Downtown surge doesn’t miss Detroit: Rejuvenation continues in city’s center

Detroit’s Dan Gilbert wants to build the city’s tallest building on the site of a former Hudson’s department store.

by Dan Rafter

Eric Banks says that Dan Gilbert, the businessman who founded Quicken Loans and Rock Ventures and owns the NBA’s Cleveland Cavaliers, is the rock behind the recent revitalization of downtown Detroit.

It’s hard to argue with Banks, executive principal and partner in the Bingham Farms, Michigan, office of CORE Partners.

Since Detroit in 2013 filed for Chapter 9 bankruptcy, Gilbert has spent nearly $2 billion of his own money to buy up buildings throughout downtown Detroit and fill them with new tenants, many of them tech start-ups. Today, Gilbert has plans to build what would be Detroit’s tallest building on the former site of a Hudson’s department store.

Gilbert’s plans include 250 apartments, offices, theater space and retail. It would also include a public market.

For Banks, efforts like this – and projects spearheaded by other civic-minded entrepreneurs – are the keys to the continued rebirth of downtown Detroit, a rebirth that Banks says is showing no signs of slowing.

“It really starts with Dan Gilbert,” Banks said. “You have a billionaire developer who has taken an immense interest in the city of Detroit, his home town. His efforts can’t be underestimated or underappreciated.”

And where Gilbert’s efforts have ended? Another billionaire, Mike Ilitch, the owner of the Detroit Red Wings and Tigers, picked up the cause. Ilitch died earlier this year at the age of 87, but before his death, he spearheaded the efforts to create the District Detroit, a sports and entertainment district that included the homes of the Detroit Tigers, Pistons, Red Wings and Lions and six theaters all in one 50-block area.

The work done by these two businessmen has helped provide a spark to downtown Detroit, Banks said. And today, commercial real estate activity is high here, with new multifamily, retail and office projects hitting the area.

“You have what is happening here with all the new development, then add the trend of people wanting to live in urban, walkable environments,” Banks said. “You put all that together, add in the continued low interest rates that make the development environment more favorable, and you have a good formula here.”

Plenty of activity 

The Albert, a multifamily project managed by Broder & Sachse that features 127 one- and two-bedroom units, was a key one for Detroit. It showed that demand was high for new apartments in the center of the city.

Developers are now adding more multifamily projects to downtown Detroit, including the 284-unit City Club Detroit planned for the intersection of Washington Boulevard and Park Avenue, the site of the former Statler Hilton Hotel at Grand Circus Park.

Construction on this project is expected to begin this summer, with completion scheduled for about 16 months after crews break ground. About 12,000 square feet of the development is reserved for restaurant and retail space.

“That will be an A-plus location with A-plus amenities,” Banks said. “It will rival anything you’d see in a city like Chicago.”

John Latessa, president of the Midwest division of CBRE, has a fondness for Detroit.

This isn’t surprising, he’s lived in the Detroit area for all his life.

“This is a place that I have been in for 48 years,” Latessa said. “I have seen it go through a lot. I am most excited for where we are now, to see things coming around as they are.”

Latessa said that without question, commercial activity is on the rise in downtown Detroit, even when compared to just one year earlier. And as new retail, office and multifamily options arrive here, this commercial real estate is not only attracting people to downtown, they’re keeping them there longer.

“People are now willing to live downtown,” Latessa said. “Not only are people working during the day in downtown Detroit, they are sticking around because they live there. That has created the demand for retail. We now have a 24-hour opportunity in downtown Detroit. A decade ago, people would go to work in their office and then jump in their cars at the end of the work day to head home to the suburbs.”

Latessa, who also rents an apartment in the River North neighborhood in the center of Chicago, said Detroit’s experience isn’t all that unusual. Downtowns across the Midwest are seeing a boom, he said, as more people choose the urban lifestyle.

These city dwellers like that they don’t have to drive to get to restaurants, shops, grocery stores and parks. They prefer relying on public transportation — or maybe apps such as Uber — to get around when they can’t walk to a destination.

Latessa said that even downtown Chicago has evolved over the years. It wasn’t that long ago when the downtown of the Midwest’s biggest city mostly shut down after the work day ended at 5 p.m.

“Every major city in the Midwest, it seems, is having at some level a resurgence in their downtown,” Latessa said. “People want to walk to their office and stop by a coffee shop on the way. At the end of the day, they want to stop by a restaurant and maybe sit with friends. That whole piece is so important. And it’s not just with Millennials. Empty nesters on the other side want this, too. Others are finding this whole lifestyle very attractive.”

Multifamily units keep coming

Developers delivered 543 apartment units to downtown Detroit in 2016, and JLL estimates that they’ll bring 1,607 more this year. This is good news for the city, which is still working through the first phase of its comeback from bankruptcy.

