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Sunday, 12 May 2013 22:00

Life in the City: Urban areas struggle to attract families, downtown housing options

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While most developers have focused on subsidized low-income housing projects, Rockford Construction plans to offer market-rate apartments at its Morton House site in downtown Grand Rapids. While most developers have focused on subsidized low-income housing projects, Rockford Construction plans to offer market-rate apartments at its Morton House site in downtown Grand Rapids. MIBIZ FILE PHOTO

Editor’s Note: This edition continues the six-part series on the subject of urbanism using examples from across the region to highlight concepts on the minds of local professionals. Practitioners say city building — or placemaking, as it’s often called — is all about people. The way we work, live and play continues to change and the infrastructure around us is always playing catch-up. This series aims to open the discussion about how professionals in West Michigan think the region must adapt to thrive in the new economy.

In the past decade, strong financing tools and development incentives created opportunities for empty nesters and millennials to take up residence in downtowns across West Michigan.

But urban planners and real estate professionals are left wondering: How can cities better attract families to live in the core urban areas?

It seems that in their haste to spur development, they didn’t necessarily focus on creating spaces that attract a broad array of residents to live downtown. Now, they’re studying how best to create attractive environments with affordable options for housing.

Unfortunately, current market forces make it tough to provide all the residential options cities need to attract residents and make West Michigan downtowns diverse and compelling places to live. While all cities have unique needs, they all share common requirements for fine-tuned incentives, greater density in the downtown areas, and more opportunities for residents to engage in city building.

To be a resident in a West Michigan downtown requires sacrifice, said Rob Peterson, business recruitment and retention director for Downtown Kalamazoo Inc.

In particular, residents must give up a backyard and some sense of privacy for more action and access to culture, he said.

“There seems to be a trend that people are preferring to live in downtown markets,” Peterson said. “People are far more interested in being part of a community.”

In Kalamazoo, Peterson said it’s primarily the major employers that are driving the number of people moving in and out of the downtown. While families and recent college graduates could add to the downtown’s tax base, they currently have limited options to live in the city center.

“From a downtown (housing) perspective, you have to have a mix of options,” he said. “There is very little downtown that is high-finish, available and under $1,000 for two bedrooms.”

For example, only a quarter of the 24 units available in Mavcon Properties LLC’s mixed-use redevelopment of the Metropolitan Center are available with discounted rents between $560 to $800 per month, with rates determined by a tenant’s income. Meanwhile, market-rate units are priced between $900 and $1,700.

With a scarce number of reasonably priced units, all the college and medical students with tight budgets have limited housing options, Peterson said.

“Being able to have a mixture of price points and styles of homes right near the downtown is a positive thing for a lot of reasons,” Peterson said. “I think there are some missed opportunities for developers to come and build something that we don’t already have. I do know there is an untapped market of young people who can’t yet afford the asking rents.”

While residential developers try to accommodate young people in downtown projects, the city must attract more families downtown if it is to create vibrancy and openness, Peterson said.

Still, the environment for development has changed quite a bit from the pre-recession years, said Patrick Lennon, an attorney with Honigman, Miller, Schwartz & Cohn LLP and chair of the West Michigan chapter of the Urban Land Institute. Some aspects changed for the better like the availability of low-interest loans. However, eroded tax bases after the recession have diminished many municipalities’ capacity to offer incentives, he said.

Given cities’ tight budgets, Lennon said available incentives should prioritize projects that will spur future development and further goals that create a sense of place for users.

“These projects are pedestrian friendly, create openness and increase connectivity in the area,” he said.

Subsidies rule the day

But for every project that is truly collaborative and community-based, there are handful of others that are taking advantage of the market’s current state, especially subsidies for low-income housing.

State and local development incentives, along with an uptick in demand for rentals, are driving incremental growth for the downtowns of Grand Rapids, Kalamazoo and Muskegon. However, some say developers are offering a glut of low-income housing options especially along the southern portion of downtown Grand Rapids in the South Division Avenue corridor.

Industry professionals say there’s no denying that Low-Income Housing Tax Credits have enabled some developers to put historic or blighted properties to new use, particularly in that changing corridor. But many insiders think those incentives are not being used effectively to encourage a diversity of housing options throughout the city.

While so-called workforce housing is both necessary and good, it needs to be scattered throughout the city, said Mark Miller, an architect with Grand Rapids-based Nederveld Inc.

Once cities have people’s interest, then they need to offer people options for places to live. Experts agree the secret lies in providing people a mix of options.

The trouble is, while demand is up, the market hasn’t reached a point where developers are able to justify the cost of new construction. Even with incentives, they can’t justify the high cost of building new facilities based on the rents they could expect to charge for the housing units.

With more stringent underwriting standards for development, banks and other financing institutions are interested in lending to residential projects, but aren’t shelling out loans at the same debt-to-equity ratios that put more shovels in the ground in the early 2000s, sources said.

“You might find 70 percent (debt-to-equity),” Lennon said. “That’s a great deal, but it really depends on the borrower and the project.”

