By Dr. John F. Sase, PhD. —
Forensic Economist
Gerard J. Senick, General Editor
Julie G. Sase, Copyeditor
William Gross, Research
“Every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming independent, for real estate is the basis of wealth.”
— Theodore Roosevelt
Many attorneys who read this column own real estate or will invest in it at some time. In this article, we will explore the underpinnings of the Detroit real-estate market and, hopefully, will help our readership to avoid pain. We will look at this market from the viewpoint of urban history, urban economics, and property law. Elements of all three comprise the field of real estate.
My (Dr. Sase’s) family has a history with real estate in both Europe and America. My father’s side of our extended family migrated from the countries of Bavaria, Bohemia, Moravia, and Northern Europe in 1885 and afterwards. For three generations preceding that year, the head of our family served as the count of the Imperial City of Hamburg for the Habsburg family, which controlled large parcels of land throughout Europe.
My forebearer used the extended family surname of Sase. Note: The old family name followed the fashion of hyphenated names that has continued into this century. With the addition of my paternal grandmother from Poland, the abbreviated form of Koenig-Fisher became Piasecki-Koenig-Fisher. However, I (and others) find it much easier to write the four-letter surname of Sase rather than 20 letters (or more) with hyphenation. More recently, during the 20th Century, my father founded Marygrove Realty. He located his practice on McNichols Road directly across from Marygrove College in Detroit. Dad and some of his friends built his small office building themselves.
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Location, location, location
As old realtor humor goes, the three most important factors about real estate are “location, location, and location.” Many of the enduring cities in the world have rivers running through them: Berlin, Warsaw, Budapest, Paris, London, New York, Chicago, and Detroit are but a few examples. Waterways provide sources of water for drinking and cleaning, routes for low-cost transportation, and barriers for defense. For instance, Paris was rooted on the Isle de Cite in the middle of the River Seine and was accessible only by a number of bridges connecting to the mainland. In the story of Abelard and Heloise, we read that 12th-Century Parisians fought packs of roaming wolves during the dead of winter along these limited access routes.
Called the Cite De Troit (City of the Straits) by the French, Detroit began as a settlement that has remained centered at this location since at least 800 BCE. “Say what?” you might think. In the lesser-known archeological history of Michigan, we find that the site of the present city as well as its major pathways, the avenues of Jefferson, Michigan, Grand River, Woodward, and Gratiot, date back to at least the civilization of mound-builders that flourished here from a half-millennium BCE to the 14th Century CE. (In fact, we have evidence that many paths converging at Detroit existed during the Copper Culture of 2500 BCE.) When we explore sources like “Archeological Atlas of Michigan” by Dr. Wilbur B. Hinsdale (University of Michigan Press, 1931), the hand-drawn survey maps of Douglass Houghton and Bela Hubbard from 1840, and other historical farm atlases of the city, we find that many Pre-Columbian burial sites in Detroit have been preserved as part of the property occupied by churches and other religious buildings in our modern era. We can surmise that some of the same locational attributes that drew the mound-builders to specific points in the area also attracted the more recent settlers from Europe. Many small towns, villages, and places existed in Wayne County toward the end of the 19th Century. Of the fifty that were enveloped into the expanding City of Detroit, half are situated along the ancient trails now known as Woodward, Grand River, Michigan, and Gratiot Avenues (see the videos “Early Villages That Became Detroit,” http://youtu.be/ qT5vaRimnms and “Early Villages of Detroit–Part 2”, http://youtu.be/7PeHGUe1zRo).
Some commercial/residential sites in Wayne County flourished while others vanished. An example of the latter is Maybury, a village near Gratiot Avenue that was founded in the late 1800s. Maybury faded away into the property of Detroit City Airport, which opened in 1927. However, the vestiges of most of the absorbed towns and villages retained their economic importance as the commercial centers of neighborhoods. Even though many of these loci may appear dilapidated, their location and inherent attributes continue to provide a significant core for any current and future revitalization. For example, places such as the village sites of Greenfield at the intersection of Grand River and Greenfield, Sand Hill (Old Redford) at Grand River and Lahser, and Griener at Gratiot and Seven Mile remind us that local economic hubs still exist throughout the city.
