Detroit Exudes Optimism

Slowly but surely, the missing pieces of the puzzle critical to the long-term vitality of the city of Detroit are starting to fill in, say real estate experts and business leaders.

While the city is working through a painful bankruptcy to get its financial house in order, the public and private sector are moving forward with a sense of urgency to make sure that revitalization efforts in Downtown and Midtown don’t lose momentum. The success stories in the office, retail and apartment sector often come in fits and starts, but collectively they show measurable progress.

A planned 3.3-mile streetcar line, known as the M-1 Rail project, is the infrastructure piece of the puzzle. Utility relocation work is underway on Woodward Avenue, the first step toward full-fledged construction of the planned light rail line that will connect 11 stops between Larned Street in Detroit’s central business district up to West Grand Boulevard in the New Center area at the north end.

Funding for the $140 million streetcar project, which is expected to be complete in 2016, has come from a variety of sources including
corporations, foundations, nonprofit agencies and government sources.

“We’ll have more of a pedestrian connection between Downtown, Midtown and New Center,” says Michael Forsyth, business development manager with the Detroit Economic Growth Corporation (DEGC). “Yes, we are the Motor City, but we need to have walkable retail destinations that accommodate all modes of travel. The city was originally built for people. In some ways, it was re-engineered to really be built for the auto industry, but we’re seeing things change as they do everywhere.”

On the retail front, one success story is the 21,650-square-foot Whole Foods Market that opened last June in Midtown Detroit, says Jim Stokas, a principal with Stokas Bieri Real Estate, a brokerage firm specializing in retail with offices in Detroit and Southfield, Mich. By all accounts, the store is doing a brisk business.

“The key to Detroit is really not retail following rooftops; it’s retail following retail success stories,” explains Stokas. “When a Whole Foods Market opens in Midtown and all of a sudden after the first year the store is doing double the sales volume first estimated, that’s something I can show my retail clients. If Whole Foods can do that can kind of volume, our clients can potentially achieve a good sales volume as well.”

Midtown Detroit enjoys a daytime population of approximately 40,000, including students and faculty from Wayne State University and employees of Henry Ford Hospital and the Detroit Medical Center.

The high-density foot traffic benefits Whole Foods, says Stokas. “During the day, up until 6 p.m., that’s the feeder to the market. After 6 p.m., it changes over to the local population — the people who live in the area but work outside of that area.”

Another success story is the 350,000-square-foot Gateway Marketplace, which opened to great fanfare last July at the southeast corner of Eight Mile Road and Woodward Avenue. Gateway Marketplace was the first shopping center to be built in the city of Detroit in years.

The center is now 100 percent leased and is anchored by a Meijer superstore, Marshalls department store and K&G Fashion Superstore. Other tenants include Payless Shoes, Petco, Five Below, Foot Locker, Allstate Insurance, PNC Bank and McDonald’s. Stokas Bieri was the lead leasing agent for Gateway Marketplace.

All indications are that the center will continue to be a strong performer. “Retailers at the center are reporting very good sales,” says Stokas, adding that the sales for Five Below at Gateway Marketplace are reportedly among the strongest in the chain.

Eight Mile Road is the dividing line between Detroit and the northern suburbs. One uncertainty prior to the opening of Gateway Marketplace was whether the development would attract the population that lived a few miles north of the center near I-696 between Southfield Road and Mound Road, recalls Stokas.

“We all figured that the center would draw customers from the south because of the lack of retail competition in Detroit, whereas to the north there is retail competition. The retailers were projecting that they would draw from that area to the north, but they weren’t sure.” As it turns out, the retailers were correct. The ability to draw customers from the north and the south of Gateway Marketplace has proved to be critically important, says Stokas.

Filling a Residential Void

Renter demand for apartments Downtown far exceeds the available supply. Reports of long waiting lists at existing apartment communities are not uncommon. In March, the Detroit Downtown Development Authority authorized the DEGC to negotiate development agreements with two firms for two separate apartment projects.
Village Green Holding LLC earned preliminary approval for Statler City, a 200- to 250-apartment unit complex that would be built at Washington Boulevard and Park Avenue, directly across from Grand Circus Park.

The Roxbury Group earned preliminary approval for The Griswold, 80 market-rate apartments to be built on five stories atop a 10-story parking garage. The $22 million project is located at 150 Michigan Ave., next to the Westin Book Cadillac Hotel and Residences.

Beginning on the 11th floor, The Griswold’s residences would provide unobstructed views of Downtown Detroit. The one-, two and three-bedroom apartments would average 916 square feet and feature 9-foot-high ceilings, floor-to-ceiling panoramic windows and balconies on several units.

According to The Roxbury Group, The Griswold would be the first new-construction apartment project built in the CBD since the third tower of Riverfront West was completed in 1992.

Construction on The Griswold is slated to begin at the end of 2014 with completion in late 2015. The selected project team includes Detroit-based Kraemer Design Group as architect and Walbridge as construction manager.

