the first articles on MJ in the days before we had a forum on this site)

Rust Belt Special II: Learning from Downtown Detroit
Founded in 1701 by French fur traders, over the years, Detroit has become known as the world's traditional automotive center and an important source of popular-music legacies, celebrated by the city's two familiar nicknames, Motor City and Motown.
http://www.metrojacksonville.com/article/2006-nov-rust-belt-special-ii-learning-from-downtown-detroit

[simms3]

Yes, this is old news. Gilbert and a group of other local businessman have been pouring tons of money into DT Detroit for a good decade now. 

I was totally being facetious.

1 [hometown here] has spent $1.3B and now controls 8 million SF.  I think he's the one who attracted a couple name-brand hotels, built one of the new office mid-rises last decade, and has rehabbed countless buildings.  I mean, frankly, he's living MY dream (my dream doesn't necessarily involve Detroit, though, hehe).  I think it's awesome.  But it's a HE.  Not a hoard of companies that are publicly traded and/or have private investors.  And to me a new arena means nothing - at any given time now so many American cities are building new arenas/stadiums.  Apparently 10-15 years old is the new life expectancy of these things.

Buffalo has probably nearly as much going on, yet we never hear about it.  And I'm not going to call Detroit's situation a boom until I see cranes dotting the skyline and non-Detroit investors pouring in (who aren't Chinese opportunistic cash buyers, either, trying to live out a well publicized American story with uber risk involved).  I want to hear about some familiar names (company wise) taking a bet on Detroit, not just another local millionaire with hometown pride.

Of course a Gilbert would be just the sugar daddy Jax needs...

[fieldafm]

Coming from someone that has done a lot of business in Detroit, I think comparing Eastern Market to Larkinville has some similarities.

Buffalo's core CBD vacancy rates are in the mid 20's.  There has been new construction, but it's mainly been existing companies that are already in Buffalo moving out of the core and building smaller and more modern buildings on the periphery of downtown.  Comparing that situation to Midtown Detroit simply isn't in the same category, IMO.

Comparing some of Buffalo's older neighborhoods that have experienced the problems coming from having a large inventory of vacant housing stock with some of Detroit's older neighborhoods is a more apt comparison.

[edjax]

Gilbert is also putting some money into downtown Cleveland. Spreading his wealth and joy I guess. 

[thelakelander]

Or protecting his NBA investment.

[edjax]

Investment is investment regardless of the reason.

[thelakelander]

^No doubt.

[simms3]

Buffalo projects:

http://forum.skyscraperpage.com/showthread.php?t=114505&page=122

http://buffalorising.com/category/real-estate/

Buffalo has FAR more going on than Jacksonville and probably nearly or about as much going on as Detroit (with smaller population than Jax and 20-25% the population of Detroit).  Not a media darling though, so it could build a supertall and we'd never hear about it, Lol.