The precise locales of these economic nodes were established in respect to important routes of travel as well as to the quality of available land. A quick study of “U.S. Geological Survey Maps” (1915) reminds us that Lake St. Clair was once much deeper. It submerged most of Wayne County and the southern portions of Oakland and Macomb Counties. Over a course of thousands of years, the periodic retreat of the waters left subsequent belts of sand, clay, and gravel that determined the present quality of the soil. Knowledgeable folks of past centuries determined which sites would sustain large-growth trees and grasslands or which would yield very little vegetation. These planners also determined the levels of local water-tables and the resulting probability of recurrent flooding: Incorrect decisions could land careless parties in the courtroom. Judge Augustus Woodward, for whom Woodward Avenue is named, presided at court. Decisions on the location of preferred habitable sites reflected the careful study of these inherent conditions and the access to transportation routes that would cost the least amount of money. Our current use of land is established by local zoning combined with winning competitive bids by various classes of commercial and residential developers.
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Rail rights-of-way and industrial parcels
Next, let us direct our attention to the major human-established determinant of our local economic development. Before Detroit became known as the Automobile Capital of the World, the city was considered the Railroad Capital of the World. During the quarter-century following the American War Between the States (the Civil War), Detroit factories produced the greatest amount of steel rail of any site. This steel rail was used for the expansion of railroads through the western United States. Rail manufacturers used the old Bessemer process, brought to sites along the Detroit River from Germany in the late 19th Century. This process requires a large amount of flowing water for cooling the metal. Detroit also headquartered the leading producers of steam locomotives, passenger railcars, and other rolling stock. Throughout this era, the present layout of railroad rights-of-way developed as the State of Michigan gave land grants to the existing railway companies in order to encourage the economic development of outlying areas of the state. Along the rail-beds, adjacent land was set aside, zoned as industrial property, and sold to the highest commercial bidders, who valued direct access to the lines. As a result, 90 percent of the industrial parcels in the city front the rail lines and 90 percent of the rail corridors are fronted by these industrial tracts (see the video “Detroit Rise, Fall, and Rebirth—Part 1,” http://youtu.be/q55xD50Bx8Y).
As of 1885, the City of Detroit extended outward a mere three miles from the Central Business District to the beltway known as East and West Grand Boulevards. Before the city expanded, the pattern was predetermined by the layout of the rail lines and industrial sites. Present-day Detroit grew from the rapid annexation of more than 40 established towns, villages, and places. Most of this growth occurred during the First World War through 1926, when the city limits were reached (see the video “Detroit Growth by Annexation,” http://youtu.be/5duzNAvJgnE). The placement of rail lines and industrial sites in the late 19th Century resulted in the partition of the future city into 14 isolated pockets of varying size.
More than half of these pre-determined urban areas were smaller ones that developed into blue-collar neighborhoods surrounded by railways and industrial plants. These neighborhoods, which contributed to Detroit’s early industrialization, helped to coin the term “Walk-to-Work Detroit”; workers lived close enough to their places of employment to enjoy a mid-day meal at home before returning to work for another five or six hours.
Two larger areas and two medium-sized ones grew through multiple subdivisions into socio-economically stratified communities. The two medium-sized areas developed before the larger ones. The rectangular area of approximately seven square miles located across from Belle Isle grew first. It is readily identified by its peak neighborhood of Indian Village. As one moves east, west, and north of the village, the residences become progressively simpler and usually smaller. Around the periphery of the area adjacent to the industrial parcels, we find more modest homes that were built as walk-to-work housing. The upper third of this community is demarcated by Gratiot Avenue. The north end of this area is identified as the bastion of the German American Bund (“band”), a pro-Nazi organization established in 1936. Currently, this area is recognized as the turf of the National Socialist Movement.
North by northwest of the Central Business District and Cultural Center of the city, a larger community developed. It was built upon the burgeoning automotive wealth of the first quarter of the 20th Century. This area, encompassing more than 14 square miles, can be identified in respect to three peak neighborhoods. The most prominent of these remain known as the Boston-Edison Historic District; contiguous to it is the Arden Park-East Boston Historic District. This development straddles Woodward Avenue about a mile north of West Grand Boulevard. The mid-sized neighborhood known as Russell Woods is situated southeast of the intersection of Livernois Avenue and Oakman Boulevard. The smallest of these neighborhoods is LaSalle Gardens, a community that extends around a modest residential park to the north of West Grand Boulevard and to the east of Linwood Avenue.
