Detroit: A Bright Light for Multifamily Investing in the Midwest

January 28, 2021

Detroit: A Bright Light for Multifamily Investing in the Midwest

January 28, 2021

A tale of three economies was the theme of commercial real estate, and more specifically, the multifamily market in 2020. This past year, without a doubt, has been a year that the commercial real estate industry will never forget. The COVID-19 pandemic has shaped the way business can be accomplished. Like many other industries, the CRE industry has adapted to a virtual environment.

We now implement virtual tours, both for potential residents and investors and, to top it off, most of us are working from home. The multifamily space will continue to experience the impact of the pandemic for years to come. Though there have been shifts in our economy and our daily lives, our industry has been able to effectively pivot to a virtual work environment.

Operators have effectively integrated virtual tours, online payment capabilities and work orders, and investors have gained confidence in virtual tours as well. These capabilities allow them to look beyond their own geographic regions for multifamily investment opportunities.

During this time, the Midwest—specifically the Detroit market—has proven its long-view resilience. Before the pandemic, interest rates were in the low two percent range and equity was frothy. During this COVID-19 period, apartment deal volume fell sharply in the second and beginning of the third quarter compared to the same time last year. But, as we approached the end of the third quarter, things began looking up, giving us reason to feel optimistic as we look to 2021.

Motor City Leading the Pack

Detroit is well-positioned to deliver steady job growth over the coming decade, especially given its number of employers in the manufacturing, trade, transportation and utilities sectors. According to Berkadia’s third quarter report for Detroit, these sectors recovered more than 60% of the jobs lost during the height of the pandemic.

Furthermore, Detroit is expected to see a new influx of work as the soon-to-be open Fiat Chrysler Automobiles Mack Plant promises over 3,800 new jobs to the area and Amazon is building another distribution center and regional office complex which is projected to bring over 1,200 jobs, not to mention an additional 100 senior-level positions, all expected to support the growth in the metro area as well as downtown Detroit.

Along with job growth is the newfound affinity from renters in secondary and tertiary markets, like Detroit. The pandemic has highlighted renters’ value on ample living space at a reasonable rate. Detroit rents do not measure up to the high cost of larger cities like New York, Boston or Chicago, yet it still delivers the lifestyle and amenities typically found in a property. The Detroit metropolitan market has maintained a strong occupancy exceeding 96% while significantly out pacing the nation in regard to collections. Detroit has exceeded the NMHC collections report by 3-5% month over month.

Newfound Investor Interest

Detroit’s market resiliency is very strong given the projected employment growth, limited new construction providing positive absorption year over year, and the strong occupancy, rent growth and collections. Thanks to these outstanding metrics, Detroit has piqued investors’ interest from across the country. In fact, our Berkadia Great Lakes Team has recently completed a few major transactions this year that featured out-of-town buyers:

  • Two property portfolio, 840 units, in Ann Arbor, Michigan
  • Two property portfolio of 618 units in Southgate and Harrison Township, Michigan
  • Pier 38 in Fenton, Michigan
  • Hillside Forest in Farmington Hills, Michigan and Town Commons in Howell, Michigan.

As we closed out the year, the Detroit market continues to see underlying demand for housing, strong demographic drivers and low interest rates. All key factors that should bolster even more long-term optimism in the local multifamily sector. As we continue along this trajectory, we are encouraged by the interest in and positive indicators from our local Detroit market. This year holds nearly unlimited possibilities for our corner of the Midwest, and we are excited about the prospect of providing clients the best opportunities available in the marketplace.

-Kevin Dillon, Senior Managing Director