US: Where Homes Are Cheaper Than Cars: Bankruptcy Weighs Heavily on Real Estate

Associated Press

Local real estate ads in Detroit, where houses can be had for less than the price of a used cars.

General Motors‘ trip through bankruptcy court delivers a new blow to Detroit’s long-suffering real estate market.

The struggling auto industry has made Michigan one of the epicenters of the foreclosure crisis dating to early 2005, well before the housing downturn hit overheated markets in Florida, California and the Southwest. Houses in some of the most distressed parts of Detroit sold for less than new cars.

Now, the closure of auto dealerships and the loss of white-collar jobs threatens a new round of pain in high-end suburban housing markets, as BusinessWeek examines.

The twin bankruptcies of GM and Chrysler also dampen prospects for Detroit’s commercial real estate industry. An effort to revive the city’s St. Regis Hotel stumbled earlier this year when the developer defaulted on a construction loan. And leaner companies could mean rising office vacancies, spurring debate over what Detroit should do now. A column in Crain’s Detroit Business argues that Quicken Loans could be one possible suitor for office space in the Renaissance Center.

The real estate impact of GM’s bankruptcy will also be felt beyond Motor City, as some 2,300 dealership closings by GM and Chrysler weigh on the already sagging retail real-estate market. The retail sector has been hit particularly hard rising vacancies during the recession; mall landlord General Growth Properties filed for bankruptcy earlier this year.

”This is single purpose real estate that has to change use now. So there will be a lot of that coming at one time,” AutoNation CEO Mike Jackson told Reuters last month. “And that’s going to take quite some time to work its way through the system.”

Source: Wall Street Journal 1 June 2009