Foreign Investment is Driving the Motor City
Most of us associate Detroit with the automotive industry. But recent media reports also highlight a Detroit wrestling with bankruptcy and the decline of its automobile industry. What’s interesting is that the bankruptcy filing by the city of Detroit, an unprecedented move, may actually have spurred new interest from foreign investors in both commercial and residential real estate.
As for the Motor City? Its automotive engineering and design roles as well as the EPA’s Motor Vehicle and Fuel Emissions lab in Ann Arbor continue to make Detroit and southeast Michigan an international focal point for the industry. Add to that Detroit’s College of Creative Studies, whose graduates every year move on to design new models for automakers around the world, and there is an undeniable pool of talent that is driving the industry. Manufacturing in the upper Midwest has moved to other states and to Mexico, but Detroit is still the hub of automotive design and engineering for the industry, and in turn, is appealing to investors.
Many of the so-called ‘gateway cities’ have experienced positive effects from foreign direct investment—places like Miami, San Francisco and Los Angeles. But what makes Detroit desirable to foreign investors? And, what impact does foreign investment have on the economic and cultural landscape of the city? Who are these foreign investors? How do REALTORS® connect with these potential clients?
Bill Milliken, CCIM, CIPS and 2013 President of the Michigan Association of REALTORS® (MAR) explains, “It was my goal to open the eyes of Michigan brokers in both the commercial and residential sectors to the fact that the world is getting smaller and there is an enormous amount of international brokerage focusing on this country, on Michigan and specifically on greater Detroit. The statistics are interesting. When we analyzed website hits on realtor.com® International for a couple of months last fall, we realized that Detroit was the most searched city by international consumers, mainly China, Germany, Canada and Australia. We also know that there is enormous cultural diversity in Detroit. It boasts the largest concentration of Arabic and Bangladeshi populations in the U.S., and has a burgeoning Latino population, among others.”
“Detroit has an Emergency Financial Manager, Kevyn Orr, who was appointed by Governor Snyder. The Governor relied on a state statute that allows him to appoint such a manager for a city if its finances reach a critical stage, whereupon he effectively becomes the city’s chief executive with the right to dispose of assets, renegotiate contracts, prepare budgets and to accomplish tasks that political leadership was unable to. This paves the way for rehabilitating and rebuilding the city. Along the way, it will work a hardship on city retirees, lenders and bondholders as they are asked for concessions. But, the long-term goal of returning Detroit to fiscal health and putting it back on its feet again is the objective,” explains Milliken.
Detroit’s outstanding debt is about 18 billion dollars. In order to balance the budget and help the city work efficiently, many cuts will be necessary, and they will be subject to federal bankruptcy court approval. The financial markets appear to be encouraged and investment activity in the area continues to build as investors see opportunity. There is emerging investment potential in Detroit and, in turn, increased demand for both commercial and residential property.
Mark Dotzour, Chief Economist and Director of Research, Texas A&M University explains, “The main thrust of foreign investment in the United States is in what is referred to as the ‘gateway cities.’ Foreign investment pushes prices higher because it adds a new set of bidders to the market. Like anyone else, they want to invest in places they know and are familiar with. Most have been to the gateway cities of New York City, San Francisco, Washington, D.C., and to a lesser extent Los Angeles. There is also foreign investment in Miami and Vancouver.”
Detroit investor Dan Gilbert, Chairman of Quicken Loans, has a portfolio of more than 3 million square feet of downtown Detroit commercial space, plus the Greektown Casino complex and numerous parking structures. Milliken explains that Gilbert’s Rock Ventures entity has renovated many of the buildings to create vibrant, exciting work environments that operate 24/7. Quicken Loans personnel have been moved into the Detroit properties from the suburbs, but third party tenants also increasingly populate the portfolio. This translates into a workplace with landscape furnishings, sleeping pods, bringing Fido to work and indulging in organic lunch at the on-site cafeterias. Tis appeals to young professionals who are now flocking to the Motor City.
“Rental rates are now rising for apartments in Detroit between 12-15% in some cases. Of course, as this is positive for market growth, the downside is service personnel, many in blue-collar positions are sometimes unable to renew their leases because they have been priced out of the market and displaced,” explains Milliken.
Detroit is comprised of 138 square miles and is a mosaic of neighborhoods, some of them with enormous challenges. But there are notable bright spots in the City, especially in the Downtown and Midtown neighborhoods. Corktown is another example. Tese are focal points for young, professionals looking for urban lifestyles. One young woman Milliken knows relocated from Boston to join a Detroit advertising agency, and found the Midtown community she moved to exhilarating and full of life. The tremendous growth and opportunity is clearly contagious and advantageous in the end for all, when business starts to grow at a rapid rate.
Some Interesting Global Statistics about Detroit and Its Vibrant Cultural Global Population
• More than 100 Chinese-owned companies in south Michigan
• Germany has invested in Michigan for decades
• Dearborn, MI (part of metro-Detroit area) boasts the highest Arabic population in the United States, notably Lebanese
• Detroit hosts the largest Bangladeshi population in the United States
• There is a huge Spanish speaking population with a 7% Latino population
• The Canadian border crossing between MI and Windsor, ON is the busiest in North America
• Michigan exported 23.4 billion dollars to Canada in 2013 and Canada imported 44.8 billion dollars, most of which were automotive related products
By Tara Perkins, National Association of REALTORS
May 29, 2014