[REN #490] Trump Revs Up Detroit

Picture of buildings in Detroit, USA for or Real Estate News for Investors Podcast Episode #490

President Trump said in his State of the Union address that the government is doing what it can to revive the auto industry in Detroit, and that Motor City will soon be “revving its engines.” But that’s not the only reason that Detroit is on the hot list for growth and for real estate investing.

Donald Trump said in his address, “In Detroit, I halted government mandates that crippled America’s great, beautiful autoworkers – so we can get the Motor City revving its engines again, and that’s what’s happening.”

He followed that statement with, “Many car companies are now building and expanding plants in the United States — something we haven’t seen for decades. Chrysler is moving a major plant from Mexico to Michigan. Toyota and Mazda are opening up a plant in Alabama — a big one — and we haven’t seen this in a long time. It’s all coming back.” (1)
 

Thumbs Up to Chrysler

Republican Representative Bill Huizenga of Michigan is among those who are pleased by Trump’s comments. He told the Detroit News, “When he’s talking about getting Detroit’s engines revving again, you know you’re getting a lot of thumbs up throughout the state.”

Chrysler’s decision to move the production of its Ram Heavy Duty trucks to the Warren Truck Assembly plant in Detroit will create thousands of new jobs. The Detroit News says about 2,500 new jobs by 2020. As some media sources have pointed out, other aspects of Chrysler’s assembly operation in Mexico will continue.

For perspective on the rebirth of the auto industry, the Detroit News points out that the comeback began years ago, when former President Obama pushed Chrysler and General Motors into bankruptcy reorganization. That helped clear out debt and allowed them to move forward with a clean slate. Auto sales then recovered from the recession, and despite a pullback over the last few years, they remain high. (1)
 

Detroit Polishing Up Its Image

Detroit’s story as an automotive mecca is changing, however. After decades of economic decline, social turmoil, and municipal bankruptcy, an auto industry rebirth is only a small part of Detroit’s reawakening. An article in Forbes about Detroit’s attempt to become the host city for Amazon’s HQ2 shows just how far Detroit has come. (2)

As you may know, Amazon recently narrowed its list of candidate cities from 238 proposals to just 20, and Detroit was unfortunately not among the finalists. Detroit apparently scored well in all categories but was told it was weak on “talent” and “transportation.”

The president of the Detroit Regional Chamber, Sandy Baruah, responded to Amazon’s decision saying, “The creativity, the regional collaboration, the quality of the bid document, the international partnership with Windsor, all of that got incredibly high marks.” She added, “We were good but we weren’t good enough on the talent front.”

But urban theorist Richard Florida disagreed with the Amazon assessment, and defended Detroit on Twitter, saying that Amazon “missed the mark on Detroit.” He says that Detroit has more tech workers than many of the finalist cities. Plus, he says Detroit has access to major research universities including the University of Michigan and Michigan State University.

Florida blamed Detroit’s elimination on what he calls an outdated perception of Detroit’s economy, talent, and overall livability. Billionaire businessman Dan Gilbert agrees with Florida. He’s one of two billionaires dedicated to Detroit’s big turnaround, and took the lead in Detroit’s proposal to Amazon.

He also responded to the decision with an email that he has shared publicly. It was called “The Elephant in the Room.” It’s a very strong tribute to what Detroit has become today, and is capable of becoming tomorrow.

In the email, Gilbert disputed the “talent” issue saying there is no “talent crisis” in the region. He says, “Those of us who run sizable tech-based organizations nearly unanimously believe that Detroit/Southeast Michigan currently has an ample and rapidly growing talent pool.”

He says the companies themselves become the magnets for talent and that Detroit has the “largest and fastest growing population of engineers of any American metropolitan area.” And when it comes to educational institutions, he says Detroit beats Seattle, which is, of course, Amazon’s home city.

According to Gilbert, Detroit does need to work on its mass transportation system and should consider an investment in transit infrastructure “very seriously.” He says the time to do that is “now.” (3)
 

Elephant in the Room

What he calls the “elephant in the room” is an old view of Detroit as a down-and-out city. Gilbert writes, “This lingering, negative perception has unfortunately survived our impressive progress over the last several years. It is clear that we don’t do ourselves any favors by feeding the pessimistic narrative about Detroit and our region, when this view is not anywhere near the balanced, full story. I believe that this is the single largest obstacle that we face.”

And here’s where his email gets interesting. He asks what can be done to finally overcome the gap between Detroit’s reputation and reality, and responds to his own question by saying it’s as simple as bringing people to Detroit. He says once they “touch and feel the excitement, opportunity, and growth,” they will lose all those negative thoughts about Detroit.

He says, “We have witnessed for ourselves, time after time, those who have recently visited the Motor City leave with a completely turned around, positive impression of our city. An impression that is light-years closer to reality than the old narrative.”

But not all is lost with the monumental effort to entice Amazon to Detroit. Gilbert says, “This process has allowed us to curate and package our region in a way that has never been done before.” He is now marking this time in Detroit’s history as the beginning of a new era for how Detroit does business, and challenges people to check out Detroit in person.
 

Hot Market for Rentals

Detroit is also on our list of best markets for single-family rentals for all the same reasons. It’s a city on its way “up” with great metrics for growth but at the same time, home prices are still low. It’s still possible to buy a fully-renovated home for around $80,000, or less, and then rent it for 1.29% of the purchase price.

We’ve invited a real estate company from Detroit to join us at our next live event on April 21 in San Mateo, April 22 in LAX, and April 23 in San Diego. They will share details on the best neighborhoods to buy in, which to stay out of, and where the revitalization is happening. You’ll also get to meet an experienced property manager to share where the greatest rental demand is and what kind of returns you can expect on rental property in Detroit.

We’re also hosting our annual East Coast Property Showcase in Detroit this year. Last year it was in Orlando, so there’s some stiff competition. That is May 18th – details are at www.newsforinvestors.com. We’ll also have a tour of Detroit and Cleveland properties that meet our REAL income property standards. And just to make it extra fun, our Real Wealth team is going to Cedar Point on Thursday the 16th, which is between Cleveland and Detroit, and apparently has one of the fastest, highest ranked roller coasters in the country!

Links:

(1) Detroit News Article

(2) Forbes Article

(3) Dan Gilbert Article

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