Scott Van VoorhisIt might have helped had Boston Mayor Thomas M. Menino taken all of two minutes to Google “downtown Detroit” before trashing the Motor City.

In fact, instead of recommending Detroit be blown up to start all over again, Boston’s long-time mayor might have even learned a thing or two about how low business costs are sparking a corporate renaissance in the embattled city.

Sure, Boston is booming, but Detroit is not the complete basket case that is often portrayed in our lazy bones media and by pols looking to get a quick sound bite on the evening news.

To the contrary, downtown Detroit is on the move right now, even by Boston standards.

In fact, along with a pretty tough baseball team, this scrappy underdog of American cities has something that is in short supply these days in the Hub – massive upside potential.

“The downtown Detroit market is as hot as I have ever seen it,” said downtown Detroit market expert David MacDonald, an executive vice president at Jones Lang LaSalle.

Menino, of course, is not alone in taking pot shots at Detroit. It has been open season lately on the Motor City in light of the historic bankruptcy filing by the city’s notoriously corrupt and inept city government. The filing came just a few months after former Detroit Mayor Kwame Kilpatrick was sentenced to 28 years in prison on corruption charges, having enriched his city pay by more than $800,000 through various schemes.

Yet a city government is hardly representative of an entire city, its people, or, for that matter, it’s true character. While Detroit’s city government is rotten to the core, it still has a promising, even booming, private sector.

Detroit city government “never operated efficiently,” noted John Cullen, a senior vice president at Jones Lang LaSalle and downtown Detroit market veteran, in a rather major understatement. “The private sector is taking a collective sigh of relief that something is being done to restructure local government.”

 

 The GM Effect

For starters, GM is headquartered in Detroit – as anybody who has watched one of the company’s ads recently surely knows – and the business of making cars is back.

But Detroit has also seen companies – big, fast-growing companies – move into its downtown business district, with developers interested in building apartments and retail not far behind them.

Billionaire Dan Gilbert, head of the Quicken Loans empire, owner of the Cleveland Cavaliers, and now a casino mogul as well, is leading the charge.

Gilbert, who grew up in Detroit, has been loyal to his hometown, opting a few years ago to move the headquarters of his massive, home mortgage company to Detroit from Cleveland.

cover_twgSince then, he has pumped more than a billion dollars into downtown Detroit, snapping up 8 million square feet of commercial property and relocating thousands of employees to the Motor City.

Other giants are now following, with ad agency Campbell Ewald moving into a new, 122,000 square foot headquarters in downtown Detroit, while Blue Cross and Blue Shield setting up shop as well. Other companies who have either moved offices to Detroit or expanded their footprint over the past few years include Chrysler, PriceWaterhouseCoopers and Title Source.

In fact, many of these companies are bailing out of Detroit’s suburbs to move downtown.

The result has been a steadily dropping office vacancy rate, now down to 26 percent, and rising rents, according to the latest market reports.

And demand is now growing for apartments and condos for all these new downtown workers, with a developer moving ahead with plans to convert an old office tower into rental units.

There’s even a Whole Foods in downtown Detroit now, the Jones Lang execs noted.

Of course, even with all that growth in downtown Detroit, Boston still clearly stands at the top of the commercial office market heap. Nor is it likely that the Motor City will challenge the Hub that way anytime for the heavyweight title, or frankly ever.

At $17 to $23 a square foot for the best space, Detroit office rents are less than half of what you would find in the Back Bay or the Financial District.

And vacancy rates in the Back Bay are in the single digits now, not 26 percent, as in Detroit.

Moreover, downtown Boston is the luxury showcase for a relatively thriving and prosperous city. We have our rough neighborhoods, but they are the exception, not the norm.

By contrast, outside Detroit’s sparkling downtown, life in its sprawling residential neighborhoods can be tough, with high crime rates and crazy long waits for police officer or fire truck to come to the rescue when things go wrong.

And while Boston has had its share of government corruption, it is minor league compared to the crazy stuff they’ve seen in Detroit.

Nor are the two cities’ home prices even remotely on the same page, with metro Detroit’s median of $135,000 just a third of what the typical Boston house costs – even after a 55 percent jump over the past year. Inside Detroit’s city limits, the median home price is $39,000, about what it cost to have a new bathroom built in suburban Boston.

But massive upside potential is one key ingredient for long-term growth that Detroit has an abundance and, frankly, Boston does not.

We can pound our chests all we want about our crazy high office rents and how it reflects intense demand by some of the world’s richest companies to have offices in the Back Bay, the Financial District or the city’s fast-developing waterfront.

But those high rents – as well as high land costs, high labor costs and high all-around development costs – also make it that much more challenging and difficult for a company to expand in Boston.

Even though it’s booming right now, downtown Detroit is a bargain, with relatively cheap office rents and abundant.

The same goes for home prices – companies are once again struggling to recruit employees to the Boston area as home prices go nuts again.

But you can’t get more affordable than Detroit when it comes to housing, with 20,000 homes foreclosed homes about to hit the auction block.

In Boston, new opportunities are expensive, limited and highly fought over, whether it’s a development lot or a desirable home.

In Detroit, there is the potential to get in on the rebuilding of an entire city.

No, today’s Detroit is not for the faint of heart. But have some class.

Whether the Sox win or lose against the Tigers, the scrappy Motor City deserves respect, not cheap shots.

 

Scott Van Voorhis can be reached at sbvanvoorhis@hotmail.com.

A Tale of Two Cities

by Scott Van Voorhis time to read: 5 min
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