All these new apartments? Brokers with JLL say that the city’s multifamily boom has already spurred additional retail and office development. As more residents move into the center of the city, Detroit will only grow stronger, said Aaron Moore, a multifamily associate with the Detroit office of JLL.

“All of these new apartments have had an impact on Detroit,” Moore said. “It’s important to remember, though, that this is only the beginning of the city’s efforts to come back after the bankruptcy. New apartments are only the beginning. It is nice to see this activity, though. It has a ripple effect. It brings people’s spirits up. We are seeing a lot of new investment in the area, and that’s nice to see.”

JLL reports that most of the new development in Detroit has taken place in just 7.2 square miles of a city that encompasses 139 square miles. This means that much of the city still needs to see investment.

Still, the multifamily activity in downtown Detroit is a welcome sight. JLL says that since 2006, more than $10 billion has been invested in the city of Detroit and that more than 16,000 jobs have moved to the city since 2010.

Multifamily developers have noticed. JLL reports that developers have added 1,551 apartment units to Detroit during the last five years.

The goal is to populate downtown Detroit with dense, walkable neighborhoods. JLL says that Detroit has the chance to become a world-class entertainment city. The NBA’s Detroit Pistons recently announced that they will return to Detroit’s city limits. This means that soon all four of Detroit’s professional sports teams will be playing within less than a 1-mile radius.

Three urban casinos, several bars and plenty of restaurants will surround these sports franchises.

“You knew Detroit was going to be successful when the national and local foundations came together to save the city after the bankruptcy,” Moore said. “The arts and culture communities have had a tangible and intangible impact on the city. There’s been a renewed focus on the riverfront. It is clear that Detroit has become the regional epicenter of arts, culture and education in the area. Who wouldn’t want to live there?”

Moore isn’t worried that developers are adding too many apartment units in downtown Detroit. The bigger concern, he said, is that developers won’t be able to add multifamily units to the market quickly enough to meet demand.

“Young professionals, Baby Boomers, everyone is moving to downtown,” Moore said. “These people want to work in walkable communities, the 20-minute neighborhoods, where you can walk and bike to everything you need in 20 minutes. We are seeing more mixed-use development in downtown Detroit because of this. Detroit’s trajectory is positive and will remain positive.”

Pent-up demand is the true force that is fueling the rising sales, leasing and construction activity in the multifamily sector in Detroit and its surrounding communities, said David Wilkins, managing director of loan originations with Bloomfield Hills, Michigan-based commercial lender Pillar Financial.

And the best news? There is still plenty of demand for new apartments, medical clinics and medical office buildings throughout Detroit and its suburbs.

“The overall economy took such a significant hit during the recession, and then it came back so slowly. That left a great deal of pent-up demand,” Wilkins said. “And in addition to that pent-up demand, you have new demand. Baby Boomers are getting older. They want to downsize and move into apartments. The Millennials at the same time are choosing to rent at a faster pace. So these demands are providing a boost to multifamily.”

Wilkins said that the aging of Millennials has brought significant changes to the housing market. Many of these young adults watched their parents struggle to make their mortgage payments during the recession. Others watched as their parents lamented the falling values of their homes during this same time.

“This led many of them to believe that apartment living not only fits their lifestyles, but is also a good economic choice,” Wilkins said.

Wilkins said that this has been especially true in states such as Michigan, which were particularly hard hit by the recession and its slow recovery.

“The recession arguably began here eight years before it started in the rest of the country,” Wilkins said. “Michigan started doing poorly in the early 2000s. The amount of pent-up demand for new apartments and for apartment living in general, then, is even more significant here. There were a lot of upper- and middle-income neighborhoods and suburbs in Michigan that haven’t had new construction in 20 years. People looking for a new apartment building had nowhere to go. The developers are now starting to facilitate that need.”

The wish list 

This doesn’t mean that downtown Detroit is complete, or that it yet ranks as a true 24/7 destination.

Banks says that Detroit’s center can use specialty foods retailers, green grocers and more restaurants. It could benefit, too, from fitness studios, coffee shops and more boutique retailers.

“We could use more of the typical kind of retail you see as urban areas gentrify,” Banks said.

But what matters most today is that the stigma that had long been associated with Detroit is starting to lift as more developers enter the city.

“That attitude surrounding Detroit has changed significantly,” Banks said. “Part of this is because the revitalization efforts are not conceptual anymore. They are happening. People can read about them in the Wall Street Journal. They can touch it and feel it. They can see the construction cranes. Detroit is not what it was once was.”

The rejuvenation of downtown Detroit is still in its earliest stages, Banks said. For a longer-term change in the center of the city, even bigger improvements are needed, with highly-ranked schools the biggest of them all.

When attractive schools come? That will solidify the rebirth of downtown Detroit.

“You need to offer a lifestyle that is not just appealing to empty nesters and young professionals,” Banks said. “What happens when people start to have kids and they start to think about schools? They’ll move somewhere that offers those schools. That is the part that is missing now. That is the part that has to come later.”

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