GRAND RAPIDS — CWD Real Estate Investment is turning a corner in its evolution as a real estate company just as local and national markets are shifting attention back to urban interests and investment.
With two major renovations set to start this year and a brand new project on the drawing board, the firm is working toward creating what partner Sam Cummings called a “generational platform” with its assets.
The firm’s portfolio contains some of downtown Grand Rapids’ most iconic historic properties, such as the Trust building at 40 Pearl Street as well as a number of contemporary landmarks including the Gallery on Fulton, home of the Urban Institute for Contemporary Arts. The purchase of the Trade Center building at 50 Louis last year, one of the buildings slated for further renovation, received attention after CWD announced Start Garden, the $15 million pre-seed fund started by Rick DeVos, would anchor the ground floor.
Opting for the forward-thinking startup vehicle in place of a more traditional retailer or restaurant set the tone for the building and is the beginning of an idea in the vein of Rockford Development’s GRid70 concept, Cummings said.
CWD – founded by Cummings and partners Scott Weirda and Dan DeVos – plans to move its offices to the building sometime in September of this year, Cummings said.
“Clearly this is about making money for us. This is a business,” Cummings said. “But the thing that gets me most enthusiastic about what we’re doing is people are recognizing the value of this city.”
Part of that recognition is apparent in CWD’s ability to raise rates and reduce incentives across almost the company’s entire urban portfolio. A combination of factors, including a post-recession flight to quality and employees demanding more dynamic work environments, have led to the Grand Rapids central business district seeing such a revitalization in office environments, Cummings said.
However, he insisted the market still has room to improve before developers across the board are completely confident to step out on a limb with new office/mixed-use construction. Using the firm’s proposed project on the surface lot at the corner of Fulton and Ionia as an example, Cummings said new construction within that small of a footprint would be extremely expensive.
“It’s going to take a lot of work to make that happen,” he said. “The market isn’t quite ready to pay the rates that would justify that type of construction. We got the option on the property because we own the building next door, which could allow us to blend the rates there.”
To get the necessary rates to make the project feasible, Cummings estimated the Grand Rapids market would need to absorb about another 10 percent of the current available space. The increase would put the downtown office market in the same boat as industrial property in the region, which is running short on first-class options and also seeing rates increase.
“What our vision is with our product is how can we maximize the efficiency of the buildings we own,” Cummings said. “We’re looking to make sure they are synergistic and make sure they have all the amenities.”
The market is so used to selling on price that coming out of the economic downturn, it was hard to convince potential tenants to sign leases on the value of space, but that’s changing, he said.
“Fifteen or 20 years ago, we’d have to give all kinds of incentives and concessions,” Cummings said. “But if you provide (tenants) with the right product, they don’t balk on the price.”
For CWD, spending a lot of time with office suppliers and architects keeps the company in the loop when it comes to keeping pace with how the modern office works.
The renewed interest in urban centers also benefits CWD as property managers in that they have less downtime and reduced operational costs. With most of the company’s holdings in relative proximity to one another, CWD is able to capitalize on business volume compared to other suburban projects, Cummings said.
With CWD heavily invested in Grand Rapids, the firm enjoys its position as a major local real estate player, but that role also comes with steep responsibility as stewards of the community, Cummings said. This allowed Cummings, as designated by Gov. Rick Snyder, an opportunity to serve as chair of the advisory board for the Office of Urban and Metropolitan Initiatives, which eventually crafted the Community Revitalization Program (CRP), an initiative that replaced the state’s touted former brownfield tax credits.
The program has been slow to start and Cummings is skeptical about whether or not it’s doing what it was designed to do, which is attract new capital. Many of the new developments downtown, particularly residential projects, are supported by Michigan State Housing Development Authority incentives, including the low income housing tax credits (LIHTC).
While these projects serve to help cities provide affordable housing, industry professionals MiBiz spoke with for a previous report question whether or not this is the type of investment needed or just what is able to provide a return on investment now.
“I’m afraid (CRP) isn’t doing what it’s supposed to,” Cummings said. “What brownfield did was attract capital and make urban investment on par with other real estate investment.”
Beyond the actual time and money that brownfield developments took, Cummings explained that determining a program’s value goes well beyond quantitative brick-and-mortar metrics like capitalization rates and internal rates of return. He said the incentives had many intangible benefits.
For example, Cummings said brownfield projects play a role in helping attract talent to the region. Ten years ago, Grand Rapids would have not been able to recruit people like Dana Friis-Hansen, the director and CEO of the Grand Rapids Art Museum, or David Rosen, the new president of Kendall College of Art and Design, he said.
“The fear I have is that (CRP) is moving away from trying to attract the best capital and instead turning into just a financing source,” he said. “It’s definitely something we need to pay attention to and make sure those tools work.”