DETROIT-With the cost of home ownership continuing to outpace average rental rates, apartment buildings in the Detroit market will remain a strong investment vehicle, according to a report by Marcus and Millichap of Southfield, MI. The apartment market in the Detroit MSA is ripe for substantial rent increases, which will increase property values as well as provide new owners with healthy long-term returns, says Frank Kupiec, who wrote the report.

He says the revitalization of Downtown Detroit, with new casinos andstadiums, have added to the visitors and employment base and will increase interest in apartment living in Detroit. Construction starts have been sluggish, however.

“Condominium conversions Downtown and in the suburbs are becoming increasingly popular, with owners choosing to sell off units for quick profits rather than deal with property management headaches sometimes associated with rental units,” Kupiec says.

The Rochester and North Oakland areas are experiencing the most apartment construction activity due mainly to the creation of new jobs along Automation Alley, Kupiec says, which has seen new businesses springing up to support the nearby automotive industry.

He says the pricey Troy, Birmingham and Farmington submarkets have beenactive in condominium conversions, but with a lack of developable landand rents at their peak, new apartment construction has stalled. Vacancies in the Detroit area have approached 3% over the past 12months, and should remain at that level because of so many condominiumconversions, Kupiec says.

Rent increases, although not spectacular, have continued to outpace inflation, with gains averaging 3% to 4% per year, he says.

Kupiec adds average monthly rents across the Detroit area finished 2000 at $695, a figure he said will increase by approximately 4% to $720in 2001. The average mortgage payment was $1,050 per month, a sizabledisparity that has kept the area a strong renters’ market.

“This is the time for owners to get more aggressive with rents before lower interest rates begin to make home ownership more attainable,” Kupiec says.

Apartment ownership in the Detroit MSA has traditionally been by individual and private local investors, a trend that will continue into the foreseeable future.

“With the baby boomers, who represent a significant ownership interest in the market transitioning into retirement, sales velocity should increase as they look to cash out of their long-term investments. New buyers should be plentiful in 2001, attracted by low vacancies and the potential for solid rent growth,” he adds.

Three of the top sales in the market starting this year include the 488-unit Fairland Meadow Apartments in Dearborn for $34 million, the 776-unit Chesterfield Arms Apartments in New Baltimore for $30 million and the 400-unit Lake Village of Auburn Hills for $22.9 million.

Kupiec says falling interest rates should fuel increased sales velocity this year, and the apartment market in particular will provide a strong investment option as investors look for more conservative, long-term gains, he adds.

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