At the rate homes are currently appreciating, they are within a few percentage points of their previous highs. Despite the recent increases, however, the rate in which homes are gaining value appears to be easing. On a national level, appreciation seems to have tempered. Of particular interest, however, is the price several thousand homes in Detroit have fetched – or at least could be worth. To the surprise of the entire housing industry, a mystery bidder has recently offered up $3 million for 6,000 of Detroit’s worst homes.
The cost of dealing with the many blighted buildings included in the Detroit mega-auction means a $3.2 million bid received last week—roughly the minimum allowable bid of $500 per property—will likely prove too high to turn a profit. There are too many expenses that make these homes appear too expensive to turn any kind of profit. “I can’t imagine that you are going to make money on this,” says David Szymanski, chief deputy treasurer of Wayne County, which is selling the properties.
So it’s all the more mysterious that the auction, opened with little fanfare earlier this month, has attracted any bidder at all. Despite the going rate, there is one particular investor willing to take on the challenge of rehabilitating approximately 6,000 distressed properties in the Detroit area. Accordingly, an individual that has yet to be named is willing to pay $3.2 million to take both control and responsibility for scores of distressed properties. The offer is quite surprising, considering the bid will cost the unanimous individual a small fortune beyond the auction price. The aforementioned homes do, after all, need a lot of “attention.” Buying them is just the beginning. There are certain stipulations that any buyer must meet, each which come with a hefty price tag.
The city’s foreclosure problem needs to be addressed. For headway to be made, steps need to be taken to deal with the housing blight in the area. As a result, the city has budgeted a task force to address the situation. That’s right – a task force has already been called in to tear down 10 percent of all distressed structures. The task at hand is monumental to say the least, but essential nonetheless. The group has already surveyed the condition of every Detroit property and identified neighborhoods at a tipping point. Swift action can prevent neighborhoods from slipping away altogether.
Wayne County has become a major owner of blighted properties, which it can seize when owners fall behind on taxes. The scale of its distressed holdings is unprecedented. When Szymanski joined the treasurer’s office four years ago, he called the treasurer of Cuyahoga County in Ohio to compare notes. His counterpart, whose domain includes Cleveland and was a bellwether during the housing crisis, asked: “Are you sitting down? We are foreclosing on 4,500 properties.” Szymanski says he replied: “I hope you’re laying down.” At the time, Wayne County had 42,000 properties in foreclosure.
Even with the expansion of the economy and the housing sector trending in the right direction, Detroit’s foreclosure crisis is crippling. Within the last year, Wayne County has initiated the foreclosure process on 56,000 properties. More than one-third (20,000) are set to be auctioned off. However, the numbers do not end there. Local municipalities expect an additional 75,000 properties to enter into the foreclosure process.
In the years following the housing collapse, distressed properties have been sold individually or in small groups. However, there is an inherent flaw in the system’s design: more than three-quarters of the buyers soon fell behind on taxes, starting the cycle all over again. Noticing the trend, Detroit housing officials changed the rules. Mike Duggan, Detroit’s mayor, suggested that a large portion of the properties be transferred to the city, as to sell them at lower prices. However, to do so they had to pass through a county-level auction first. “The idea was that no one would buy it,” Szymanski explains, so they would pass on to the city to handle.
Officials made the houses particularly expensive so that buyers would pass on them, relegating them to city control. Officials were certainly not expecting what came next. To the surprise of the entire housing industry, a mystery bidder offered $3 million for 6,000 of Detroit’s worst homes. The parcel includes roughly 3,000 properties that need to be torn down, plus some 2,000 empty lots, plus about 1,000 homes that are believed to hold some value.
However, there are conditions that must be met with the purchase of these 6,000 properties. Any buyer will need to demolish the existing buildings within six months of acquiring them. Experts believe such a task will amount to an additional $24 million.