Despite the difficulties, a number of market-rate projects are springing up throughout the city. Last week, the Grand Rapids Downtown Development Authority signed an agreement with Arena Place Development LLC for an option to develop an estimated $24 million to $26 million mixed-use project on one of the surface parking lots southwest of Van Andel Arena. The project includes a proposed 80-unit market-rate apartment complex and an adjacent 50,000-square-foot office building. Other market-rate projects include some infill units from 616 Development LLC, Rockford Construction Co.’s Morton House project, and Locus Development LLC’s 38 Commerce development that went up in 2010.

“The pressure to develop/redevelop these lands rests with the ability to get sustainable rents relative to implementation costs,” Nederveld’s Miller said. “We aren’t there today. Demand does not equal aspirations, so we need more people wanting to live downtown, demanding to live downtown, desiring to live downtown.”

New life for old spaces

Given the financial burdens of new residential development, rehabilitation and renovation projects are about the only means to create infill market-rate projects, Lennon said.

Given these conditions, product variety is limited and growing a downtown’s population diversity is a tough slog, Miller said. Incentives that drove some developers pre-recession, including brownfield tax credits, are no longer available to the extent they once were, sources said. That dearth of support mechanisms has affected the ability to drive density in core urban areas.

Gone are the days when developers had the powerful Renaissance Zone designation in their incentive toolbox. The retired program, which offered tax-free living in rehabilitated spaces for a defined period of years, was a boon for pre-recession condo development across the state. While the designations still exist, many are nearing the end of their lifespans, which leaves less value for developers and potential tenants.

Jon Rooks, principal at Parkland Properties, was one of the early developers to take advantage of Renaissance Zones with projects including Boardwalk condos on the North Monroe Avenue and Union Square on the city’s west side.

While Rooks said the Grand Rapids housing market has good momentum, he has shifted his attention to Muskegon, where his Highpoint Flats and Terrace Point projects are currently under development.

Highpoint secured a Renaissance Zone extension until 2023 that helps keep the project viable, he said. Terrace Point got off the ground thanks to the ability to layer brownfield tax increment financing and a Neighborhood Enterprise Zone, in which new construction is taxed at only 50 percent of the project’s value.

Muskegon’s other Renaissance Zones are entering their last years of reduced tax liability, said Cathy Brubaker-Clarke, director of planning and economic development for the city of Muskegon. In 2014, downtown Renaissance Zones will pay 75 percent of total property taxes and 100 percent in 2015 when the designation expires.

More help on the way?

Currently, the Michigan Economic Development Corp.’s Community Revitalization Program (CRP), which replaced the state’s brownfield tax credits, offers a combination of grants and loans worth up to $10 million on individual projects.

However, the program shares a one-time pot of $100 million with the MEDC’s Business Development Program (BDP).

At the Urban Land Institute’s fourth annual Public-Private Partnership Forum on April 25, Michael Finney, president and CEO of the MEDC, said the organization was “lobbying aggressively” for an additional $20 million of CRP funds to keep the project pipeline moving in fiscal year 2014. Adjusting for any carryover of funds unused this year, the entire pot for both programs would bump up to $120 million total, he said.

Overall, projects throughout the state are claiming $70 million in CRP deals for fiscal year 2013. Program director Katherine Czarnecki said she doesn’t expect any funds to carry over. Czarnecki added that a few large projects in the Grand Rapid’s region are currently working through the MEDC’s channels.

As of mid-April, just 23 projects across the state had been awarded CRP funding. Of those projects, West Michigan has four — three in Grand Rapids and one in Muskegon — that are residential or have some housing component. The total investment from the MEDC in these projects is roughly $3.7 million.

Destination: Downtowns

It’s clear that incentives play a vital role in developing places that people want to live, but there are other factors that drive people’s relationships with place.

Those lesser-known factors are the focus of the Build A Better Block project planned for May 18-19 on State Street in Grand Rapids. In an effort expose people to urban living concepts, the project is a jumping off point for residents and business owners to get engaged in city-building exercises.

The goal of the project is to show people low-cost, low-impact ways to adapt city spaces.

The event will host food truck pods, implement temporary bikes lanes, build up facades and install temporary landscaping.

“We want to implement different things … for people to come and enjoy downtown,” said Lynee Wells, an urban planner with Grand Rapids-based engineering and planning firm Williams & Works Inc. “We really just want to dismantle (barriers) for them and really show the potential for urban living.”

What you’re trying to do is make the urban core a destination and place to live, ULI’s Lennon said. To do that, a city needs to relieve parking challenges and congestion while maintaining density, he said.

“Balancing all those impacts goes into establishing those projects you want to promote in the urban core,” Lennon said. “Cities and developers are starting to get more creative in collaborating on projects.”

Examples included developers agreeing to maintain public spaces and parks that are adjacent to their projects, but not owned by them. Other efforts include getting the zoning and permitting process streamlined and having a lot of upfront transparency about project goals and needs.

“[E]ven greater due diligence is needed regarding what kind of support is out there for projects,” Lennon said. “Communication from all the parties involved and understanding interests, motivations and goals — all of those brought together create really successful projects that can stand the test of time.”

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Elijah Brumback

Staff Writer

ebrumback@mibiz.com

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