08 Jun Multi-Family Housing in Detroit: Smart Investments Meet Growing Demand
Home is where the heart is, or so they say, but where is the real estate investor? Detroit, in recent months and years has experienced a dramatic swing in multi-family valuations. There are a multitude of factors that contribute to this boom all of which carry different weight in different investor’s eyes. We could dive deeply into the various neighborhoods of the city to talk about different factors affecting each, but for this blog, we intend to lay the framework for a larger more lengthy discussion on Detroit neighborhoods and the backbone of them, housing.
Currently Detroit is on the hunt for its next major industry, while the car industry isn’t disappearing overnight, it is transforming before our eyes. Dan Gilbert is pushing for a technology hub relabeling Woodward to Webward 2.0. However, he is also one of the largest employers with Quicken Loans and Rocket-Mortgage. Detroit is filled with mortgage bankers every morning, a core demographic of millennial employees of Quicken, and yet there is very little for sale housing product close to the city center. Many if not a majority of these people look to Detroit for housing options.
This abundance of residential demand and a shortage of product has in turn created a thriving apartment rental climate with rates well in excess of $2 per square foot per month in many neighborhoods. This has spurred substantial renovation conversion projects like Bedrock’s Book Tower, ICONIC listings 305 Michigan Avenue, Philip Houze and Regis Houze and the Farwell Building, home to ICONIC tenant representation client Leila, all full rehabilitation residential housing projects near the city core. It’s not just those drinking the Kool-Aid on Detroit’s multi-family renaissance either, seasoned multi-family investor Jonathan Holtzman after parting with Village Green, has started a ground up development on the former Statler Hotel site.
At over $2 per square foot for a residential lease, a resident would be paying at least $2,000 per month for a 1000 square foot apartment, or $24,000 per year. With rates like this, real estate investors have taken notice. We have seen the price per door of multi-family product rise dramatically in the last 12 months, with assets being purchased this time last year in the $25,000-$35,000 per door rage to more than double that in recent transactions, and in some cases approaching triple.
As more people move towards major cities and population centers, it begins to fortify and diversify the retail and amenities. This is why Detroit is seeing such an influx of food, beverage, and entertainment investments. People like cities because there are endless opportunities within short distances to find cultural activities and life enriching experiences like the Detroit Institute of Art, Detroit Opera House, or Dequindre Cut and the RiverWalk.
Recently I attended a lunch with at the Detroit Economic Club with Executive Vice Chairman of Blackstone, Tony James and he cited a recent study showing 40% of Americans would be unable to come up with just $400 to handle an emergency. If someone is unable to come up with $400 in an emergency, putting together a down payment on a home is well out of reach, thus further solidifying the need and function of multi-family real estate nationwide. Nationally, rental rates have been growing and real estate investors are taking note. It’s often said, that real estate investors make their money on the buy, not the sell. For that reason the buyers have been as aggressive as ever, perhaps reacting to the steady growth, or perhaps predicting a steady climb.
Detroit’s apartment vacancy rate is fifth-lowest in the nation. Rents within the city have been increasing, especially in the downtown and Midtown areas and Detroit’s housing demand remains stable. Add to that a rapidly redeveloping city core and growing business sector, and it’s no wonder there’s so much momentum in Motown.
Perhaps the strong demand, growing opportunities and a renewed sense of civic pride make Detroit an attractive option for real estate investors. As potential renters and building owners alike are priced out of coastal cities or see smaller returns, opportunities in the Detroit area may offer greater risk but ones that show promise, certainly one of the attractive multi-family housing markets in the Midwest.
If you’re interested in learning more about multi-family housing and what an investment might look like, contact us and let’s begin a conversation.