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Sunday, 31 March 2013 22:00

Brownfield incentive not available in key GR district

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Developers considering projects in a key area of downtown Grand Rapids might be surprised to find out they don’t have access to a powerful incentive aimed at urban redevelopment projects.

In some sections of downtown Grand Rapids, developers can use a combination of brownfield incentives and programs offered by the Downtown Development Authority to help get projects off the ground. But that’s not the case in the area known as the South Arena District near Van Andel Arena, where most sites are ineligible for brownfield incentives.

The reason stems back to the development of Van Andel Arena. To pay for the arena, the DDA issued bonds that guaranteed the city would capture all of the taxes on new development in the district. In essence, the DDA uses the taxes to pay off the bonds.

After the bonds were issued and the state ended its tax credit program for brownfield redevelopment, brownfield incentives in the Arena District were off the table. That’s because what remains of the local brownfield incentives uses a form of tax increment financing (TIF). TIF is a public financing mechanism that uses hypothetical future gains in taxes on property to subsidize current improvements, which are projected to create the conditions for property values to increase.

Developers say the brownfield incentives would be helpful because they can be applied to underground parking, stormwater management and site preparation and remediation — all important features for projects in the tight urban area where property is at a premium.

Instead, the only incentives available in the DDA District 1 are ones the DDA can offer. The DDA can offset the cost of public infrastructure improvements like streetscapes, stairs, ramps, signage and façade improvements with grants and loans. The DDA can still use its own TIF powers as long as it meets the monthly debt service on the arena bonds. The TIF revenue the DDA captures from all of its districts is more than enough to cover the bond debt, said Eric Pratt, a city planner with the City of Grand Rapids.

“We get asked all the time” why the lucrative brownfield incentives are not available in the district, said Kara Wood, executive director of the city’s economic development office and director of the local Brownfield Redevelopment Authority.

Looking at the long term, sources said there are three possible solutions:

  1. The city could pay off the bond debt for the Arena District. Considering it owes about $56 million, most agree that option is not yet feasible.
  2. The DDA could ask the insurance company and the bondholders to exempt part of the TIF revenue so the brownfield program could operate, but it’s unlikely either party would want to take on more risk.
  3. The DDA board could change its policy to cover private development costs associated with stormwater management systems, parking structures and other development cost burdens.

Other options add levels of complexity that are not necessarily developer-friendly, Wood said.

Kris Larson, executive director of the DDA, said the brownfield tools are better able to help the kinds of development likely to occur in the core business district. The ability to help finance building underground parking structures is a powerful part of the brownfield program, but it’s only available outside of the core downtown areas, he said.

“We want to be competitive with the tools we can (use) to build a better city,” Larson said.

But it is unlikely that developers will be able to use both types of incentives in the Arena District any time soon, says Dick Wendt, partner at Dickinson Wright PLLC who has served as bond counsel for the city. The reason: For the local brownfield authority to collect tax increment financing in the district, bondholders and the insurance companies behind the bonds would have to alter the terms of their agreements, which they are loath to do, he said.

“They have no incentive,” Wendt said. “We tried reaching out to the insurance company several years ago but never got a reply.”

But John Byl, partner at Warner Norcross & Judd LLP and chair of the Michigan chapter of the National Brownfield Association, thinks the city might be a bit too conservative in approaching the insurance companies for a rewrite of the policies. He said the DDA currently takes in enough revenue to cover its debts and might be able to make a case that revenues from future development in the Arena District aren’t needed to continue to pay off the arena bonds.

As more interest gets focused on the area south of Van Andel Arena, industry insiders say some projects could be off the table because of a lack of relevant and available incentives.

But Wendt, the city’s attorney, isn’t buying any of the developer sob stories.

“I have not seen a project not go forward in that area because brownfield wasn’t available,” he said. “Look at what continues to happen without it.”

While the recession’s grip on the real estate market weakens, development in downtown Grand Rapids continues to thrive with a number of office and apartment redevelopment projects, as well as some new construction. Apartment and office vacancy rates are on the decline as the of the fourth quarter of 2012, the most recent figures available from brokerage firm Colliers International. The total sale and lease transactions came in at just less than 2 million square feet, according to Colliers.

Based on those trends, local brokers and developers say demand for apartment rentals is up. So are rates for most property types, although the costs are not quite to the point of sparking a real boom in new construction activity, sources said.
In the absence of any major changes to the program, developers at least have some help in the form of the DDA’s incentives, which is still a close second to the brownfield program, Wood said.  

Read 3269 times Last modified on Friday, 29 March 2013 14:20

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