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“Eastside, Westside, all around the town”
The two largest areas of Detroit include the northeast and northwest parts of the city. Major development of these areas occurred during the post-war industrial boom of the 1920s. Further expansion happened after the Second World War. The northeast area encompasses more than 30 square miles. Technically, the more affluent parts of the northeast are separately incorporated cities: the five Grosse Pointe Communities and Harper Woods. The remaining land, which is part of the City of Detroit, measures approximately 20 square miles. The entire northeast area emerged out of the older Hamtramck Township that bore the name of John Francis Hamtramck, second in command to General Anthony Wayne, the officer who took possession of the territory for the United States after the American Revolution.
Due to the existence of a five-mile-long swamp along Mack Avenue, an area known to early French settlers as the residence of the local Loup Garou (werewolf), early surveys and road development reflected older methods of identifying land rights. The formation of long, narrow farms by habitants resulted in a subdivision and street layout that is significantly different from the square grid-pattern that appears in northwest Detroit. In contrast to the northeast, most of the northwest part of the city and beyond was surveyed under the Public Land Survey System that was developed by Thomas Jefferson and others. Under this system, square townships of 36 square miles were established by measurement in respect to a base line (Eight Mile Road) and a meridian line (Meridian Road, east of Lansing). The survey method divides a standard township into 36 sections of one square mile each. It is set with a grid of east-west and north-south mile roads. Normally, each mile section is divided into four quarters; half-mile roads are positioned accordingly. The western portion of northeast Detroit was measured under this newer system in the 1830s as Michigan approached statehood. The northwestern area was measured and subdivided under the Public Land Survey System.
Northwest Detroit remains the largest area of the city. It encompasses approximately 50 square miles of land. Most of the northwest was developed during the automotive boom of the 1920s, with the periphery along the north and west city limits being completed after the Second World War. This wide rectangular part of the city often is viewed as two distinct areas. Most of the section in the eastern half developed south and westward from a group of peak neighborhoods north of the University of Detroit Mercy and west of the Detroit Golf Club along Pontchartrain Drive south of Seven Mile Road and the former State Fairgrounds southeast of Eight Mile Road and Woodward Avenue. The most affluent neighborhoods include the contiguous subdivisions of Palmer Woods, Sherwood Forest, and the University District. This half of the northwest area extends westward past Marygrove College along and Wyoming Avenue and west along McNichols Road to Greenfield Road. The western half of northwest Detroit emerged out of the northeast portion of Redford Township and is centered at the peak neighborhoods of Rosedale Park and the contiguous South Rosedale and Grandmont communities. Due to geographic proximity, the affluence of this part of northwest Detroit has been associated with Detroit Diesel and the former American Motors Corporation and Massey-Ferguson Tractor plants.
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Two lone ducks
In order to avoid omission, let us mention the cities of Highland Park and Hamtramck. Both cities were able to remain independent during the period of rapid expansion by Detroit that engulfed other towns and villages. These cities retained their status because the City of Detroit Charter requires that Detroit must surround an entity completely in order to incorporate it involuntarily into the city.
However, Highland Park and Hamtramck are joined together along a small piece of property that used to be known as Kenwood, a station-stop along the Grand Trunk Railroad that now is used for industry. As neither Hamtramck nor Highland Park can be surrounded individually, they cannot be incorporated into Detroit involuntarily. This situation has remained a point of legal contention for almost a century.
So, what finally determined the geographic growth and development of the city? From our discussion, we can conclude that these attributes are due to the riverside (straitside) location and inherent soil conditions, the Pre-Columbian radial-road system, the mixture of survey methods and resulting surface-street layout, and the rail and industrial development of the late 19th Century. The City of Detroit is viewed by some observers as a cluster of contiguous sub-cities, each with its own social, political, and economic diversity. Therefore, rather than considering the Detroit real-estate market as a homogeneous unit, it may be wise to approach it geographically as numerous separate sub-markets.
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Tax Base and Property Values
Presently, the City of Detroit and the County of Wayne have too many unproductive properties in their tax portfolio. In addition, taxes for productive (non-abandoned residential and commercial) properties have grown disproportionately for taxpayers in respect to market values. Hence, the common goal for property owners and local government is to increase the market value of city properties and to restore nonproductive ones to the tax role. There is no one simple solution to this problem as property values and the city/county tax base depend upon commercial and residential demand for land and buildings. Commercial demand reflects the sustainment of present businesses and the development of new ones. Conjointly, residential demand rises and falls with employment opportunities.
