Detroit —Since the late ’90s, downtown Detroit landlords have dreamed of the day they could charge apartment renters $2 per square foot. It was a magic number, like a major league pitcher winning 20 games or a lottery jackpot hitting $100 million.
That’s why the 625-square-foot, one-bedroom apartment being offered at The Albert Capitol Park should have a historical marker. The rent is $1,385 a month. That adds up to $2.22 per square foot.
“We are there and it means downtown is about to be supercharged,” said James Van Dyke, a key downtown developer. “No more ridiculously long wait lists to rent something downtown. For developers, no more having to find eight, 10 different sources of financing, because a bank may actually be willing to give a traditional loan.”
It means the skyrocketing rent for downtown apartments in the hot residential areas of Midtown, riverfront, Eastern Market, and Corktown could begin to level off in the next few years. More financing for developers means they build more apartments. More supply means more competitive prices.
If it does level off, renting a place in the trendy parts of Detroit may continue to cost about the same as renting in the trendy parts of Cleveland, Kansas City, or San Antonio, according to a national report on apartment rents in 46 U.S. cities. The average will go up — but it won’t hit anywhere near the level of a New York ($4,100-a-month average) or San Francisco ($2,540).
Van Dyke isn’t the only Detroit developer singing the chorus of “we are there.”
“We are there, it’s not the average yet, but because that level is being reached in certain projects, we could see a lot more development,” of apartments, said Jim Ketai, co-chief executive officer of Bedrock Real Estate Services, which controls about 50 downtown buildings, including some that will become residential rental properties in the next few years.
For decades, developers have needed to rely on foundation handouts, tax breaks and other public subsidies to cobble together money to fund their projects. Banks considered downtown too much of a risk to be willing to write loans. The Westin Book-Cadillac Hotel and residences, which reopened six years ago, needed 22 different sources of financing for its $200 million renovation.
Developer Erik Larsen recalls the late ’90s when developers and city economic officials began to strategize about the $2 mark. “It was a goal that was going to take many steps to achieve,” Larsen said. Back then, the rate was more like $1 or $1.10 per-square-foot. And downtown living options were limited.
That began to change about a decade ago, with developments ranging from the Kales to the Lofts at Merchant Row. But downtown was still plagued by dozens of big, empty buildings, and the average rate for apartment remained around $1.15 per square foot.
“One of the big, final pieces of change is Dan Gilbert,” Larsen said.
Four years ago, the founder of Quicken Loans Inc. relocated his company headquarters downtown; he and his partners, mainly through Rock Ventures, have bought more than 50 properties, ranging from vacant lots to skyscrapers and other historical buildings. And he’s found new tenants for those buildings and has brought more than 12,000 workers downtown.
Demand for downtown rental apartments has been over-heated for at least five years, with 9 in 10 apartments filled. Rents have been going through the roof, in some cases increasing $3,000 in one year for the same place.
Rising rents are changing not only who lives in the actual downtown core, but also in the 7-square-mile swath of the city that includes Midtown, Corktown, Eastern Market, Lafayette Park and the riverfront. The areas are attracting a growing number of affluent professionals, as well as twentysomethings willing to live with roommates to share the rent.
The average rent is now in the $1.60-per-square-foot range, developers contend, but the rate is creeping ever higher. The $2 mark already has been met for several penthouse apartments and other top-of-the-line apartments such as The Broderick and Park Shelton.
What makes The Albert distinct is that most of the 127 units will be around the $2-per-square-foot mark — not just some of the the building’s best apartments.
As recently as this winter, the rent in this Capitol Park building was as low as $130 a month. The former tenants who lived in the historical building relied on federal government Section 8 vouchers to pay their rent.
The 12-story building was designed by the late Albert Kahn, the architect most associated with Detroit when it was prosperous and growing.
Last year, the 1214 Griswold building was purchased by a limited liability corporation listing Richard Broder as its managing partner. Broder is chief executive officer of Birmingham-based Broder & Sachse, a commercial and residential real estate firm.
Not surprisingly, when the previous tenants who relied on Section 8 were informed they had one year to leave, some tried to fight and stay, attracting media attention about the price of gentrification.
Then earlier this year, several local bloggers ridiculed a promotional video for The Albert because it portrayed animated images of new tenants as mainly white and young. The tenants who were forced to leave were mainly black and elderly.
Across the park from the Albert, 20 mostly young residents of 1215-17 Griswold were given 30 days to vacate earlier this year. Most paid $500 a month in rent for 2,300-square-foot spaces in a building with no working elevator and boarded-up windows.
Gilbert associate James Ketai purchased the building last year. The city found numerous violations that made it too dangerous for occupancy and ordered it be vacated immediately. The residents were given $2,000 for the move.
Many are rankled by the relocation. “I find it ironic Capitol Park is being touted as the place that must be fixed up so Detroit can attract the creative class,” said Margaret Cassetto, one of the former residents, who moved to the West Village neighborhood.
The Capitol Park controversy has not stopped a steady stream of people stopping by The Albert to look at the apartments. The building is still an active construction zone, but some tenants are so eager to move downtown they will move in next week.
“I do expect many of the new developments to come online, to be at the same level we are,” Broder said, of the $2 rate. “I understand the rate is a benchmark, but, we are more focused on the actual price of rent.” And apparently, $1,300-plus in monthly rent is acceptable for many.
The Albert is one of five buildings that have been bought by private developers in the small triangular Capitol Park, bounded by Shelby, Griswold and State streets. Three buildings are part of an $85 million redevelopment plan that’s getting taxpayer subsidies.
Next door to the Albert is the former United Way building, at 1212 Griswold. It will become office space for the Archdiocese of Detroit and 56 loft-style apartments. Richard Karp, developer behind the project, said last week that apartment rents could average about $1.95 per square foot.
And Bedrock’s Ketai said the rate per square foot hasn’t been decided for the apartments Bedrock will bring online over the next few years.
“It’s really about the law of economics’ supply and demand,” he said.