How Outlier Media founder Sarah Alvarez uncovered University of Michiganâ€™s controversial role in Detroit evictions
University of Michigan professors have produced some of the more extensive research about Detroit property, speculators and foreclosures, as well as the often harmful consequences for neighborhoods.
Turns out, another arm of the institution has a more direct stake in the matter. The school has invested $30 million in a company involved in purchasing 112 tax foreclosed homes (for about $2 million total) through the 2018 Wayne County tax auction. Outlier Media founder Sarah Alvarez detailed this story in a deeply reported Bridge Magazine feature.
In the course of researching the tax auction, Alvarez figured out that the buyer of the most properties, FDR Investments LLC, was registered by developers Corey Hanker and Jordan Friedmanâ€™s private equity firm Fortus Partners. Fortus Partners is the general partner for the Detroit Renaissance Real Estate Fund LP, which is where U of M invested.
Confused? You’re not alone. Basically, U of M is paying into a fund that supports Hanker and Friedmanâ€™s real estate projects, which include rehabbing undervalued homes in metro Detroit, renting them out, and then theoretically making a return by selling them off in a future bulk portfolio sale.
It took Alvarez weeks of research to figure out who was behind the different entities and connect them, finding verification in improbable places, like public comment submitted to a Los Angeles city commission. Earlier Free Press reporting also helped tie the actors together.
Though she didnâ€™t quite stumble onto the story, knee-deep in these property records as she is, Alvarez was totally surprised to find the U of M connection. She originally intended to focus on a unique financing aspect of the biggest auction buy — and the auction always deserves a critical look. With its purchases by obscure, sometimes negligent companies, itâ€™s been criticized for perpetuating speculation and blight while allowing renters and low-income owner-occupants to lose their homes.
Though the number of auction sales has declined in the last few years, more than 750 occupied homes were still sold to new owners in last yearâ€™s tax auction. Of the 112 homes bought by FDR, 47 were occupied, and eviction cases have been opened for 20.
Speaking in general terms, U of M President Mark Schlissel suggested to Bridge that someone could make the argument â€œthat the dislocation of a certain number of people in return for investment in decaying housing stock is part of the pathway to making the city a better place to live.â€
One previously occupied FDR property in Russell Woods has already been emptied, remodeled, and listed for $2,350 a month — more than double an affordable rent for a family making the cityâ€™s median income.
Some claim the public universityâ€™s investment is at odds with their mission. Joel Batterman, a U of M alum (and Detour member) created a petition calling for disinvestment: U of M â€œshould not be investing in a company that is profiting by evicting Detroiters from their homes,â€ the petition states. Itâ€™s been signed by nearly 300 people.
Detour chatted with Sarah about how the story came together — go read it, then read on for more of the big picture and the messy world of real estate.
Whatâ€™s about FDR Investments stood out to you, compared to buyers in past yearsâ€™ auctions?
The investors Iâ€™m used to researching often slip up. They often have all these blight tickets under their own name. These investors are much more careful, to the point of me still not being able to tie all of the business to one person. I still donâ€™t know the whole universe of their investment.
What I was interested in, before I knew that the University of Michigan was involved, was the private equity aspect. Thatâ€™s a phenomenon that other communities have seen, a lot of private equity investment in residential real estate. But this was the first year that private equity was involved in a real way in buying in Detroit from the auction.
Thatâ€™s one of my questions that canâ€™t be answered yet. I would like to see a couple years down the road, and how these private equity investments are different from what weâ€™ve seen in the past — what do they mean for us as a city? One buyer does not make a trend, but I still think itâ€™s something to pay attention to. And I think weâ€™ll see more private equity because of opportunity zone investing.
House by house, are they doing things differently?
When I was driving through the neighborhood looking at their properties, I did see renovation happening, like someone putting a new roof on a house — which is very different from a lot of the investors that buy in the tax auction, where their goal is just to wring any amount of value out of the asset and let it degrade while theyâ€™re doing it.
But I also talked to a gentleman who lived next door to one of the unoccupied properties that they bought. He was still mowing the lawn and had shoveled the sidewalks all through the winter. Even though a better-resourced outfit [than speculative buyers in previous auctions] bought that house, the upkeep was still falling on the neighbors.
For the people who were living in their houses and face eviction, the consequences are largely the same as they would be with a different bulk buyer.
The developers do have some forfeitures, but I havenâ€™t seen any foreclosures for the companies I know about. They donâ€™t seem like a â€œbad actor,â€ but residential real estate is messy. Even for good actors, it often involves evictions.
I donâ€™t have any real view on what Fortus should do in regards to tenants. I do think residential real estate is a particularly messy investment, and I was surprised it was one U of M was willing to make.
This story covers so many angles — what pieces are you still trying to figure out?
Iâ€™d like to understand Corey Hanker and Jordan Friedmanâ€™s real footprint in Detroit. I still have no idea what all the companies they own are. Hankerâ€™s LinkedIn says “Fortus has purchased, renovated and tenanted more residential real estate in Detroit than any other investment group over the past five years,â€ yet when I call around, people havenâ€™t heard of them.
After your story was published, I saw some outrage directed at U of M — what are you hoping readers take from it?
I hope people who are unfamiliar can use this as a way to kind of learn how real estate in Detroit often works. Even though this is private equity, these auction buys, this cycle is something thatâ€™s so familiar to Detroiters.
Weâ€™re still writing about biggest buyers in the tax auction in 2018. A lot of people just do not understand what a long tail the recession has had in Detroit. Itâ€™s still such an active part of peopleâ€™s everyday lives here.
When I first read your piece, I actually thought, â€œOh, they only bought 112 houses?â€ and then realized, â€œWait, that shouldn’t seem normal.â€
I do find it helpful when a story breaks through a little bit, even if itâ€™s because of U of M or a new type of investor. We get used to these dynamics, so itâ€™s interesting to look at it with fresh eyes — which we have to do as beat reporters, or we wonâ€™t even see whatâ€™s remarkable about whatâ€™s happening here. And it is remarkable.
This interview has been condensed and edited for clarity. With member support, we partner with Outlier Media to bring their accountability journalism around housing to Detourâ€™s audience. In February, we co-lead a workshop on watchdogging the tax auction — under Sarahâ€™s guidance, readers conducted similar research to dig up the real owners behind unknown companies that purchased properties in the auction. Stay tuned for a public FAQ that youâ€™ll be able to use to BYOW (be your own watchdog). –Kate Abbey-Lambertz