What Detroit’s PILOT Program Means for Multifamily Investors
Major multifamily landlords in Detroit are struggling, according to recent headlines, but the city’s new PILOT Fast Track program aims to solve the problem.
The market is facing a “perfect storm” of rising costs, new tenant protections, and high property taxes. It’s a combination that’s squeezing profits and making it harder for large multifamily landlords to operate.
But at the same time, the City of Detroit’s aggressive new program is creating new incentives for developers, particularly in affordable housing.
So, is the sky falling, or is this an opportunity in disguise?
Let’s break down the reality of what’s happening, street by street.
The Headwinds: Why Landlords Are Struggling
If you’ve managed property in Metro Detroit, you know it’s not for the faint of heart.
But two factors have recently made it more challenging, particularly for large apartment building operators:
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Skyrocketing Operating Costs
The financial pressure on landlords is coming from all directions.
- Property Insurance: Rates have nearly doubled in recent years, taking a huge bite out of cash flow.
- Interest Rates: Higher rates make financing new purchases or refinancing existing properties more expensive.
- Maintenance & Construction: Costs for materials and labor remain sky-high.
- Property Taxes: When a property sells, the taxable value “pops up” to the new market value, which can make an already struggling building completely unviable for a new owner.
As one developer noted, a property needs to maintain around 90% paid occupancy just to turn a profit.
With these rising costs, that margin for error is getting thinner and thinner.
One major landlord, Greatwater Opportunity Capital, recently reported being on the verge of foreclosure for 131 of their units after a decade in business without ever missing a mortgage payment.
So, why is this happening?
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A More Tenant-Friendly Court System
Adding to the financial strain are recent changes to the eviction process.
Before the pandemic, an eviction in the 36th District Court took about two months.
Now, landlords report it can drag on for four or five months. During that time, they aren’t collecting rent.
These delays are partly due to Detroit’s 2022 “right to counsel” ordinance. This law gives tenants who are facing eviction free legal representation.
From a tenant advocacy perspective, this is a huge win. It levels the playing field in a system that was historically tilted toward landlords.
In 2019, 95% of tenants were unrepresented in court. Now, they have access to legal experts who help them navigate the process.
For landlords, however, this means a more drawn-out and complicated process. Attorneys can secure tenants extra months to move out, and some landlords argue that the system is being exploited by renters who move in, stop paying, and use minor repair issues as a tactic to delay eviction.
While court officials dispute the length of these delays, the perception and the reality of lost rent are creating significant frustration and financial loss for property owners.
The Silver Lining: The PILOT Program Changes the Game
In an effort to support large multifamily developers, the City of Detroit just introduced a new investment instrument: the Payment In Lieu of Taxes (PILOT) Fast Track ordinance.
This program offers developers a significant reduction in their property tax burden in exchange for committing to keep rents affordable for at least 15 years. The deeper the affordability, the bigger the tax break.
And it’s working. In less than a year, the city has approved:
- 2,400+ units of new and preserved affordable housing.
- 6,000+ more units are currently in the approval pipeline.
- This represents over $1.2 billion in planned investment.
The program also streamlined the approval process. What used to take up to a year can now be done in less than 60 days, with a goal of getting it down to 30.
A Real-World Example: Dexter-Linwood
To see the power of the PILOT program, look at the project at 3045 Cortland in the Dexter-Linwood neighborhood. This historic building has been vacant since 2018. Thanks to the PILOT, a developer is investing $6 million to bring it back to life as 34 units of affordable housing.
Under the program, the developer received a 95% reduction in their projected property taxes.
- Without PILOT: Estimated annual city taxes would be $188,995.
- With PILOT: The estimated annual tax is just $11,774.
Without that tax break, the developer would have needed to charge an extra $433 per month for each apartment just to cover the tax bill. That would have pushed the rents far out of reach for many residents.
Instead, a historic building is being saved, and a neighborhood is getting dozens of new, high-quality, and affordable homes.
What This Means for You, the Investor
The Detroit market is at a clear inflection point. The days of buying a cheap property, doing minimal work, and collecting rent with few issues are long gone—if they ever truly existed.
Now that the situation has changed, your strategy should, too:
- Re-evaluate Your Models: If you own apartment buildings, your financial models should now account for higher insurance, potential vacancies from lengthy evictions, and ongoing maintenance.
- Explore the PILOT Program: If you’re looking to develop or acquire multifamily properties, the PILOT program should be at the center of your strategy. It provides a clear path to profitability while also contributing to the city’s revitalization.
- Focus on Neighborhood-Level Expertise: Now more than ever, you need to know the block-by-block realities of where you’re investing. An opportunity in Dexter-Linwood looks very different from one in Palmer Park or a Ring City suburb like Redford. Understanding the local tenant pool, housing stock quality, and community dynamics is crucial.
The Logical Takeaway
The city is actively working to support development that creates stable, affordable housing, and the PILOT program is the most powerful tool they’ve deployed yet.
Success in this market requires a departure from the old playbook. It demands proactive management, meticulous financial tracking, and a deep understanding of the local landscape.
In other words, it requires a Logical approach.
Are you navigating the complexities of the Detroit rental market?
Don’t go it alone.
At Logical Property Management, we provide the systems, data, and local expertise to protect your investment and maximize your returns. We handle the headaches so you can focus on your portfolio’s growth.
Contact us today for a free analysis of your rental property and see the Logical difference for yourself.