| DETROIT, July 3
DETROIT, July 3 The solid red brick house on a
block of similar homes in Northwest Detroit sounds like a steal
But in many ways, it's a lemon.
The house, sold at an auction last fall, sits at the edge of
Detroit's infamous urban blight. And scrap thieves, or
"strippers," have taken anything of value, including the kitchen
sink and metal pipes, requiring repairs of up to $15,000.
"You could take a great picture of this house, put it online
and make buyers ... think it's a good thing," said Antoine
Benjamin, chief operating officer of real estate firm Benjigates
Estates, which bought the house at a Wayne County auction to
renovate and rent out. "But you have to understand how close you
are to wasteland."
Low property prices in Detroit in the wake of the housing
crash in 2008 have lured investors from California to China.
Speculators bank on high returns despite a financial crisis so
dire Detroit's state-appointed emergency manager, Kevyn Orr, has
cited a 50-50 chance the city will file for bankruptcy.
But small-time speculators eyeing quick profits often let
the houses fall into disrepair because they lack the funds for
renovations or end up abandoning them - and frequently do not
pay real estate taxes.
In 2011 alone, the last year for which data is available,
Wayne County had to write off $170 million in uncollected taxes
on Detroit properties. About 100,000 city-owned properties, many
of which are abandoned, are in limbo until a study of local
property values is completed.
"The city has made no effort to make those 100,000
available, so we don't have a real market," said Jerry
Paffendorf of Loveland Technologies, whose widely followed
property database includes Detroit's tax delinquencies and
Bill Nowling, a spokesman for Orr, said the city does not
intend to sell right now because there is no way to discover
fair market value, and the emergency manager is awaiting the
result of the Michigan Tax Board study.
"There is serious concern that the assessment process in
Detroit is broken and many, if not most, properties have been
inappropriately assessed at artificially high levels for years,"
Nowling wrote in an email.
A state plan to demolish abandoned buildings may eliminate
some of the blight, but would do little to resolve city property
codes that are unclear or largely ignored.
"The lack of property code enforcement means there is no
risk for investors who buy here and neglect their properties,"
said Khalilah Gaston, executive director of the local nonprofit
Vanguard Community Development Corporation. "We have to ensure
there is risk and not just reward."
One speculator, 22-year-old graduate student Darin McLeskey,
who also runs a non-profit urban farming group, noted Detroit's
many rules on property use but few resources to police them.
"With no code enforcement, it's the Wild West," said
McLeskey, who moved to Detroit from an outer suburb. And he has
taken his shot, spending $25,000 to snap up 20 empty plots and
three homes in the city.
McLeskey is a rarity among speculators because he plans to
make Detroit his home. Detroit's population fell 25 percent in
the past decade to 700,000, well off its 1950 peak of 1.8
million, as manufacturing declined and white residents moved to
the suburbs following race riots in the late 1960s.
A $500 STANDING JOKE
In a few neighborhoods, sales are picking up on recent talk
of new infrastructure projects including a light rail line, a
new hockey stadium and a new bridge to Canada.
At Wayne County's annual foreclosure auction last year,
12,000 properties were sold online, some for the minimum $500
bid. More bargain seekers are expected this fall when around
25,000 properties will go on the block.
"Just a few years ago the big joke was, 'You can buy a house
in Detroit for $500, ha ha ha,'" said Ted Phillips, executive
director of the nonprofit United Community Housing Coalition,
which helps homeowners fend off foreclosure. "Now the buzz is,
'You can buy a house in Detroit for $500 and it's a great
Detroit property prices rose 20 percent year-on-year in
April, Standard & Poor's Case-Shiller Home Price Index showed.
Benjamin estimates the house Benjigates bought in Northwest
Detroit for less than $4,000 will ultimately cost about $20,000
after renovations. But the company has a renter lined up and
should be able to sell it for $30,000, he said.
The North End district in central Detroit sits alongside the
route of a planned $137 million, 3.5-mile light rail line and
has attracted serious investors. On a recent visit to the area,
groups speaking with New England, British and other accents and
were seen walking the neighborhood looking for deals.
Phillips of the United Community Housing Coalition worries
about a get-rich-quick mentality. "These homes are not just
paper investments," he said. "If they're left to disintegrate,
they undermine neighborhoods."
'HASN'T LOST A HOUSE IN 7 YEARS'
To monitor abandoned properties and foreclosures, Loveland
Technologies, a for-profit company, has created a private online
database, www.whydontweownthis.com, that Wayne County deputy
treasurer David Szymanski has described as the most reliable
source for such information.
Data provided to Reuters by whydontweownthis.com depicts the
city as a patchwork of neighborhoods where multiple foreclosed
homes belonged to individual owners.
One such owner, Shirley Ray of Signal Mountain, Tennessee,
bought dozens of houses on April 21 2011, for $10,000 each,
according to whydontweownthis.com. Of the more than 20
Detroit-area homes still listed under her name, most have been
foreclosed on and the rest are seriously delinquent.
Ray did not respond to numerous calls seeking comment.
Other speculative buyers hurt the city's cash flow by
refusing to pay property taxes.
According to whydontweownthis.com, a local investor named
Ralph Kinney owes more than $70,000 in property taxes on seven
Kinney could not be reached for comment, but his property
manager, Darren Pettway, said Kinney buys homes cheap and rents
them out. He then sells them at a profit to buyers who also
agree to pick up the back taxes.
Occasionally, Pettway said, Kinney defers foreclosure
proceedings by paying down a nominal amount of the property
taxes he owes.
"He (Kinney) hasn't lost a house in seven years," he said.
"The taxes eventually get covered by someone else, so it all
In some of Detroit's more vibrant neighborhoods, residents
are fighting back, targeting blight where the city lacks the
resources to do so.
Economics are improving to the point that some "benevolent
speculators" are investing in ways that benefit neighborhoods,
Gaston of Vanguard Community Development said.
For instance, Abass El Hage's Upstream Real Estate
Investments has bought nearly 30 homes to renovate, rent out, or
sell to investors, she noted.
Vanguard is helping El Hage seek up to $1 million in
financing toward a retail and restaurant project called
Milwaukee Junction in an abandoned and stripped red-brick
building purchased for $15,000 last year.
El Hage said longer-term investments, like Milwaukee
Junction, are the next wave in Detroit's real estate market.
"Too many people are trying for a quick flip," he said. "That
kind of deal is gone."
(Reporting by Nick Carey; Editing by David Greising, Frances
Kerry, Mary Milliken and Richard Chang)