With a weak US dollar, strong yuan and China’s own real estate market cooling after years of explosive growth, Detroit is an attractive – but high-risk – option for Chinese property developers
Last autumn, a group of Chinese real estate developers arrived in downtownDetroit for a city tour. As they walked through its small central cluster of high-rises – some in use, many long-ago abandoned – they were impressed by what they saw. Amid the urban decay, they were shown art spaces, colourful tech startup offices, and other testaments to reinvention. “Rebirth of Detroit” read one elaborately-stencilled mural. Wedged into an empty window frame of a crumbling mid-rise, a wood block carving depicted an Atlas-like figure hoisting a giant ‘D’ on his shoulders. “Rising from the ashes,” it said.
In September, the Shanghai-based developer Dongdu International (DDI) made its first move. In an online auction, it snapped up three iconic downtown properties, all built during the city’s early 20th-century heyday as an industrial powerhouse. DDI purchased the David Stott building, a 38-storey art-deco skyscraper built in 1929, and the former Detroit Free Press newspaper headquarters, a T-shaped edifice adorned with bas-relief sculptures of biplanes and locomotives. Later, it acquired the 10-storey Clark Lofts, an inconspicuous residential building with a manual, pre-second world war elevator – the oldest in Detroit.
Altogether, DDI spent $16.4m (£9.6m) on the properties, slightly more than a top-market apartment in Shanghai.
The company plans to transform the buildings into vibrant offices and upscale apartments, according to the CEO of DDI’s leisure branch, Peter Wood. “Once we’ve shown to the locals in Detroit that we’re deadly serious, then other things will happen,” Wood says, sitting in his corner office on the 10th floor of a Shanghai skyscraper, a dozen or so Chinese employees typing diligently in cubicles outside. “Detroit is planning for this area to come back. It’s all about rejuvenation.”
China has in recent years become the second largest foreign investor in US real estate after Canada – the dollar is weak, the yuan is strong, and the country’s own real estate market is cooling down after years of explosive growth. While most buyers – individuals as well as companies – focus on reliable investments in cities such as San Francisco, Los Angeles and New York, others are seeking new frontiers. Many have family in the US and degrees from US universities; they are attracted to complex, high-risk projects which require a deep understanding of local real estate markets, politics and laws.
Even for them, though, Detroit is an ambitious target. While some parts arestaging a comeback – the Quicken Loans billionaire Dan Gilbert moved his corporate headquarters there in 2010 – tens of thousands of the city’s properties still lie abandoned among overgrown lots. Images of Detroit’s urban blight have become a defining visual symbol of American rust-belt decline.
Not surprisingly, DDI has run into problems with its investments: the 302,000 sq ft Detroit Free Press building, abandoned since 1998, has fallen into an advanced state of disrepair. After DDI took over the David Stott building, its best-known tenant, Detroit Yoga, relocated citing landlord concerns. One of the building’s only other tenants, SkyBar, is currently suing DDI over a rent dispute. Neither DDI nor SkyBar’s management would comment on the case.
“They had these grand plans to dump millions into the [Stott] building,” Ryan Snoek, a real estate consultant who coordinated the sale, told Crains Business Detroit. “I’m starting to become concerned that may not be the case, that they just bought the buildings and will just hold on to it.”
Ken Creighton, a local representative for DDI, said the company will be begin renovating the buildings in the “first or second quarter” of next year. “We’ll do the Free Press building first … All of the buildings will be redone – their mechanical, electrical and plumbing, their elevators. Most of these buildings haven’t had anything done to them in years, maybe decades.”