Residential and commercial development in Detroit remains extremely challenging, but opportunities are emerging in both residential and commercial real estate, according to a panel of experts that spoke today at a University of Michigan Ross School of Business conference about revitalizing the city.

“We’ve lost 30% plus in valuation over the last 10 years,” in residential real estate in Detroit, said Eric Larson, president and CEO of Larson Realty Group said at Revitalization and Business: Focus Detroit, which was attended by about 500 business school students.

Even in strong neighborhoods like Palmer Woods, housing values have declined from more than $400,000 a few years ago to $150,000 to $350,000, said Austin Black II, president of City Living Detroit.

But while commercial and residential development in the city remains at a crisis level, the low prices are attracting buyers.

“I’ve been selling real estate in the city for six years and this year has been the best year,” Black said.

One of the city’s main assets for both commercial redevelopment and for residential development, Black said, is the unique architecture. Hundred-year-old homes in Palmer Woods, for example, appeal to buyers because the architecture cannot be replicated.

“Detroit is getting into that stage right now where …settlers are moving in. Not just pioneers,” said Randy Lewarchik, a real estate developer.

Nevertheless, Black said, major barriers to residential and population growth in Detroit are the lack of services and high costs that discourage the middle class from moving back or remaining in the city.

Those issues include high insurance rates, the lack of retail such as grocery stores and a dysfunctional school system.

“We need to bring that middle class back,” Black said. “And the only way to do that is to remove all of those barriers.”

Another barrier for both residential and commercial development is the perception of the city as a bad place to invest money, said Richard Hosey, senior vice president of Bank of America’s Detroit office.

Hosey ran into that perception as he tried to pull together the financing for the redevelopment of Broderick Tower in downtown Detroit.

“There was a perception that it was not going to work even though the numbers said it would work,” Hosey said.

To sell the project to banks and investors, Hosey had to make the numbers work even under the worst scenarios.

“At the time, GM was declaring bankruptcy and Chrysler was declaring bankruptcy,” Hosey said. “But we pushed and pushed and pushed.”

In December, financing was completed for the renovation project with Bank of America agreeing to contribute $34 million to the $55-million project. Most of the remaining debt was financed through tax credits and long-term bonds that later can be converted into equity.

Plans call for the building to be converted into about 127 apartments with 14,000 square feet of office space and 11,000 square feet for restaurants for the building at Woodward Avenue and Grand Circus Park.

Still, Larson said major commercial developments remain rare.

“Large-scale development is very, very difficult,” he said. “Clearly you are at a crisis stage and you …we have to figure out how to generate market rate opportunities”


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