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Why These 5 Investors Are Interested in Detroit?

Why These 5 Investors Are Interested in Detroit

Detroit, Michigan was once a manufacturing mecca, a city where industry and production combined with a rich culture all built around the automotive industry. Recent years have shown a downward trend into citywide chapter 9 bankruptcy, and the perception of Detroit has become one of a dangerous ghost town. The reality is, it’s a city waiting to make a comeback; a city of rich history and great potential, and it’s something many people are beginning to recognize.
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Does multimillion dollar Chinese investment signal Detroit’s rebirth?

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

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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.”

 

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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.”

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Billionaire’s Detroit Buying Spree Starts to Spread

DETROIT—Locals call it the ” Dan Gilbert effect,” the recent buying spree of commercial buildings in downtown Detroit by the billionaire founder of Quicken Loans.

Now the phenomenon appears to be spreading.

Despite a fiscal plight that forced the city to seek Chapter 9 bankruptcy protection five months ago, the real-estate market has been picking up in Detroit’s downtown core. Mr. Gilbert has led the charge by buying dozens of properties and moving in 3,800 of his employees from suburban offices and creating another 6,500 jobs downtown since 2010, according to the company.

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But lately, other investors have begun buying trophy buildings and starting to develop apartments to meet the rising demand from workers who prefer downtown living. City officials estimate residential occupancy downtown is 97 percent.

The projects show that some real-estate investors are looking beyond the bankruptcy to an eventual rebound in Detroit. They are hoping that property values and rents will rise due to the region’s resurgent automotive industry and the expansion of its medical community and nascent technology industry.

The city’s economic development arm forecasts almost 1,000 new residential units coming on line downtown over the next five years. Next year, developers are expected to complete the renovation of the 19-story David Whitney building to house a boutique hotel, apartments, restaurants and a bar, city officials say.

The real-estate firm Schostak Brothers in September announced the planned construction of a 16-story office building for $111 million to house Meridian Health Plan, slated to open by 2017. The building would be downtown Detroit’s first new high-rise since 2006. Company officials weren’t available for comment.

In October, Dongdu International, known as DDI, paid a total of $13.6 million for two of Detroit’s better-known buildings, including the former home of the Detroit Free Press, now slated for a residential conversion. The Chinese company is now under contract to buy a third, 10-story loft-apartment building for $2.77 million, an attorney representing the company said this week.

And just last week, the city’s downtown development authority gave preliminary blessing to a proposed $450 million sports-and-entertainment arena backed by the Illitch family to house the Detroit Red Wings through a mix of public and private funding. The plan includes another $200 million in private investment for residential, retail and office space across a 45-block area.

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5 Reasons We Are Investing In Detroit Real Estate

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Most of us think of Detroit as the demolished city featured in Eminem’s music videos and aren’t surprised when we see headlines about its bankruptcy and crime. It’s easier not to think about Detroit. The collapse of Motor City hurts our American pride a little, and if we are totally honest, it’s just easier not to look anymore.

But while the rest of the country isn’t looking, a movement is quietly underway to entirely reinvent Detroit. In fact, in the coming months you will begin to read headlines about Detroit “roaring back” and how the economy is “accelerating into a new era”. Mark my words. Here are 5 reasons why Detroit is a smart investment:

1.The hipsters are on the way. The much maligned, bike riding, mustache growing hipsters are a key demographic for real estate investors to watch. Before the renaissance that made Brooklyn a destination for upper middle class New York City residents, its grungy streets were taken over by hipsters. They biked, they sang, they painted, they opened boutique coffee shops and hosted live music festivals. They started small tech firms and made empty brick buildings with concrete floors into trendy apartments. They talked about new world orders and made kale smoothies — and all the while transformed Brooklyn from a dangerous borough-to-be-avoided into the trendy $4000-for-a-two-bedroom-apartment place that it is today. Hipsters did that, and they are moving to Detroit en masse. As was reported by Venture Beat News just days ago, major venture capital firms are dumping money into young startups that are finding a home in the beleaguered city. There is still time to be an early adopter of Detroit investment, but that window will close, it’s just a matter of when.

