It ain't pretty out there. Read Model D's Development News
column and it's clear the motor is running, but definitely not chugging along like it was just two years ago. Detroit needs a tune up, badly.
To wit: condo projects are being scrapped (The Griswold
), converted to commercial (Mid-Med Lofts
) and worst of all, sitting empty (Nine on Third
). That's not even mentioning the countless developments that while complete, are just not filling up. Which begs the question: has the proverbial boom gone bust?
Well, yes and no. There are some signs of health hiding under this case of the market blues. At last week's Model D Speaker Series, a panel of speakers intimately familiar with real estate in the city talked the bad — and good — news.
The Detroit Investment Fund
's Dave Blaskewicz presented an overview of the last six years of development in Greater Downtown – new housing, retail and dining and entertainment venues, not to mention cornerstone changes such as Compuware, Campus Martius and the Detroit RiverWalk.
DIF studied the evolution of Greater Downtown's housing stock between 2000 and 2006 and found 2,500 new units of housing, a significant increase in sales prices (from approximately $140 -160 per square foot in 2004 to $198 in 2006) and a young, affluent, educated group of new residents. All good things, no doubt.
But the pace slowed in 2006.
Blaskewicz characterizes the current market conditions as "soft." High unemployment, jail-tight credit, an over-supply of homes for sale and – ouch – record numbers of foreclosures are all to blame.
The results? The absorption of new units has decreased, sellers are having trouble doing so, projects are failing, would-be purchasers are nervous and potential developments are finding financing more difficult to come by.Hooray for rentals
So where's the silver lining? Rentals, most definitely. Developments like the Kales Building
and Lofts at Merchants Row
are both at stably high levels of occupancy. To take advantage of historic tax credits, developers must keep buildings as rentals for five years, which actually makes a lot of sense in this market.
Ryan Cooley of O'Connor Realty & Development
, one of four panelists also on hand at the event, sees another benefit to marketing rentals. He finds that people new to Detroit might prefer to rent before taking the plunge into ownership.
Two rental developments his company has been involved with – Eastern Market's Detroit Candy Co.
and the apartments above Slow's Bar B Q
in Corktown – have both filled up quickly. It's important, he says, to offer "a good, solid, clean product."
While renters are sometimes looked at as less valuable to a neighborhood than home- and condo-owners, Joy Santiago of Ralph Roberts Realty
, another panelist, disagrees. "It brings people into the city, brings people around," she says.The mother of invention
Another point Blaskewicz made is that this market forces – and also rewards – creativity. Examples of this include event-based marketing, multiple developers joining forces to draw potential buyers, financing incentives – like free association dues for one year or rent-to-own opportunities – and promotions such as allowing interested parties to try a loft out for a weekend.Real Estate One
's Elizabeth Tintinalli is no stranger to such efforts. The mastermind behind Illuminate Detroit
, she works to draw people to developments with a cheese-trap of music, food and art. This makes sense, considering one demographic she finds herself interacting with frequently are those with artistic backgrounds, looking to "get in on the ground floor," she says.
Cooley agrees. He has worked with people relocating from other areas that find Detroit's cost-of-living low enough to encourage the fulfillment of dreams often deferred in other urban areas. "Here, you can start something on their own."
For his part, Austin Black II of Max Brook Realtors
looks north of Eight Mile. He finds himself working with Oakland County natives recently returned from college, and sometimes even their parents, looking for an empty-nest condo. Both groups have one thing in common: they demand proximity to an urban experience not found elsewhere in Michigan.Weathering the storm
And then there's that four-letter word: Foreclosures.
So, what is the real deal with those nasty, dirty foreclosures? As we all well know, the Detroit area has been hit hard. So, what does this mean to the real estate market?
For Santiago, it means she is making lemonade out of lemons. "[Foreclosures] are our largest source of business now," she says. It's a buyer's market, she says, "Everything is a really good deal."
Cooley says there are two divergent markets when it comes to foreclosures. In the condo foreclosure market, units are moving fairly quickly. He even thinks there is less supply than many buyers anticipate. "People think there will be more than there really will be," he says.
On the other hand, when it comes to foreclosed houses, it's a whole 'nother animal. "They are in rougher shape than the condos," he says.
The bottom line is yes, everyone is hurting, from developers to builders to realtors to sellers. But a lot of people are digging in their heels and riding out the storm. "We're all hurting a little bit right now," says Tintinalli. "But we're still out there, still promoting the city."
Kelli B. Kavanaugh is Development News editor for Model D. Her glass is half empty and half full.
Photos:Grinnell Lofts in CorktownCarlton Lofts in Brush ParkThe Lofts on Woodward, DowntownThe Kales Building, Downtown55 West Canfield Lofts in Midtown
All Photographs Copyright Dave Krieger