urbanSTL

The issues are myriad and thorny, ranging from low incomes, low multifamily rents, aging single-family homes and a lack of liquidity for investors.
The lower incomes earned by many residents of Detroit, generally considered the poorest big city in the country, are at the root of the issues that many experts say they’re facing in trying to make housing viable. 

At present, it’s not, according to Matthew Temkin, a partner with Greatwater Opportunity Capital, a Detroit-based apartment development and management company.

“Forget being profitable. Most housing (operators) in Detroit can’t afford to pay the bills right now,” said Temkin, one of the conference organizers. “Unfortunately, if Detroit housing doesn’t become viable soon, it’s going away.”

In just the last few months, the lender for the Lafayette West apartment development near downtown has taken back the project, and a trio of east side apartment buildings owned by an entity tied to Temkin and others has fallen into receivership.

For starters, with about one-third of Detroiters living in poverty, landlords and developers are constrained in how much they can charge, even as expenses for construction, maintenance, insurance and other cost-drivers go up. 

Nonpayment of rent ticked up during the COVID-19 pandemic years and courts that handle evictions were backed up, leading to a lengthier process to remove a tenant who isn’t paying their rent, further eroding margins. 

And for those new construction projects that do get across the finish line, the investors find it difficult to get their money out because a new owner is going to see their property tax bill increase once the taxes are “uncapped” under new ownership, something known as the pop-up tax under Michigan’s tax policy in which property taxes are capped annually at 5% growth or the rate of inflation, whichever is higher. 

So given those factors, is housing impossible to do in Detroit?

“No, but it’s really hard,” said Brandon Hodges, founder of Detroit-based Tribe Development, which has done various mixed-use projects around the city. 
As one example, Hodges pointed to a $21 million project he’s working on in Detroit. But the valuation of the completed project is just $6 million. 

“The only way that building is getting built is subsidies,” Hodges said, noting that he and other developers generally rely on federal low income housing tax credits and a variety of other layers within a capital stack in order to make their projects even close to viable. 

Those on the financing side of many of these deals say they’re hopeful that a time comes soon when more Detroit housing deals can be done with more straightforward debt and equity, but for now, “the math doesn’t math,” said Damon Hodge, vice president of lending for Invest Detroit, a community development financial institution. 

Given the cacophony of issues the experts say they’re facing, a large part of Thursday’s conference was focused on finding solutions. Even there, the bright spots are minimal. 

Cassandra Floyd, executive director of the West Grand Boulevard Collaborative, said she’s hopeful that some initiatives around the city to spur community land trusts could be helpful. Such efforts use nonprofit ownership around a geographic area to create more affordable homeownership opportunities and fight back against land speculation. 

Horhn, the city assessor, said that it’s increasingly more economical to build new rather try to renovate the city’s aging houses, which number above 200,000. Convincing developers that there is a way to make money on smaller and less-costly houses, under $400,000, is critical. 
“And I don’t know how to do that,” Horhn said. “Because it’s the average cost of construction today.”