Detroit needs a "clean slate" to begin rebuilding, even if that means tearing down tens of thousands of buildings, mortgage magnate and leading Detroit landowner Dan Gilbert said Friday.
Facing at least $18 billion in debt, Detroit filed the largest municipal bankruptcy in U.S. history Thursday. The city's emergency manager said it had no choice but to file after failing to come up with some sort of consensual agreement.
Gilbert is the founder of Quicken Loans, which has about 9,200 employees in Detroit, and one of the city's largest single landholders with more than 30 properties in the downtown area and about a billion dollars invested. (Gilbert also owns the NBA's Cleveland Cavaliers).
"There's something like 128,000 buildings, commercial and residential, that need to be removed. And once that happens, there's going to be opportunity...where developers and people can start making investments again," Gilbert told " Squawk Box " Friday.
"I think finally when we get through this pain here...Detroit is going to really have an opportunity to start with a 'clean slate.'"
But there's a lot of work to be done first-namely, figuring out which creditors would get paid first, even if it's just pennies on the dollar.
"Where do important stakeholders sit vis-a-vis each other? Where do underfunded liabilities sit versus [general obligations bonds]?" bankruptcy expert Hector Negroni, co-CEO of Fundamental Credit Opportunities, said in an interview. "We don't really have legal precedent around it."
If municipal bondholders are subordinated to pensioners in the bankruptcy process, that could have a chilling effect on cities' ability to raise money through borrowing. While muni bonds have generally been viewed as very safe investments, Quicken's Gilbert said the situation in Detroit and other troubled cities around the country show there is some risk to investors.
But there's no one-size-fits-all approach to solving the financial problems facing many municipalities, cities, and states around the country.
"What's going on in cities in California and what happened in Jefferson County [Alabama] and what's going in Detroit are all different," Fundamental Credit's Negroni explained. "Cities have to look at constantly re-calibrating what business they are in. What are the services they provide [and] what are the needs of their constituents."
(Read more: other bankrupt cities and counties )
In the case of Detroit, the population there topped 1.8 million in the auto-fueled boom times of the 1950s. It's now less than half that today.
Since 2000, the city's unemployment rate has nearly tripled, and joblessness there is more than double the national average.
"It's hard to find a silver lining when there's this big dark cloud," Negroni continued, "but this is a chance for the city to, kind of, find its purpose-find how it's going to make itself viable."
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