While Detroit has had a financially cloudy past, there are plenty of real estate investors who see a silver lining behind those clouds. Recently, a Canadian real-estate investor purchased the landmark Penobscot Building, Detroit’s third-tallest office building, for only $5 million, or $5 a square foot. That seems like an unbelievable deal to investors who are used to paying an average of $200 per square foot in other metropolitan areas. But to the purchaser, a company controlled by the Apostolopoulos family of Toronto, the deal was too good to pass up. Steve Apostolopoulos, son of Andreas Apostolopoulos, founder of the Triple Group of companies, said that “There are deals right now to be had in Detroit, and there’s huge upside”. The family’s other holdings include properties in Greece, Australia, and the United Kingdom, as well as Toronto, Detroit and New York.
Of course, Detroit has its problems. According to yesterday’s Wall Street Journal, the city’s downtown market has a vacancy rate of 26.5%, one of the highest in the nation, and the city’s unemployment rate was 15.8% in April, almost double the nation’s seasonally adjusted rate of 8.1%. From 2000 to 2010, Detroit lost almost a quarter of its population, according to the Bureau of Labor Statistics and the Census Bureau. But anyone who has seen Chrysler’s Super Bowl ad wants to believe that Detroit has the ability to rise from the ashes. And real-estate investors may be willing to take a chance when the buy-in is so low.
The 568-foot tall, 47-story building was purchased for $14 million in 2005 by Northern Group of New York. The building was taken over by Capmark Financial Group, Inc., the lender on the Northern Group purchase. Capmark, which filed for bankruptcy in 2009, exited bankruptcy last fall and put the property on the market. The offer from the Triple Group was an all-cash offer with no contingencies.
The Penobscot Building is presently about half empty. Rents are so low in the three-tower complex that they barely cover operating expenses and real estate taxes. But, according to Steve Apostolopoulos, the Triple Group plans to invest an additional unspecified amount in renovations and upgrades and to lower rents from about $15 per square foot to $10 per square foot in order to attract more tenants, hoping to bring the occupancy up to 90% by next year. Whether or not that strategy will be successful is anybody’s guess. The Detroit vacancy rate decreased slightly in the first quarter of 2012, which is good news, and in the city’s financial district, Dan Gilbert, founder of Quicken Loans, has purchased several downtown office buildings, with plans of relocating his employees from the suburbs to downtown.
The Apostolopoulos family is said to be on the look-out for other deals in Detroit. With deals like this, who can blame them?
Much of this information was taken from the June 6, 2012 Wall Street Journal’s “Property Report” pages.