One City Drives to the Top
I haven’t been to every city in the country, but there is one city I have been watching closely over the last couple of years. That I have now moved this City into an extremely bullish category. Disclaimer: I am not suggesting all investments in this City will be successful but if positioned correctly this will be the top city on the country to invest in.
(Spoiler Alert: The Motor City)
Those of you that know me know that I am a data junkie. I don’t make an investment without having a lot of market research. I believe investing without data is attuned to gambling and I don’t like to gamble.
Years ago, I was speaking on declining populations and how population clines (movement) was one of the strongest drivers of the real estate market. “White flight” (not racist) as it is often referred to, is when those capable of moving for better jobs do so, and thus leave a higher percentage of low paying jobs behind. White flight leads to reduced tax basis and struggling finances for municipalities. As I was talking to that, I was bad mouthing Detroit as a city that has been on the decline for five decades and was, more or less, left for dead.
Then about 2-3 years ago I noticed something fascinating. And it has nothing to do with the current racist baiting items the media is currently spinning to sell stories. But I observed the white population begin to increase. The year over year increase of white population happening in Detroit is one of the first times in Detroit in nearly 40-50 years.
Maybe I could call it gentrification or the hipsters’ coolness factor or just healthy growth. Regardless, the Hispanic, White and other Immigrant populations in Detroit have been increasing over the last five years. A larger percentage of those new Detroiters have college degrees, higher income earning jobs and more discretionary income.
In 2010, the city had a white population of 55,298. That population began to climb year after year. There is an estimated 2015 population of 75,758 and close to 80,000-82,000 as of 2016, although the exact number is unknown at this time. This increase is creating a dynamic demographic shift in the city. However, there are two things to consider- the overall population of Detroit has been declining over that same period, and that particular increase and changing demographic has been located primarily in the Downtown area (Downtown, Midtown, Corktown, New Center, and Eastern market).
My speculation is that much of this has to do with Dan Gilbert and that he is locating more businesses downtown. Additionally, Detroit has all four major professional sports franchises (3 of which are downtown), and they have a culture of music and grit. That grit and vibe have been a formula for success in several submarkets across the country. Look at Williamsburg NYC, Wynwood Miami, East Austin, Pearl Portland, RiNo Denver; these are all great examples. Detroit also has that vibe in spades and pride associated with the city that is resurging with renewed vigor. You can start to feel it blossoming amongst the vandalized and falling ruins of the capitalism Mecca from a century ago.
I am not suggesting that Detroit will reemerge as the powerhouse city that it once was, but there is evidence of the start of progress in that direction. As shocking as it might be, there is a lack of quality housing right now which is sending rent prices up, and home prices upward as well. I believe this is something that will sustain because you see award winning chefs and restaurants popping up, you read about cool stories like Shinola manufacturing and Carhartt locating their facilities downtown. Although there is still a tremendous amount of office vacancy, it is mostly owned by Billionaire (Quicken Loans) Dan Gilbert and he has the vision and capacity to slowly reintroduce available space into the market in order to keep a steady growth. They recently released plans for the Hudson department site that would include a new 52 story high-rise which would be the tallest building in the city. (See image above and below)
We are specifically targeting value-add opportunities because I believe that the fringes of the 7.2 sq mile downtown region of Detroit will see the best increase in value and assets can still be purchased below replacement cost. All in all, we feel strongly that Detroit is a rising phoenix and will shine as one of the best markets for investment in 2017.
If you have any questions on Detroit or our other market analysis, please feel free to reach out.