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Sunday, 20 March 2016 16:20

State re-evaluates popular development financing tool

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Construction continues on Fulton Place, a $33.78 million, 112-unit mixed-use housing development on Fulton Street in the west side neighborhood of Grand Rapids. For the student-focused project, Rockford Construction could receive up to $3 million from the state’s Community Revitalization Program, which is being re-evaluated by the MEDC. Construction continues on Fulton Place, a $33.78 million, 112-unit mixed-use housing development on Fulton Street in the west side neighborhood of Grand Rapids. For the student-focused project, Rockford Construction could receive up to $3 million from the state’s Community Revitalization Program, which is being re-evaluated by the MEDC. Nick Manes

The Michigan Economic Development Corp. plans to “re-evaluate” a gap financing mechanism that commercial real estate professionals say has played a crucial role in the redevelopment of key corridors across West Michigan. 

In part, the success of the program in spurring redevelopment in Grand Rapids has the state considering how to better use it in areas that might need the help more, executives told MiBiz

The Community Revitalization Program (CRP), run jointly by the MEDC and the Michigan Strategic Fund (MSF), has filled the last financing gap for at least eight projects in the West Michigan area in 2015, totaling approximately $125 million in new investment, according to state data. 

With approximately $40 million appropriated for CRP in the 2016 fiscal year, MEDC officials say they need to make sure they’re investing the funds wisely and in places with the greatest need. 

The MEDC expects the CRP will remain in the organization’s toolbox of programs, especially given the full pipeline of proposed projects. However, where the agency uses the funds could shift to more distressed areas of the state. 

“One thing we are looking at right now — and I think it’s something developers have mixed feelings on — is that Grand Rapids is a pretty solid market,” said Katharine Czarnecki, the MEDC’s director of community development. “Developers are getting good returns. It’s not as distressed as other communities around the state.”

“One thing we are looking at right now — and I think it’s something developers have mixed feelings on — is that Grand Rapids is a pretty solid market,” said Katharine Czarnecki, the MEDC’s director of community development. “Developers are getting good returns. It’s not as distressed as other communities around the state.”

Czarnecki said the organization has been evaluating the program for the last year.

But many developers disagree with the notion that the state should scale back the financing program in Grand Rapids. 

As part of its redevelopment efforts in the city’s west side neighborhood, the development unit at Rockford Construction Co. Inc. used CRP financing for two of its mixed-use projects, the New Holland Brewing Co.-anchored building on Bridge Street and Fulton Place, a student-focused housing development on Fulton Street.

According to state records, Rockford Construction received $5.5 million in CRP financing between the two projects, which combined represent nearly $59 million in new investment. 

“CRP funding is critical in bridging the gap of addressing the high costs of redevelopment and remediating environmental concerns of an urban site,” Mike Mraz, a partner in Rockford’s development group, said in an email to MiBiz. “It was a key part of allowing us to bring investment and subsequent high-quality housing, jobs and gathering spaces to Grand Rapids’ West Side. 

“Future projects in other neighborhoods throughout Grand Rapids would benefit significantly by having this tool available.”

Developers in downtown Grand Rapids and the near neighborhoods have increasingly shifted their efforts to new, mixed-use construction — often with support of CRP funds — particularly as the residential vacancy rate reportedly fell below 2 percent in the last year. 

But now that the program has helped to rejuvenate development activity and improve inventory in Grand Rapids, the MEDC hopes the program can achieve a similar impact in other areas of the state, Czarnecki said.

“CRP is an annually appropriated dollar amount,” Czarnecki said. “We want to make sure we have dollars to do deals into the future when who knows what will get appropriated. On those returns, that’s money that comes back to us that we can then, in turn, put into deals elsewhere into the state.”

CRP acts as a gap financing tool for projects in areas defined by the MEDC as experiencing “historical disinvestment.” Approved projects receive a grant or loan from the MSF, not to exceed 25 percent of the total project cost, according to the MEDC.

Czarnecki said the agency aims to see returns of 4 percent to 5 percent from the investments, but she added that each deal is different and many only generate returns in the range of 1 percent to 2 percent.

The MEDC’s Community Development website lists more than a dozen different programs available for developers, but CRP and brownfield redevelopment grants remain the two most widely used tools, Czarnecki said.

The re-evaluation of the program comes as the state’s top economic development agency was forced to cut 27 percent of its budget in September and lay off 65 people after a loss of tribal gaming revenue sharing, as MiBiz previously reported. 

Despite those cuts, the MEDC continues to offer programs for developers around the state, Czarnecki said. 

“I want to say it’s mostly business as usual,” she said. “I think the only major change is going to be how those deals are structured and our money is not going to be as cheap as it used to be.” 

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