By Mariano Capellino, CEO at INMSA
Read transcription below | See original article published in La Nación newspaper
The city re-emerged from bankruptcy and properties which had dropped up to 70 percent are now recovering value; there are opportunities starting from US$350 per square meter
After almost vanishing from the face of the earth, now it is becoming the star of the real estate. Detroit is the city that went through one of the most resounding crises in the United States of America, but today, it seems it is standing on its own feet again and there is some initial recovery with big opportunities for real estate investors.
It has been said and proved: the market cycles dominate investments in the real estate sector. And Detroit is another example of this. It was the capital of the automobile industry and in 1950 it became the fourth most populated city in the USA. Then, a constant emigration process started and it got worse with the transfer of the automobile production to Asian countries.
Thus, tens of thousands of buildings were abandoned and the real estate market collapsed.
In 2013 the city was declared bankrupt and population was reduced to just 700,000 inhabitants, compared to the 2 million people living there in 1959. In 2014, the city re-emerged from bankruptcy; the real estate market was back on its feet and started the recovery process.
Today, Detroit is attracting more than US$ 4 billion in investments aimed at restructuring the automobile industry and developing the technological sector. Unemployment was reduced from 26% to less than 10% because of new companies entering the market. One of them, Quicken Loan, arrived to the city with 20,000 employees and Dan Gilbert, its founder, invested US$ 1.8 billion through the acquisition of more than 70 buildings to transform the downtown area.
Also, the Trump effect will be positive for Detroit. The revitalization of a car factory has already been scheduled and it is the city with highest industrial idle installed capacity in the country. And the upcoming deregulation in the banking sector will enable to increase the supply of mortgage loans for working classes, thus enhancing the recovery of value of real estate in the city.
This new revival has been driven by the development of more than one hundred projects in downtown and midtown. There is a wide offer of residential and commercial assets to be refurbished, which can be obtained through banks and auctions with strong discounts, under the market value. Real property has already started a recovery process at 10% annually and, in several areas, there is still a long way to go after a collapse of more than 70% of their value. Believe it or not, there are good quality residential assets whose value is quite below the replacement cost, starting from US$350 per square meter. But, be careful, it is also possible to acquire property three times its value. Also, there are intermediaries buying at US$20,000 and selling at US$60,000, but they are properties located in areas with a high risk of vandalism. For that reason, it is important to be aware of what property to buy and with whom.
The high potential for recovery is not the only attractive aspect. The current rental net income can reach 8 to 12 percent annually. For all this, Detroit is becoming the new destination for real estate investments.