Is Cleveland the next Detroit?

[Michael Wentzel]

I'm just getting into buy-and-hold real estate. We own one property in Colorado Springs and are under contract on a second in Pueblo, CO. I have been looking at houses in Cleveland, OH. The prices are ridiculously cheap and the houses actually seems to be in decent shape and some are in decent neighborhoods. Should I steer clear of Cleveland because it will become the next Detroit?

Mike

[Christian Carson]

Absolutely not. Cleveland went through its "Detroit-style" adjustment period and default in the late 1970s, when Mayor Kucinich "stood up to the banks."

While Detroit was and continues to be totally reliant on the auto industry, Cleveland has always been the second most important Midwestern city (behind Chicago) for banking, finance, law and accounting. Ernst & Young (largest accounting firm in the world), Jones Day (largest law firm in the world), Progressive and a few national banks have their headquarters in the city or its surrounding suburbs. These firms draw top grads from Ohio universities and colleges, which generally rank very highly compared to other education-oriented states. They're not going anywhere anytime soon.

On a recovery-related note:

- Cleveland MSA's 7.3% unemployment rate stands lower than Chicago's 9.6% and Detroit's 10.4%.

- About $5 billion in new construction is underway in the downtown CBD.

- The city budget saw a $50 million surplus last year.

- Pension liabilities are at least 75% funded, which is better than most cities its size or larger.

- The Cleveland Metro School District just passed a $67/yr million citywide property tax hike that is touted to vastly improve the quality of inner-city education through the use of specialized boarding schools, targeting high-crime neighborhoods, and other innovative secondary education techniques.

- Downtown residential population is increasing at 20% per year or greater, and more than 5,000 brand new units from converted downtown office buildings will come online in the next 18 months. (Personally, I was going to occupy a downtown unit but the advertised rent on a 2-bedroom in the Warehouse District was jumped from $1200 to $2000 in a matter of months.)

- Downtown hotel building is booming as previously occupied office buildings were recently acquired by major hotel chains who are in the process of renovating them. This is due to the anticipated demand from the Medical Mart and Convention Center, which just came online this year.

- Cleveland Clinic, with its $3 billion endowment and its top-in-the-world facilities, is in Cleveland (surprise!) and is not going anywhere.

- County government was recently reorganized and an FBI raid sent many public officials to jail. The new government appears to be far more efficient than the last administration, and truly tangible results are being seen.

The city and the region is not without its problems, but things appear to be changing. Just take a visit here and take the temperature of how residents talk about their city, and you'll see that there has been a major attitude change. For many years we've worn the badge of self-deprecation and despair, but somehow the last few years' events have cast away the clouds and exuberance is everywhere.

(On a side note, all fingers currently point to Chicago, not Cleveland, as being the "next Detroit" with its out-of-control violent crime rate, high unemployment, and massive unfunded pension liabilities. None of these problems plague any Ohio city as badly as Chicago has them. But they keep getting a pass!)