Detroit, one of the hardest hit cities during the recession, has recently become the beneficiary of a billionaire’s buying spree. Dan Gilbert, the founder of Quicken Loans, continues to purchase as many commercial buildings as he can in the downtown metropolitan area. However, his efforts alone are not the only contributions being made to the city’s real estate industry. Gilbert’s recent acquisitions have facilitated an influx of investor activity. Appropriately dubbed the “Dan Gilbert effect,” investors are now focusing their attention on the bankrupt metro.
Gilbert’s efforts, according to some, are serving as the driving force behind Detroit’s current recovery. Having filed for Chapter 9 bankruptcy as recently as July, the city has already experienced a significant resurgence. Gilbert has already purchased dozens of commercial properties and has no intentions of slowing down. His efforts alone have created 6,500 jobs in downtown Detroit since 2010.
Gilbert’s latest acquisitions, in association with rising property values and rents, have caught the attention of other investors looking to get in on the action. Furthermore, there is an increasing demand for office space, as the area’s automotive, medical and technology industries are expanding at an encouraging rate. Investors are intent on being the ones to capitalize on this influx of job growth.
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.
For example, Schostak Brothers, a real estate firm, recently announced construction plans for a 16-story office building, valued at $111 million, for Meridian Health Plan, set to open 2017. It will be Detroit’s first new high-rise since 2006.
Also, Dongdu International is buying up properties downtown, including the former Detroit Free Press building, which it plans to convert into residential units. DDI is also under contract to purchase a 10-story apartment building for $2.77 million downtown.
Further encouraging investor activity, is the future development of a $450 million sports and entertainment facility for the Detroit Red Wings. The downtown development is expected to bring a lot of money to the area, making investments that much more appealing. However, if that weren’t enough already, an additional $200 million from private investments is being used to further residential, retail and office space across a 45-block area.
The city’s economic development arm forecasts almost 1,000 new residential units coming on line downtown over the next five years.
Despite recent investor activity and enticing downtown developments, Detroit’s office vacancy rate is still above the national average. Its office vacancy rate was at 26.5 percent at the end of the third quarter (but down from 33 percent in 2010). The national average is 15.2 percent.
“We’re seeing significant investment, but what we are lacking are big institutions,” says Fred Liesveld, executive vice president for commercial real-estate firm Newmark Grubb Knight Frank.