The news of Detroit’s municipal bankruptcy – the largest ever – was a bit shocking when we first heard the news so many months ago. But as things have progressed, the continual news stories of various bland administrative goings on have desensitized us from the initial shock.
And yet, a new statistic reported recently might still be able to shock you. Financial Guarantee Insurance Company (FGIC) is contesting the bankruptcy plan put forth by Detroit’s attorneys, more than likely because it stands to lose about $1.2 billion. But where does this number come from?
Location, Location, Location
FGIC’s figure is based on what it sees as the value of all of Detroit’s real estate holdings. Now $1.2 billion sounds like a lot, right? Well for you and me, it is. But consider this. The $1.2 billion figure encompasses 22 square miles of real estate! In addition, it would behoove FGIC to come up with the largest figure possible. So if anything, the value of Detroit’s real estate is probably far less.
By comparison, consider the assets of someone like Donald Trump. The Trump Organization owns bits and pieces of residential and commercial real estate in and around Manhattan. Even his tiny slice of the pie is worth an estimated $3 billion. It sounds like Mr. Trump could easily buy all of Detroit’s 22 square miles of real without batting an eye, assuming he wanted to.
What’s Around the Corner?
To say that the value of Detroit’s real estate is declining is a massive understatement. While most cities are replacing farmland with residential and commercial construction, there has been a move toward returning the most devalued neighborhoods in Detroit back to farmland. Apparently, the land is more valuable with corn growing on it than with a productive family of four.
Speaking of houses, try this little experiment. Search ebay for houses on sale in Detroit. You can find many modest, single-family homes for around $2,000. It’s no wonder that Detroit’s 22 square miles is worth so little.
At the conclusion of Detroit’s bankruptcy, we will know for sure just how much, or how little, the court believes its properties are worth. Regardless of the figure, this will have far-reaching consequences for all, future municipal bankruptcies.