The tv shows about the revitalization of Detroit
are more focused on what I call community building, not so much economically-driven revitalization. I am not saying that to be mean, just to re-focus attention on economic revitalization.
Anyway, when I talk about the difference between strong and weak real estate markets, this is an illustration. The Penobscot Building in Detroit just sold for $5 million. It's a one million square foot building, so that's $5/s.f. In DC, buildings sell for a minimum of $700/s.f. See "Deal of the Week: Doubling Down in Detroit
" from the Wall Street Journal
From the article:
A company controlled by the Apostolopoulos family, of Toronto, has purchased the landmark Penobscot Building, Detroit's third-tallest office tower, for $5 million. The price, which comes to $5 a square foot, is tiny compared with the $200 level that buildings on average are selling for nationwide and even well below the $28 range that downtown Detroit buildings fetched last year, according to Real Capital Analytics. ...
There is a good reason why Detroit office buildings are so cheap: The city's downtown market has a vacancy rate of 26.5%, one of the highest in the nation. The city has made some strides fighting a decadeslong flight of businesses and residents to the suburbs, but significant challenges remain in the wake of the auto-industry bankruptcy filings and restructurings. The city's unemployment rate was 15.8% in April, compared with the seasonally adjusted national rate of 8.1% for April, and Detroit's population dropped by one-quarter to 713,777 in 2010 from 951,270 in 2000, according to the Bureau of Labor Statistics and the Census Bureau. Meanwhile, in April the city took a controversial step to stay solvent when it agreed with the state to share financial power.
Anyway, that's an unfathomable price. There is no better indication of the failure of the Detroit economy than prices for office buildings ranging from $5 to $28/s.f.
Although it does illustrate the point that Jane Jacobs made about the value of a "large stock of old buildings" where the building is paid off and the running costs are low, so the rents can be low. There's no way that the owner can't make money when you buy a building at $5/s.f. Even in the nadir of a real estate market in Detroit, because there is still economic activity there.
Labels: commercial real estate market, urban revitalization