Market Profile: Detroit’s new model is revved and ready to roll
To understand the current state of the Detroit real estate market, and to appreciate how and why Detroit is such a hot market today, we have to look to the past. Historical context is crucial here because, more than most cities, the story of Detroit is the story of a city shaped by its past. In many cases, the building blocks of today’s development boom are being literally and figuratively laid across foundations that were laid years ago.
The downtown Detroit development landscape has been shaped by decades of turmoil, challenges and well-intentioned, but ultimately insufficient, efforts to revitalize a great American city. Like a handful of other Midwestern manufacturing centers, Detroit’s urban core had deteriorated to such an extent that there really was no place to go but up.
A number of prominent civic leaders over time made truly valiant efforts to kick-start progress or serve as the financial and political catalyst for some ambitious and exciting projects in downtown Detroit, but, until recently, there simply was not enough of an economic tailwind to keep those efforts going. Efforts by GM, Penske and the Ilitch family were substantive and sincere, but it was not until Dan Gilbert and Quicken Loans moved downtown that the real estate development marketplace seemed to reach a tipping point. It’s worth noting that if Quicken had stuck to its original proposal, which was fairly modest, the impact may have been more muted. But the company upscaled its plans, and the results were dramatic. Not only did Quicken move the needle for the Detroit real estate development market, but the impact can fairly be described as seismic.
At the same time, a number of other positive developments were adding to the momentum. GM had cycled through bankruptcy and emerged on the other side, and a sustained economic recovery was beginning to bear fruit. With things moving in the right direction, some of the infrastructure groundwork that had been laid by businesses, private investors and institutions like Wayne State University began to pay off. Downtown development had reached a critical mass, and it became clear to longtime Detroit-area businesses and real estate players that the city had enough different things happening all at once (in a fairly concentrated area) that decades of stagnation had finally come to an end.
As the market continues to heat up, it has begun to generate its own momentum. Savvy developers recognized this a few years ago, and began to move in, adding more fuel to the development fire. Today, it is safe to say that in a booming Southeast Michigan real estate market, Detroit is the home of some of the most impressive and promising new projects. Detroit is in the midst of a true revival: a retail and mixed-use renaissance. Creative and high profile redevelopments have brought venerable buildings and iconic civic landmarks back to life with new residential and mixed-use energy. Woodward Avenue is particularly active at the moment, with the obvious headliner being the $627 million Little Caesar’s Arena development. The arena, which will play host to the Detroit Red Wings hockey team, will combine with Comerica Park and Ford Field to give the city three major professional sports arenas downtown. While Detroit’s central business district is the leading development hotspot, activity is radiating outward and picking up in peripheral neighborhoods, as well.
Despite the spate of development in Detroit, abundant opportunities remain for developers. The downtown arena district has plenty of fill-ins available, and there is still a lot of work to be done to build density in adjacent areas like Midtown, Corktown, Greektown and Lafayette Park. For all the progress that has been made, we still have a long way to go before we reach the kind of density that you see in places like the Near North in Chicago.
While it’s clear that promising development opportunities exist, we are starting to see prices rise quite significantly, partly because of additional activity from speculators. One positive and promising sign for the future of downtown Detroit is that the economic development that has already taken place is helping to create jobs and strengthen the workforce–which will ultimately continue to drive the push for more residential projects and spur additional development expansion out into surrounding neighborhoods. As always, additional retail will follow that residential density and perpetuate a self-reinforcing cycle. Looking ahead, you could argue that one of the most important factors for real estate development in Detroit will be maintaining and expanding safe environments for downtown residential development. Additional quality residential density (a mix of high-end, workforce and low income) will be key.
Developers who are new to the Detroit market would be wise to take the time to learn the market block-by-block and neighborhood-by-neighborhood. Downtown Detroit is a rich and complex ecosystem, with conditions and communities that change dramatically – sometimes from one block to the next. The established development community here in Detroit is generally welcoming to new players, and with abundant opportunities available, it’s likely that outside investment will be looked upon favorably for the foreseeable future. Going forward, the overall mood is optimistic, and the momentum continues to be self-sustaining with no sign of slowing down. Developers and investors are active and engaged, and with investment coming in from across the country (and even around the world), the future looks bright for a city that’s real estate development boom has been decades in the making.