Fossilization (in which major advancements in product and process slow down) has caused the automotive industry to spread throughout the world. The auto industry and related industries have become more high-tech, thus requiring a higher-skilled labor force. Though significantly smaller, the automotive industry in Detroit will continue to play a major, but more limited, role in the local economy. Alternatively, area companies in biotechnology, computers, and other fields continue to grow and to fill a portion of the basic-industry gap. Furthermore, numerous fine institutions of higher education increasingly provide opportunities for international students in an affordable “college-town” atmosphere. The larger institutions continue to grow as centers of research and development. In addition, many large hospital systems have taken an advancing role in medical research and education as well as in patient care. Finally, other opportunities in the fields of freight transportation and logistics appear along the sidelines, ready to come into play.
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Takeaway
What we make clear to attorneys, investors, and others remains that Detroit continues to experience turnaround, although not a rapid one. The opportunities mentioned in the preceding paragraph will develop slowly. Also, in respect to both commercial and residential demand, Detroit cannot expect to return to a substantial income-base that was supported previously by hundreds of thousands of high-paying unskilled and semi-skilled manufacturing jobs. As head of research for the Focus: HOPE Machinist Training Program during the 1990s, I saw the writing on the wall clearly. Detroit continues to rise again. However, this can only happen through the development of a workforce that possesses high levels of education, knowledge, and world-class competitive skills. Not intending to sound harsh, but the time has come for individuals either to move forward and upward or to go back to the farm. Apart from a limited number of lower-skilled, low-paying jobs, no promise or likelihood of sustainable employment exists for anyone without the acumen that employers locating in Southeast Michigan need to survive in the highly competitive global markets throughout the 21st Century. For attorneys, I predict that, with this progression, we will see significant increases in the volume of work in Real Property, Intellectual Property, and other areas of law. By analyzing the history of the real estate market in Detroit, those involved with Real Property Law will find information and case-leads as well as insights that will guide them to a better understanding of the market.
Detroit Charter requires that Detroit must surround an entity completely in order to incorporate it involuntarily into the city. However, Highland Park and Hamtramck are joined together along a small piece of property that used to be known as Kenwood, a station-stop along the Grand Trunk Railroad that now is used for industry. As neither Hamtramck nor Highland Park can be surrounded individually, they cannot be incorporated into Detroit involuntarily. This situation has remained a point of legal contention for almost a century.
So, what finally determined the geographic growth and development of the city? From our discussion, we can conclude that these attributes are due to the riverside (straitside) location and inherent soil conditions, the Pre-Columbian radial-road system, the mixture of survey methods and resulting surface-street layout, and the rail and industrial development of the late 19th Century. The City of Detroit is viewed by some observers as a cluster of contiguous sub-cities, each with its own social, political, and economic diversity. Therefore, rather than considering the Detroit real-estate market as a homogeneous unit, it may be wise to approach it geographically as numerous separate sub-markets.
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Tax base and property values
Presently, the City of Detroit and the County of Wayne have too many unproductive properties in their tax portfolio. In addition, taxes for productive (non-abandoned residential and commercial) properties have grown disproportionately for taxpayers in respect to market values. Hence, the common goal for property owners and local government is to increase the market value of city properties and to restore nonproductive ones to the tax role. There is no one simple solution to this problem as property values and the city/county tax base depend upon commercial and residential demand for land and buildings. Commercial demand reflects the sustainment of present businesses and the development of new ones. Conjointly, residential demand rises and falls with employment opportunities.
Fossilization (in which major advancements in product and process slow down) has caused the automotive industry to spread throughout the world. The auto industry and related industries have become more high-tech, thus requiring a higher-skilled labor force. Though significantly smaller, the automotive industry in Detroit will continue to play a major, but more limited, role in the local economy. Alternatively, area companies in biotechnology, computers, and other fields continue to grow and to fill a portion of the basic-industry gap. Furthermore, numerous fine institutions of higher education increasingly provide opportunities for international students in an affordable “college-town” atmosphere. The larger institutions continue to grow as centers of research and development. In addition, many large hospital systems have taken an advancing role in medical research and education as well as in patient care. Finally, other opportunities in the fields of freight transportation and logistics appear along the sidelines, ready to come into play.