2.Buy low, then do not sell. Of course we’ll want to sell eventually, but there is no rush. Detroit’s recovery is starting now. That means it has miles to climb — and many junctures along the way for us to cash in our investment. For those willing to buy and hold, the potential for returns is higher than anywhere else in the United States. Make no mistake, the city parks will be cleaned up, the fountains will be turned on, and major corporations will put their names on the city’s skyscrapers. In fact, when the Detroit Convention Center went looking for $299 million of investments to renovate its facilities, they received $922 million worth of bids within two hours. Renovations like that will multiply the value of our investments exponentially.

3.Don’t follow the crowd, follow Buffet. “I like to buy mispriced things,” Warren Buffet said during a visit last year, saying he would gladly buy a company in Detroit. The billionaire investor is well known for his uncanny ability to find bargains and then sell at the zenith of their value. If he has picked Detroit, that’s good enough for us.

4.It’s an emerging market that takes dollars. Most emerging markets are found in Asia or South America — but some describe Detroit as an emerging market as well, it just happens to take dollars. It is emerging in the sense that it is developing totally new industries and is rapidly winning investor confidence in what it can do. Already investors have spent over $1 billion to renovate tourist attractions like its Greektown Casino, downtown hotels, and restaurants. $650 million has been poured into a new sports arena and into renovating the arena district.

5.Detroit is investment friendly. To be sure, development plans will still have to go through standard city planning approval processes — but Detroit is welcoming investors with open arms. Since they made it through bankruptcy proceedings, they have taken serious steps to invite the kind of investments that we’ve already described. The culture in Detroit is one where developers and investors and the city government are working well together. We are excited about being a part of a business friendly culture like that.

While this point is not on our list of “official” reasons for investing in Detroit, we have to mention that it is a small matter of pride to be a part of the recreation of one of America’s icons. Motown has always been a part of America’s greatest successes, once being called the “Arsenal of Democracy” for its manufacturing support of the Allied powers during World War II. We want to see that city back on its feet, and we’re confident that it will be soon.

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Empty mansions in Aspen cause ‘hollowing out’

 

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Aspen and Detroit might seem like polar opposites as communities.

Detroit is a fallen factory town hounded by poverty. Aspen is a fast-rising mountain resort feasting on the fruits of the plutonomy and the global super rich. Houses in Detroit can’t be given away, while the average home price in Aspen is worth more than $5 million.

But it turns out, the Colorado town’s extreme wealth and Detroit’s extreme poverty give them one thing in common: a vast community of empty homes.

Aspen’s outspoken former mayor, Mick Ireland, told The Associated Press that his town has become “hollowed out” because so many of the multimillion-dollar homes there are owned by super-rich owners who never use them. That’s led to a town of ghost mansions.

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“It’s a mirror image of Detroit, where wealth, not poverty, is driving population down,” said Ireland, who served for three terms.

For many of the super-rich owners in town, Aspen isn’t their second home—it’s their fourth or fifth. So for much of the year, the town is empty.

Aspen’s soaring real-estate prices have led to a split population: the absentee owners who own more and more of the homes in town, and the household staff, teachers, doctors, builders and lawyers who actually work there and who often have to live more than a half-hour away to find affordable homes.

Read MoreManhattan apartment prices hit record high

Aspen does have an affordable-housing program, which Ireland helped expand and which is often seen as a model for other towns. But there are not nearly enough affordable housing units to meet demand.

Aspen is not alone in the hollowed-out housing of wealthy communities. The influx of foreign buyers and investors buying up homes have led to more and more so-called dark buildings in New York, Miami and London.

Read MoreThe 10 swankiest penthouses

The New York Times found that a quarter of the apartments in New York City are not used as primary residences. Instead, they are used as either as pieds-à-terre or investment properties that are rented. That doesn’t mean all of them are empty. But it does mean that the growing share of wealth going to the wealthy is leading to a growing share of homes being owned by people who rarely use them.

Having residents who pay property taxes but don’t use many local services may be a plus. But as the people of Detroit could tell you, living in a town without people can become a hollow experience.

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INDEPENDENT ADVICE

Detroit Property Management has worked with investment funds and high net worth individuals in dealing with each stage of the investment process

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PORTFOLIO DEVELOPMENT

Detroit Property Management has built up a strong network of clients and professionals and is active in acquiring and disposing of properties on their behalf

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PROPERTY MANAGEMENT

Detroit Property Management has experience in developing property in the USA: Assessment of development proposals, Negotiation of contracts

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