GRAND RAPIDS, MI—Joe Elias has always believed in the potential of the American Midwest. The Michigan native spent 15 years developing real estate projects in the region, and recently helped launch the Grand Rapids, MI—based Loquidity, a real estate crowdfunding platform that aims to build communities by drawing in investment that might otherwise gravitate toward the coasts.
Although Elias and his partners launched their platform this summer with a multifamily project, they are already talking to other brokers about using the platform for industrial, office and retail spaces. They will concentrate real estate investments in Michigan, Illinois, Ohio, Wisconsin, Iowa, Nebraska, Minnesota, Missouri, Kentucky, Pennsylvania, Virginia, Tennessee, Indiana and Kansas.
The real estate markets in coastal cities like New York, San Francisco and Houston came roaring back several years ago. But Elias believes it is now the Midwest’s turn, and what had been a relatively slow recovery is now gathering steam. GlobeSt.com spoke with Elias on the strengthening recovery and why now is the time to invest in the region.
Where do Midwest real estate markets stand?
The Midwestern US, like other regions in the country, took a big hit during the Great Recession. For a region whose core industry has historically been manufacturing, the effects of a slowed economy were felt most acutely by the millions of workers who lost their jobs. The region’s recovery was initially slower than others’, but is now showing signs of increasing velocity, particularly in major markets like Detroit, West Michigan, Chicago, Kansas City and others. For this reason, key property markets in the Midwest—a region that has been overlooked by investors for a while—are now in higher demand.
Why are these markets accelerating now?
Increased manufacturing demand is one important reason. Recent economic reports show that key industries in the region are steadily rebounding, leading to a decrease in the unemployment rate in major metropolitan areas like Detroit, Chicago, Cleveland and elsewhere. A recent economic survey by the Federal Reserve, for example, stated that “Chicago and Cleveland noted strength in energy-related industries…Steel production was up slightly in Cleveland, where activity related to oil and gas was also reported to be strong.” The Bureau of Labor Statistics‘ latest unemployment report shows the Midwest, along with the South, to have the lowest unemployment rate of any region in the U.S. Additionally, a recent Careerbuilder and EMSI report named Detroit as one of the top ten areas for job growth in the US. Obviously, this is great news for real estate investors in the region, as increased economic activity is strongly correlated with new construction demand and lower commercial and multifamily housing vacancy rates.
What are some of the strengths that people from outside the region might not understand?
There is tremendous diversity in the region’s industry. It is home to some of the nation’s leading research universities, and the region’s younger generation is tech savvy, educated and highly ambitious. Many colleges have founded their own incubator/accelerator programs for startups, hoping to make their communities more competitive in attracting venture capital and skilled workers and thus increasing the diversity of industry in the region. Chicago alone saw a 169% increase in startup funding in 2013, over the previous year. The concerted effort to attract skilled knowledge workers and promising companies to relatively less expensive locales is a savvy one that will help strengthen and diversify the local economies of this region.
Have there been any major changes in these markets?
A region renowned for its close-knit rural communities is steadily changing as workers—particularly younger ones—migrate to urban areas for a variety of reasons. As GlobeSt.com recently reported regarding Kansas City’s economic revival, “companies that want to tap into this new and growing concentration of potential employees have also followed, filling up old, underused structures and even developing new towers.” The migration to urban centers is in part correlated to the burgeoning technology and entrepreneurial scenes in Midwestern cities mentioned above.
What is the market like in your home base Grand Rapids?
Grand Rapids is currently looking at a multifamily housing vacancy rate of less than 5% and was also ranked as the nation’s top market for job growth, according to a 2014 survey. The same report said that this growing West Michigan city is the best place to own rental property, in part because of the strong regional economy and job growth. Detroit, Flint and Saginaw, Mich. were also recently cited as among the top places to be a landlord.
Does the Midwest have any advantages over the coasts?
In pursuit of ever-higher returns in “hot” markets, investors flocked to the coastal regions of the country in the early 2000s, driving up property values higher and higher. Unfortunately, these same markets suffered the most in terms of declining property values, having reverberating effects across the country. The Midwest, however, endured lower decreases in property values, and continues its steady upward march. Investors learned some important lessons during the Great Recession in diversifying real estate portfolio risk across both debt and equity assets, regions and property types. The Midwest is proving to be a great place to get started.