When Henry Ford fired up the first auto assembly line in the early 20th century, he revolutionized commerce in the U.S. and around the world. The ability to mass-produce cars led to the exponential growth of the country’s auto industry and made Detroit, where the companies producing those cars were located, a focal point of the economy.
The city’s population peaked in the 1950s, at 1.85 million people, which meant Detroit, like many cities in the midst of the post–World War II boom, had to add to its housing stock in order to keep up. That trend ended in the 1960s, amid riots and a massive middle-class flight out of the city.
Fast-forward 50 years, after decades of the manufacturing base dwindling, when Detroit filed for Chapter 9 bankruptcy, in 2013, the largest municipal filing ever. And although the city has since exited bankruptcy and is now on better financial footing, Detroit remains Detroit.
In a report released in February, RealtyTrac identified more than 81,000 vacant homes in the Motor City, or 5.3% of its housing stock.
“People find it difficult to find acceptable housing inside Detroit at any price point,” says Sonya Mays, president and CEO of Develop Detroit. “There’s just a basic need to rebuild the core housing infrastructure here in the city. I think that’s part of what made this moment the right moment for us to start Develop Detroit.”
Develop Detroit is a mission-driven, nonprofit development firm founded in 2015 with significant financial backing from JPMorgan Chase, the Ford Foundation, and The Kresge Foundation. The firm, launched by the Housing Partnership Network (HPN), which is made up of nearly 100 leading housing and community development nonprofits nationwide, wanted to model itself after a similar venture: Shortly after Hurricane Katrina devastated New Orleans and its surrounding area in 2005, the HPN launched the Gulf Coast Housing Partnership to rebuild communities from Texas to Florida. The public–private partnership raises capital to create and preserve affordable housing. By 2015, it had more than 2,100 units completed, under construction, or in its pipeline and 46 partnership developments representing an infusion of more than $324 million into the Gulf Coast region.
The goal now is to make a similar impact in Detroit.
“While Detroit wasn’t hit by a hurricane, it’s facing a similar disaster in the economy and population,” says Ben Phillips, Develop Detroit’s vice president of real estate. A large portion of the city’s population has become displaced over the years due to a “rapidly deteriorating” housing stock that’s seen “years of disinvestment and waves of foreclosure and abandonment,” he says.
Develop Detroit is aiming to raise $30 million and is more than halfway to its goal, Mays says.
The First Two
For most of the summer and into the fall, Develop Detroit didn’t do much fundraising, Mays says, because it was all-in on closing on its first properties. The firm reached that goal in early September when it officially took over two properties that were in desperate need of new ownership: the 53-unit Marwood Apartments, which has no rent restrictions, and the 73-unit Midtown Square, 60% of whose units are reserved for those earning no more than 30% of the area median income (AMI)—which, in Detroit, is roughly $275 to $300 a month, Mays says. The two properties are a block away from one another in the New Center area on either side of Woodward Avenue, which runs through the heart of downtown.
The first order of business at Midtown Square has been stabilizing the property, Mays says. Develop Detroit and John Stanley, Inc., a Los Angeles–based real estate development and investment management company, made a cash investment in the property to keep it from going under.
“This property was in very serious jeopardy of being foreclosed on, and if we hadn’t stepped in, that would’ve been 73 units that likely would’ve lost their rent-restriction protection, and this building very well could have been on the path to converting to a market-rate property,” Mays says. “It’s the kind of transaction we think we were formed to do.”
The property, Mays adds, has been in the low-income housing tax credit (LIHTC) program for 12 years but fell into disrepair during the economic downturn. The existing tax-credit investor had taken it over and was searching for an operating partner to stabilize the building.
“Those deeply affordable units are not easy to come by,” she adds. “Just stabilizing it as a quality-of-life issue is the first thing [needed].”
When Develop Detroit came in, 30% of the units were vacant, according to Mays. When the tax-credit investor made the decision to sell, investment into the building ceased, she adds. The property was marketed last summer, but there were no takers. “This was a bad situation that was looking for a solution, and had been for a while,” Mays says.
Physically, the seven-story building is in great shape and will remain an affordable option for Detroiters in the coming years. There are three years remaining on the tax-credit compliance period, Mays says, after which Develop Detroit will make a decision on how to proceed with Midtown Square.
There are big plans in store for Marwood Apartments, however. In addition to renovating its 53 existing apartments, Develop Detroit will add up to 60 new apartment units to the block. The organization acquired an adjacent lot and plans to construct a similarly sized building on it.
In the existing Marwood units, rents are about $400 to $500 a month, Mays says, but because of the property’s prime location, it was ripe for an owner to come in and increase rents.
“We’re committed to preserving that affordability in a way that I [don’t] think many market-rate developers are interested [in], not to take anything away from the stuff they’re doing,” Mays says. “It’s important to show that you can do development work in Detroit, outside of downtown and midtown, in a way that’s inclusive.”
According to Mays, the new-construction project, for which financing is currently being assembled with hopes of breaking ground in the second quarter of 2017, will be one of a handful in the area over the past 20 years. “That’s just huge for the tone and tenor of a place that hasn’t seen this type of investment,” she says.
For the Marwood deal, Develop Detroit partnered with Vanguard Community Development Corp., which serves as the North End neighborhood’s community development organization. Vanguard’s partnership with Develop Detroit is intended to enhance access to members of the community and support their needs and concerns throughout the development process. The two groups will conduct community-focused meetings and events to provide updates on the development and gather feedback from residents, business owners, and other stakeholders.
Mays says the goal is to displace zero residents when taking over a property. “We’re really interested in developments that show that you can both be inclusive of existing residents and still attract newcomers who may want to live outside of downtown and midtown,” she says. “We’re committed to doing this development in a way so that anyone who is currently there and wants to remain in the building … we’re going to have an economic structure that’ll allow that to happen.”
Collaboration the Key
Mays, who grew up in Detroit and moved back to work on its municipal bankruptcy, has been surprised by the support her firm has received so far. “Collaboration here, especially with scarce resources, hasn’t always been the rule of thumb,” she says. The organization was created, Phillips adds, “to be a transaction partner with the city and other stakeholders who are interested in the space of revitalization, real estate development, and inclusionary housing” in Detroit.
The organization has only five members at the moment but plans to add a few more soon. Currently, the focus is on raising capital and growing the pipeline. “We need to build this ship while we’re sailing it,” says Phillips, who hails from Kalamazoo, about two hours west of Detroit. “This is a new space and a new model in a city that’s changing rapidly.”
Because there’s no “assembly line” for preserving and adding to Detroit’s affordable housing stock, Mays is preparing for the long haul. “As someone who [grew] up in Detroit and has watched the arc of the place, it kind of resonates on a really personal level to be able to do this work in this larger narrative of Detroit redefining itself and coming back.”