The Detroit real estate market is attracting foreign investors due to its amazingly high rates of return on investments. This has been the trend lately especially for greater downtown and metro properties, an article on Crain's Detroit Business revealed.
Although it is hard to determine how much money is spent on real estate investment sales in the past years, it has been estimated to have reached $700 million worth of investment. This was revealed by Dennis Bernard, founder and president of Bernard Financial Group Inc.
Actually it is easy to understand the increase in real estate in the district: the payout in Detroit is greater compared to other cities.
Returns in real estate investment are determined in capitalization rates or cap rates. These are from dividing the asset's total value into its net operating income.
Bernard revealed that in major markets such as New York City, Los Angeles and Miami, cap rates of 4.5 to 6 percent can be expected. In local markets, expect 6.75 and 7.75 percent and with the highest-grade investment properties located in prime areas of the city with rates of 7 to 8.5 percent.
"That's why foreign money is coming here," said the president of the Southfield-based financial company.
Mike Schick, director of Birmingham-based Q10 | Lutz Financial Services said that the foreign investors are largely from Asia, the Middle East and from Canada. His company provides debt-financing services on real estate acquisitions and development projects.
"These regions have more available capital to invest and fewer local investment opportunities," Schick said. "The US becomes an economically and politically stable place to invest. Detroit is an area where the investment returns can make sense."
One such property that has been acquired by foreign investors is the pre-Civil War era Charles Trombly House. A German investment group made the historic Jefferson Avenue home their first purchase as they eyed dozen multifamily conversation projects located in the greater downtown area.
Other highlighted properties were the David Scott Building and the Clark Lofts building in Capitol Park which was sold to Bedrock Real Estate Services LLC in May for a combined $18 million which was about 50 percent more than its buying price two years ago.
In Southfield, a group of Israeli investors brought the Solaire Active Adult Community on Providence Drive for $20 million in March while a Toronto-based company, Triple Properties Inc., purchased the Pontiac Silverdome.
Basically, "From an investment standpoint, Detroit still looks very good," Schick said.