Mariano Capellino published a new article in Apertura.com about the next destination for real estate investments, Detroit.
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Detroit, the next destination for real estate investments
Like Spain today, everything seems to indicate that the next real estate star will be Detroit, the city which has gone through one of the most resounding crisis in the USA and which is now starting to shine.
Located in the state of Michigan, bordered by Canada, it was the capital city of the automotive industry until devastated by the deep crisis experienced in the sector
Headquarters of General Motors, Chrysler and Ford were host there. In 1950, it was the fourth most populated city in the United States of America, but then the population started a constant migration process because of race and trade union conflicts, high taxes, crime and unemployment rates which caused the automotive industry to move to Asian countries, consequently tens of thousands of buildings were abandoned.
In 2009, it became the symbol of the international financial crisis and in 2013 the city was declared bankrupt. The population of the city of Detroit dropped from almost 2 million in 1950 to slightly over 700,000 inhabitants in 2010 and today it is the ninth most populated city in the country.
In 2014, the city emerged from bankruptcy and today Detroit is repositioning itself and attracting investors, obtaining support from companies and the government. Through strong incentives for the transformation of the automotive industry and the development of the technological sector, Detroit aspires to become the next Silicon Valley.
But, is this a concrete recovery process? We can say that there is a lot of data showing signs that something is happening.
For instance, investments of more than US$ 300 million have been recently made by the federal government in infrastructure and security, or action plans were developed for the purpose of transforming the automotive industry and the technological sector involving more than 4 billion US dollars.
Quicken Loans, one of the largest on-line financial institutions in the mortgage sector in the country transferred its 20,000 employees to this city and invested US$ 1.8 billion to transform downtown and its surrounding areas as well.
Furthermore, tycoon Mike Ilitch has invested approximately US$1 billion through the acquisition of clubs, casinos and stores in the city, in addition to the construction of a new stadium and new spaces for stores and restaurants.
Also, JP Morgan Chase has invested US$34 million and it has just announced more investments for 100 million to revitalize the city. And that´s not all. The real estate investment company based in Chicago, Capri Investment Group LLC, has collected US$200 million for housing projects.
Meanwhile, the unemployment rate has been reduced from 18% to 10% in 2016.
All of the above made many companies and investors purchase lands, remodel old buildings and develop new projects for both residential and commercial purposes.
These are only some of the reasons of what seems to be the beginning of the recovery of the real estate market.
At INMSA, we have been analyzing Detroit for the last 5 years. Only today it is possible to see signs of recovery which had slightly started by the end of 2014. Is this a firm trend? Not yet, but that´s where it is possible to find big opportunities.
Today, the market offers a wide variety of residential and commercial assets to restore and it is possible to obtain portfolio through banks and auctions with important discounts under the current market value.
Property started to recover value at 10% annually but there is still a long way to go. As weird as it might sound, good quality residential assets are valued well below the replacement cost, starting from US$300 per square meter. Yes, you read it right, US$300 each square meter.
There are big opportunities but, at the same time, it is necessary to understand the market and each zone. There are already offers for foreign investors at a value three times the value which could be obtained through a proper negotiation process.
But there are also very attractive offers, as far as price is concerned, from US$ 10,000, but located in areas with risk of vandalism. For that reason, the selection is essential to obtain results with a proper control of the risks involved.
As weird as it might sound, good quality residential assets are valued well below the replacement cost, starting from US$300 per square meter. Yes, you read it right, US$300 each square meter.
But the value of property and its high potential for recovery is not the only attractive aspect. The current net profit obtained from rental operations may be 8% to 12% on a yearly basis. The lack of property in good conditions and its low value make it possible to get important profits well above the ones obtained in other cities worldwide.
Detroit is becoming the next destination for real estate investments. Even though there are many uncertainties about its future, there is a high degree of consensus (government, wealthy local families, companies) and an eye on investment funds, which is creating a very positive expectation for the recovery of the city that is emerging to create opportunities for real estate investments.