Mike Kirk has worked in Detroit since the mid-1970s, and he said the city’s resurgence strikes a familiar feel.
“This is the fifth time that Detroit’s kind of come back up,” Kirk, principal at Neumann/Smith Architecture, said Tuesday during a Bisnow panel held Tuesday on adaptive reuse and placemaking in the Motor City. “We’re the 40-year overnight success.”
But there’s something different about this particular turn.
“Each time before, it would come up, but it didn’t have the right density and combination of housing along with workspace and retail space, so we weren’t able to sustain that momentum that came out of the next uptick,” Kirk said.
What was different in the 21st century was Quicken Loans' focus on the Woodward corridor — and other developers following suit, Kirk said.
Tuesday's panel marks the second time Bisnow, a New York-based commercial real estate news and networking firm, has held a Detroit event.
The Great Gamble
The transformation isn’t cheap. Neither is it risk-free.
Projects can take five years from conception to tenant leasing, which isn’t easy for investors who are eyeing today’s and tomorrow’s rates to stomach.
“You really can’t anticipate four or five years down the road, and that’s the great risk of the development business,” said Steve Chaben, senior vice president at national brokerage firm Marcus & Millichap.
Detroit’s comeback demands risk by both investors and developers. Todd Sachse, CEO and founder of Sachse Construction and co-founder of Broder & Sachse Real Estate, said he has begun construction on projects before closing on the land and even before closing on financing.
Even the more conservative proceedings are built on debt financing tied to capricious market rates.
“On some of these lead times, we’re very candid: three years from now we have no idea where the permanent market will be,” said Dennis Bernard, founder and president of Bernard Financial Group and Bernard Financial Servicing Group.
A More Intensive Investment
The gambles are not just on individual buildings but on their communities.
“You can’t invest in the city center without investing in the surrounding neighborhoods,” said Abir Ali, director of design and culture at The Platform. “It’s a balance to us.”
Ali said she approaches single projects as catalysts for future development that affect the culture and tone of a particular region.
Midtown Detroit, Inc. President Sue Mosey said lone ventures in “no man's land,” like the recently opened Founder’s Taproom, bring attention and consumers to isolated areas and stimulate business growth in blighted areas.
Developer: Incentives Still Necessary
Bets on buildings and neighborhoods are becoming even riskier with local inflation.
High demand and premium prices of developers can be inhibitive to development timelines in Detroit, said Andrew Leber, vice president of hospitality at Bedrock.
Developer Sachse said Detroit real estate projects continue to need incentives to be viable.
“We still can’t develop today without incentives, because the gap of construction to what the market will pay in rent — whether it be multifamily or office, the gap is still too great,” Sachse said. “It’s not cheap to build here. Wages are high for skilled trades here.”
At the same time, Hatch Detroit Executive Director Vittoria Katanski said neighborhood sites have seen “insane” price hikes as they draw more attention and competitors come in, which can impede small business development.