Detroit: New Tech Hub

In its 2014 apartment market outlook, Marcus & Millichap researchers write that “job growth Downtown and the designation of the city as a Google tech hub will likely attract tech firms and boost employment, elevating apartment demand in re-emerging neighborhoods near the core.”

In an effort to spur innovation outside Silicon Valley and expand its outreach, Google recently selected Detroit to be one of seven innovation centers in North America as part of its Tech Hub Network. The [email protected] Theatre Building, home to a few dozen tech start-ups, serves as the anchor of the local hub.

Other centers in the network include Chicago; Minneapolis; Denver; Nashville, Tenn.; Durham, N.C.; and Waterloo, Ontario in Canada. Each tech hub will receive an unspecified amount of financial and technical support to the companies within each hub.

Quicken Loans and Rock Ventures founder Dan Gilbert purchased the Madison Theatre Building in 2011 for $1.4 million. (The name was later changed to The [email protected]). The deal marked the first of nine buildings Gilbert and his partners acquired in a year-and-a-half span.

Rock Ventures and its real estate arm, Bedrock Real Estate Services, owns or controls more than 40 properties Downtown in excess of 8 million square feet with a total investment value of $1.3 billion.

Since 2010, Bedrock Real Estate Services has helped attract more than 100 companies Downtown, many of them tech firms. But the growing roster of tenants includes accounting, law and marketing firms as well as healthcare companies.

“We are probably doing three to five tours a day, showing people what has gone on in the city. We are writing a lot of lease proposals,” says Jim Ketai, co-founder and co-managing partner of Bedrock Real Estate Services.

Music to Motor City’s Ears

Ketai is particularly excited about Bedrock’s ability to attract a new music college, the Detroit Institute of Music Education (DIME).

DIME will offer advanced music students a college-style experience in contemporary music, with expert musicians and industry professionals teaching courses in guitar, bass, vocals, drums, songwriting and music entrepreneurship.

Prospective students can pursue a bachelor’s degree or diploma in Creative Music Performance, or sign up for part-time and summer music education programs. DIME expects to enroll 150 students for its 2014-2015 school year.

“That is huge news for the city,” says Ketai. “It’s part of the arts and culture scene. It brings a whole different draw to the city. The students will need to live somewhere close by, so it also increases the demand for residential.”

DIME will temporarily operate out of 1520 Woodward before establishing a more permanent headquarters this fall at 1265 Griswold.

Beringea LLC, a Farmington Hills, Mich.-based private equity firm that provides growth capital to businesses, made a $3 million investment to help launch DIME.

Since 2010, the workforce in Downtown Detroit has grown by 11,000, many of them younger workers who prefer the urban environment. It used to be that these workers would move to Chicago or New York to be in an urban environment, says Ketai.

But can Detroit really compete with Chicago?

“Detroit can compete and it is,” says Ketai. “We are getting people who are actually moving from Chicago to Detroit, so to me that’s a big statement. I love Chicago, too. We’re not trying to be Chicago, we’re trying to be Detroit. I think that we have some of the best architecture in the country, and I think people have an opportunity to be a bigger fish here right now [than Chicago] and be part of the rebirth and growth of Detroit.”

While the city’s bankruptcy filing last July made national news and is being closely followed by leaders of other big cities in financial trouble, the local business community believes the move was inevitable. The city of Detroit had $18 to $20 billion in debt and unfunded pension and healthcare liabilities when it filed for bankruptcy.

“The city has been bankrupt for over 10 years. It’s just that they hadn’t filed bankruptcy and gotten themselves through it. It had to happen. Now what they are able to do is actually deal with the debts and keep the contracts that they should keep and terminate the contracts that they shouldn’t and fix things.” A financially solvent Detroit is a win-win for the residents and the city, adds Ketai.

Making a Difference

Forsyth of DEGC heads up a program known as REVOLVE Detroit. (“REVOLVE” stands for retail evolution.) As part of the program, DEGC partners with community leaders, building owners, entrepreneurs and artists to activate vacant storefronts with transformational businesses and art installations. The goal of the program is to foster the evolution and vibrancy of Detroit’s neighborhood business districts.

REVOLVE’s work primarily focuses on areas outside the greater Downtown area, where creativity is key, explains Forsyth.

“Our model is small investments that have a big impact. When we secure a grant, we’ll typically go into a neighborhood and focus on one or two blocks at a time. We pick out the different properties and make small investments, whether they be temporary art installations or pop-up businesses. If a permanent business is interested, we’ll invest in that too.”

A native of Lansing, Mich., Forsyth is a new homeowner in Southwest Detroit. “I live in a part of the community that is very densely populated. A large portion of the population is Hispanic and primarily from the Guadalajara region. I’ve got to tell you, the food is just off the charts.”

Forsyth moved to Detroit from Seattle, where he worked in economic development. “I wasn’t making a difference [in Seattle]. Here, I am in a big way. You feel like you are a part of something here.”

— By Matt Valley, editor of Heartland Real Estate Business magazine. This article originally appeared in the May 2014 issue of Heartland Real Estate Business.

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