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How To Invest In Detroit

By Tom Dyson, publisher, The Palm Beach Letter
Tuesday, May 29, 2007

Two weeks ago, when I first started investigating the Detroit real estate meltdown, I called up a Detroit realtor and posed as a buyer. His name was Jon.

Jon called me and left a message this weekend. "Hey Tom," he said. "A friend of a friend just forwarded me this little article about Detroit skyscrapers from a column called DailyWealth, written by you! And guess what? Our phones are ringing off the hook today with your readers. I like that. Give me a call."

It seems these "little" DailyWealth stories are generating waves here in Detroit. They should...

Last week, I found myself in Royal Oak. Royal Oak is a hip suburb of Detroit. The main road is packed with bars and nightclubs. On Wednesday and Thursday nights, everyone brings motorcycles. The bars all have outdoor patios, so everyone sits outside sipping cocktails and watching the bikes go up and down the street.

Having searched Detroit for four days, this was the first slither of vibrancy I'd found in the area... and I'm sure it would do very well in a Detroit property rebound.

Turns out, three new condo developments are going up in this hamlet and another one is coming. Just what I hoped to see... a few signs of progress.

 

My contact and I pulled up to the first development. A banner advertising the condos hung outside along with a sign to the showcase model. We went to the front door and found a piece of paper taped to the glass. "Information room is closed May 23 and May 24. Please come back next week."

We shrugged and drove to the next development. It, too, had a banner. "Phase II Now Open," it said. We parked the car and went to the door. Locked. The note on the door said, "Open weekdays 9 a.m. to 6 p.m. except Tuesdays and Wednesdays."

Getting frustrated, we drove to the third development. It had the biggest banner yet. It said, "Open everyday" in huge letters and gave a phone number. We called the number to make sure it was open before we wasted our time parking.

"We're sorry," said the automated message. "The number you are trying to reach has been disconnected. Please hang up and try again."

In Miami – where the condo market is alive - sales offices like these are open 24/7. In Detroit, they don't even open for business...
 
When I'd finished in Royal Oak, I spent the afternoon on a speedboat, weaving around giant Great Lakes freighters and studying the Detroit shoreline from the water. I saw more mansions and skyscrapers, plus some great views of the steel mills down river.

"Detroit is trying to position itself as a major port," said my guide. "You can sail a ship to anywhere in the world from here. We've got two great airports, the best freeways in the nation, and great railroads."

My guide used to manufacture auto parts. He sold his company in 1999. It's now publicly traded. "What they say about the Chinese is BS," he said. "If you've got it together, you can mop the floor with Chinese competition. The 5,000-mile shipping cost is a huge disadvantage for them. I beat them hands down my whole career."

With the dollar so cheap right now, and all the vacant land and skilled labor here, it's only a matter of time before manufacturers rediscover Detroit. And don't forget the mayor. He'll roll out the red carpet if you bring new jobs to the area.

One realtor I met told me she's dealing with Europeans more often. Bosch – the huge German auto parts maker – is building a new engineering center in Detroit right now. And last year, Google announced a new office with 1,000 jobs in Ann Arbor, just down the freeway from Detroit. Google currently has a sales office in Detroit.

I couldn't find any publicly traded Detroit investments, so if you want to invest in Detroit, you should buy property there and hire a property manager to rent it out for you. I think the waterfront mansions in Grosse Pointe and the condos in Royal Oak have great potential. There's hardly any downside risk, but if Detroit turns around, your investment could double in five years.

Good investing,

Tom





Market Notes


NEW HIGHS OF NOTE LAST WEEK


Chevron (CVX)... Big Oil
Petrobras (PBR)... Big Oil
ExxonMobil (XOM)... Big Oil
ConocoPhillips (COP)... Big Oil
Verizon (VZ)... telecom
TelMex (TMX)... telecom
POSCO (PKX)... Korean steel
Mosaic (MOS)... agriculture
Valero Energy (VLO)... refining
Schlumberger (SLB)... oil services
Freeport McMoRan (FCX)... copper and gold mining
Cameco (CCJ)... uranium miner
Ivanhoe Mines (IVN)... Mongolian gold
Layne Christensen (LAYN)... water infrastructure
Foster Wheeler (FWLT)... energy infrastructure
Jacobs Engineering (JEC)... energy infrastructure
McDermott International (MDR)... energy infrastructure
Shaw Group (SGR)... energy infrastructure
Caterpillar (CAT)... heavy equipment
Kennametal (KMT)... cutting tools and drill bits
Oshkosh Truck (OSK)... heavy trucks
CONSOL Energy (CNX)... coal producer
Goldman Sachs (GS)... investment banking and trading
Intel (INTC)... semiconductors

NEW LOWS OF NOTE LAST WEEK

Not many... it's a bull market

– Brian Hunt



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