Out of the ashes

Detroit gets help from native Quicken Loans

The Detroit Tigers successfully made their way to the World Series in October of 2012, only to come up short and lose four games straight to the San Francisco Giants. Less than a year later, the city of Detroit filed for Chapter 9 bankruptcy, making it the largest municipal bankruptcy in U.S. history.

The once-vibrant city had hit bottom.

A Chapter 9 bankruptcy is designed to provide a financially distressed municipality protection from its creditors while it develops and negotiates a plan for adjusting its debts. The city filed for Chapter 9 on July 18, 2013, after a judge declared it met the specific legal requirement. But Detroit’s struggles date back a lot farther than 2013.

The city’s downfall began as early as the new millennium. From 2000 to 2010, the city’s population fell almost 25%, from 951,270 residents to 713,777, according to Census data.

“This decline in an important revenue source, when coupled with high fixed costs, has severely limited the city’s financial flexibility,” a BlackRock analysis stated. “At the same time, political struggles within city government and a high degree of unionization have made it difficult to contain wages and pension obligations.”

The housing crisis struck Detroit particularly hard. A little less than two years ago, foreclosure sales in Detroit made up 64% of total sales.

“Bankruptcy can lead to reductions in city services and a loss of public confidence,” Jed Kolko, chief economist with Trulia, said, “but if it results in a solid financial plan for the future then it could boost confidence longer- term and encourage investment in housing and the local economy.”

In fact, bankruptcy might have been just the cure that Detroit needed, according to Quicken Loans CEO Bill Emerson.

“You could not keep doing the same thing over and over again and be in the financial situation that the city was in,” Emerson said. “We look at the bankruptcy as kind of the bottom, and the opportunity to get some things taken care of and really have the city on a go-forward basis that has a cleaner balance sheet.”

Now that the market is making a turnaround, Detroit is making sure it keeps pace with the rest of the nation.

By the end of 2013, Detroit recorded the strongest quarterly growth of the top 50 major metro markets, at 7.8%, the Clear Capital Home Data Index revealed. However, there is no risk of a bubble forming since prices are still significantly below the peak.

“While it has seen more than 30% growth over 2013, the market would need to see another 262% growth to hit peak prices,” said Alex Villacorta, vice president of research and analytics at Clear Capital.

Detroit also posted the second-highest yearly home price gain in 2013 at 31.6%, due to its improved REO saturation rate, according to Clear Capital.

“It won’t do much good to read into other cities’ experiences to try and foresee what will happen to Detroit. Municipal bankruptcies in the U.S. are very rare,” Kolko said. He noted that Detroit’s housing market is unique: Detroit was the only metro outside of the Sunbelt to have huge price declines during the crash and a strong rebound afterward, even though prices remain much lower than in all other large metros.

But as news of the Detroit bankruptcy and the accompanying loss of services flooded the headlines, the city was already working to overcome the odds.

“People have always been proud of Detroit and proud of the area,” Emerson said. “It has been more of a Detroit-centric or Michigan-centric thing.”

Quicken Loans has played an integral role in the recovery of Detroit, pouring a lot of resources, jobs and money back into the city. In August of 2010 the company moved its headquarters from the suburbs of Detroit into the heart of downtown.

“In order for the region to thrive, you need to have a thriving city of Detroit. So we just felt like it was something that we wanted to do to be engaged and involved in,” Emerson explained. “Some of our philosophies are that if you really want to affect the outcome you have to decide to do something about it.”

Dan Gilbert, a Detroit native, not only founded Quicken Loans, but has 112 other associated companies.

“We take a holistic view of the companies, and Quicken Loans is the flagship. Everybody that is under the umbrella that is in the city of Detroit is working together,” Emerson said.

“We call it pulling the threads and being connected to everybody else as far as what is going on and what we are doing in the city.”

A lot of those smaller organizations associated with Quicken Loans are also doing what they can and really trying to live, work and play in the city, he added.

“There a lot of cool things that are happening in the city that people do not hear about,” Emerson said.

Quicken Loans went a lot further than just relocating into the city. The revitalization initially started out slowly but is now 40-plus buildings, with $1.3 billion worth of investment into this particular area of the community.

Additionally, over 100 other businesses have either relocated or opened up in that four-year period in that part of the downtown corridor.

“When you think about our culture and our environment, we are clearly trying to affect the outcome of the brain drain,” Emerson said.

People would attend Detroit’s schools and universities and decide not to stay. “We have to reverse that,” Emerson emphasized.

“We have great young talent in this area. We have great universities. How do we get people exposed to what is going on in Detroit?”

As a result, Quicken and its associated companies started a vast internship program. In 2011, it started with just under 300 interns, grew to 600 by 2012, and over 1,100 paid internships by 2013. More than 157 college and universities were represented, 35% of them from Detroit itself.

“We did not do one bit of advertising. It was all word of mouth,” Emerson noted. “What happened was kids came down here the first year and thought ‘man this is really cool.’ It started to be a groundswell of let’s see what is happening in the city of Detroit.”

In addition, Quicken Loans started to push for more retail business to get back into the downtown area. “There are so many projects going on,” Emerson explained, including blight removal projects and the opening of a light rail in the city.

The bankruptcy itself did not significantly impact Quicken Loans. However, Quicken Loans is operating in the space that is dwindling as mortgage rates push higher and regulation increases.

“From our perspective, yes, we have a mortgage market that has shifted and changed. But part of our model is that we are centralized. We are able to serve all 50 states from a centralized location,” Emerson said.

“Because we have built a scalable technology platform that allows us to really serve all 50 states, we have been able to do it more effectively and more efficiently.”

While there is still a lot of work to do in Detroit, Emerson is optimistic. In just three and half years, the company has witnessed massive amounts of change in the city. The next two to five years will likely also produce more changes and much more opportunity, he said.

“Detroit is a great city and has a great infrastructure. It has been a great city in the past. It will be a great city again in the future,” Emerson emphasized.

“The biggest thing that I would ask people to do is to not just read the headlines. If you really want to understand what is going on in the city of Detroit, come spend some time here,” Emerson said. “It is the only way to get a good understanding of what is happening.

“There is a lot of opportunity here for people who want to try to open a business or create something new. It is one of those things where you really need to come see it, touch it and feel it to know what it is all about.”

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