CRE V Michigan

Momentum slowing in Detroit's commercial real estate market? No evidence of that

Momentum slowing in Detroit? No evidence of that,ph01
The District Detroit is one of the key elements of the city’s rejuvenation.

Dennis Bernard, founder and president of Southfield, Michigan-based Bernard Financial Group, said that the Detroit commercial real estate market continues to gain momentum.

And the future looks bright, both in the heart of downtown Detroit and in the city’s outer neighborhoods and suburbs, he said.

For one thing, demand is high. Bernard said that the Detroit market is especially under-supplied in the industrial sector. Companies are eager to build new warehouses in the market. Others are seeking modern industrial space that is in too short of a supply here.

The multifamily market in Detroit remains hot, too, Bernard said, especially in the urban core. Demand is increasing for office space in the central business district. And even retail, while going through what Bernard calls a seismic change universally, is growing in the city and its suburbs.

“Overall, the Detroit real estate market is as healthy as it’s been in 25 or 30 years,” Bernard said.

What’s behind this growth? Bernard points to the political leadership in both Detroit and the state of Michigan. He said that Gov. Rick Snyder has promoted a business-friendly environment for the entire state, a benefit that has trickled down to Detroit. It’s simply easier today for developers and investors to work in the city, Bernard said.

“We are friendlier state in which to do business,” he said. “There aren’t as many regulations. There are lower taxes. We have had a greater focus on technology and research-and-development. We have attracted businesses.”

Detroit itself has benefitted, too, from the capital of two key business leaders. Mike Ilitch, who died in 2017 and was the founder of Little Caesars Pizza, played a key role in the early efforts to revitalize downtown Detroit.

As the owner of both the NHL’s Detroit Red Wings and Major League Baseball’s Detroit Tigers, Ilitch jumpstarted investment efforts in downtown Detroit. That paid off, as all four of the city’s major sports teams – the Tigers, Red Wings and the NFL’s Lions and NBA’s Pistons – know all have stadiums in downtown.

Dan Gilbert, owner of Quicken Loans and Rock Ventures, and a Detroit native, has been key to Detroit’s improving fortunes, too. He has invested significantly in the city’s downtown, helping, too, to spur renewed interest in the center of Detroit.

Bernard acknowledges that work is still to be done in downtown Detroit. But he says that thanks to the efforts of people like Ilitch and Gilbert, that businesses now want to operate from the center of the city. Retailers and restaurateurs are interested again in the core of Detroit.

And just as importantly, people want to live in apartments in the city again.

There have been plenty of positives since 2013, when the city of Detroit filed for Chapter 9 bankruptcy protection.

“There is a revival going on in the city of Detroit right now,” Bernard said. “City services are delivered on time now and in a prompt way. That’s made a difference. The city is just more efficient now. As Americans we like underdogs. We like comeback stories. Detroit is a great comeback story.”

Bernard said that the change in Detroit during the last five years has been monumental. As Bernard said, for 50 years, the city of Detroit saw negative population growth on an annual basis. During the last five years, though, that trend has reversed, with more people moving to the city each year.

“It is an enormous change,” Bernard said. “We have companies moving here, too, instead of moving away. We have a vibrant downtown. We have a long way to go, but the city has come back in a remarkable way in just the last five years.”

Detroit scored another victory starting May 1, when the Urban Land Institute held its spring meeting in the city’s Cobo Center.

For Denise Drach, this event offered the city a chance to show off its recent progress. She said that visitors often come to Detroit for the first time and are amazed by the city’s architecture, beauty and cultural attractions.

And now? A whole crop of first-time visitors descended upon Detroit for the ULI spring meeting that was held May 1 through 3.

For Drach, director of business development with Detroit-based architecture and interior-design firm Rossetti, the spring conference is more evidence that the news of Detroit’s recovery is spreading across the country.

“We are thrilled that the conference is being held here,” Drach said. “People want to come to Detroit. They are interested in the city. They’ve heard the buzz. They are starting to believe in it. They not only want to hear about the success stories, they want to see it for themselves. The story of Detroit’s reinvention has caught on nationwide. People want to come live it and see it for themselves.”

The Spring Meeting is a big deal, and it will kick off May 1 with tours of Detroit’s newest real estate projects. This is a way for Detroit’s commercial real estate leaders to showcase the city and the progress it’s made.

Mark LoPatin, president of Farmington Hills, Michigan-based developer LoPatin & Co., said that the Urban Land Institute’s return to Detroit is long overdue. It has been 40 years since the last time the institute held a national event in the city.

“That tells you a little bit about what unfortunately happened to Detroit and what is happening now,” LoPatin said. “It’s quite an honor for the Urban Land Institute to come here.”

The Spring Meeting is an important event for LoPatin. He grew up in Detroit. He saw the city fall into decline. And now he sees the potential of this key Midwest city.

“We now see the opportunity for Detroit again to be one of the great cities in the country,” LoPatin said. “We are very proud that the Urban Land Institute is bringing international leaders in land use to see and hopefully invest in this renaissance.”

That last point is important. Yes, it’s a positive sign that the institute hosted its meeting here. But the greater benefit would be if attendees plant the seeds of future deals in Detroit and its surrounding communities.

Drach says that she expects this to happen, especially after attendees see the commercial activity already taking place in the center of Detroit.

“People will see how much opportunity there is,” Drach said. “There are collaborations that can be forged. If people have the will and the interest, deals can be made.”

What’s changed in Detroit? Both LoPatin and Drach point to the city’s new administration. As Drach says, the government is now pro-business and is working with those who want to invest in Detroit. That wasn’t always the case here.

It’s not just the big deals that grab the headlines that are making a difference in Detroit, either. LoPatin says that when a single investor buys a residential house in Detroit, fixes it up and then resells it? That, too, is making a positive impact in the city.

“It doesn’t matter what development we are talking about, I’m excited about it,” LoPatin said. “Anything that helps turn a neighborhood around? That has me excited.”

Bernard, too, was excited about the ULI spring conference. He said that symbolically, the spring meeting was a huge win for Detroit.

What does Detroit need to keep the momentum going? Bernard points to capital.

“We need a continued flow of capital into the city,” Bernard said. “We have been on the forefront of that so far. But we need lenders that haven’t lent here in a long time to lend here again. Our state also needs to continue to produce or entice talent. We do still have a serious shortage of educated tech-related talent. As companies here grow and attract more tech-focused employees, that will help increase the talent pool in Michigan.”

There is one thing Detroit doesn’t need, in Bernard’s view: The city doesn’t need out-of-town investors and developers to swoop in and complete dumb deals.

Bernard said that as out-of-town players hear more about Detroit’s revitalization, many might rush to close deals that don’t make economic sense. These dumb deals could lead to future foreclosures, and those failures would fuel the doubters.

“You’d have people saying, ‘See? See? You can’t do it in Detroit,” Bernard said. “We don’t need that here. We do want out-of-town players to come here and invest in Detroit. But we want everything done in a smart way. We want thoughtful development.”