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Sunday, 12 April 2015 22:00

Building Inventory: GR developers to add more than 1,400 apartment units as available inventory shrinks

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Jeremy DeRoo, co-executive director at LINC Community Revitalization Inc., in front of the Southtown Square development in the Madison Square neighborhood of Grand Rapids. Jeremy DeRoo, co-executive director at LINC Community Revitalization Inc., in front of the Southtown Square development in the Madison Square neighborhood of Grand Rapids. PHOTO: KATY BATDORFF

A lack of available multifamily housing in Grand Rapids may be causing headaches for potential residents, but it’s creating business opportunities for developers who are investing in projects to help alleviate the bottleneck.

Developers currently have at least 1,456 units committed or under construction at 22 sites in the city, according to an analysis by MiBiz. Those units are coming online across the city, whether in the downtown central business district or in neighborhoods such as Heritage Hill, Eastown and the west side.

Among the key drivers for that construction activity: The vacancy rate for apartments in the Grand Rapids metropolitan area is the lowest in the country at 1.6 percent, according to real estate research firm Zillow. The national average from the report published March 11 was 7 percent as of the end of last year.

That’s led to multiple tenants vying for the available units in the city. As an example, Grand Rapids-based LINC Community Revitalization Inc. received about 250 applications for 20 subsidized units when the nonprofit community developer opened the second phase of its mixed-use Southtown Square project in October.

“The demand (for affordable housing) is incredibly strong,” said Jeremy DeRoo, co-executive director at LINC. “We are definitely seeing that demand for quality housing units. There is just not enough of it.”

By all accounts, LINC is not alone. For multifamily developers, the current situation has translated into long waiting lists for units, leading many to consider adding inventory, which they can justify with the higher rents that tenants are willing to pay. Also playing in their favor are historically low interest rates.

Andy Guy, the chief outcomes officer at Downtown Grand Rapids Inc. (DGRI), said more building activity is needed to satisfy the demand for housing in the city.

“The Zillow findings do not come as much of a surprise, particularly when you consider the impressive number of housing projects in the development pipeline,” Guy said in an email to MiBiz. “We’re working with developers who have long lists of people waiting for a residential opportunity in the central city.”


Experts say the reasons behind the extremely low vacancy rate are numerous.

Nationally, multifamily rental housing, especially in urban areas, has come into favor with both Millennials and Baby Boomers, many of whom are now empty-nesters. Sources indicated that as many Millennials graduate from college with significantly higher debt loads than their predecessors, the generation is not buying homes nearly as fast as previous cohorts.

Developer John Wheeler of Grand Rapids-based Orion Construction noted that more people are also coming into the city from other areas of the country, which plays into the immediate demand for rental housing.

“Out-of-market jobs coming in don’t buy homes right away,” Wheeler said.

Wheeler’s Orion Construction has a number of projects coming online over the next year to 18 months, including Eastown Flats on Wealthy Street and Arena Place near the Van Andel Arena south of downtown.

Eastown Flats is already 33-percent leased even though the developer has yet to build a model unit, Wheeler told MiBiz. Orion’s 7th Street Lofts project on the city’s west side was 71 percent leased on the day it opened last month.

Pre-leasing for the 100 apartments at Arena Place will begin in September, Wheeler added.

Another factor working in developers’ favor: Banks are offering project financing at historically low interest rates, further fueling the current building climate for new construction. However, it remains unknown when or if the Federal Reserve will raise interest rates this year, which could cool activity.

“Interest rates have had a huge impact (on new construction) in my opinion,” Wheeler said. “If money jumps to 6 percent, some of these projects won’t go.”


With the limited supply of apartments on the market, landlords have also been able to charge higher rents for their units than they’ve been able to get in the past. At multiple new construction projects in the city, one-bedroom apartments are going for around $1,000 per month, MiBiz found.

For LINC’s DeRoo, the higher rents have been a long time coming, and it’s a trend that’s very much aligned with what is occurring in urban areas all over the country.

“Grand Rapids is becoming like many other cities where neighborhoods start to attract investors,” DeRoo said. “What is interesting in Grand Rapids is that it is happening all over the city. Whether it’s the west side or the Plainfield corridor or areas where you have some investment around Madison Square or the Baxter neighborhood, you’re starting to see some out-of-town or definitely out-of-neighborhood investors coming into the neighborhoods surrounding downtown Grand Rapids.”

U.S. census data released in 2013, the most recent research available, shows that median rent for the Grand Rapids-Wyoming MSA was $761, up 2.7 percent from the previous year. The U.S. median gross rent that year was $905.

In Grand Rapids, there has been a steady mix of market-rate and affordable, often subsidized housing projects coming on the market.

Brookstone Capital LLC of Midland has developed nine apartment projects in recent years that contain a mix of income-restricted and market-rate units. According to the application on its website,, a number of the units are restricted to those making less than $26,880 per year.

In 2013, the Grand Rapids Downtown Development Authority approved Brookstone’s most ambitious project to date, a 14-story tower with 108 apartment units at 20 East Fulton Street. Sources close to the project told MiBiz that the building is still in the works, but they had no definitive information on when it may move forward. The company has a 42-unit project on State Street in Heritage Hill that’s expected to open later this year.

Additionally, just as this report went to press, LINC announced plans for a new $15 million, 70-unit affordable housing project along Eastern Avenue south of Wealthy Street on the city’s southeast side.

The mix of market-rate and affordable housing developments in Grand Rapids mirrors broader national trends, sources said.

According to DGRI figures, of proposed units, the breakdown consists of 82 percent market-rate apartments, 14 percent affordable units and 1 percent condominiums. Another 3 percent are undetermined. Existing inventory consists of 37 percent condos, 38 percent affordable units, 17 percent market rate rental units and 8 percent student housing.

LINC’s DeRoo noted that Grand Rapids has no formal zoning policies to incentivize more affordable housing options, tools that are often used in cities experiencing large upticks in rental prices. New York City, for example, makes use of a policy known as inclusionary zoning, which mandates that a certain number of newly built apartment units must be affordable for low- to middle-income residents.

Inclusionary zoning is one of the more common methods used to help keep rents affordable in cities with significant demand for apartments, DeRoo added.


A central goal of the ongoing GR Forward process — the downtown master plan spearheaded by DGRI — is to have the city reach a so-called “critical mass” of downtown or near-downtown residents, which is estimated to occur around 12,000 people. That is the point where planners say new business and retail opportunities become viable in the core of the city. There are currently about 5,000 residents in the downtown neighborhood, according to DGRI.

The GR Forward process aims to identify key sites in the area for development, as MiBiz has previously reported. The latest figures provided by consultants show that the city can hit its critical mass — or at least approach it — if available building sites are maximized, Guy said.

“The real challenge we’re facing, particularly in the downtown area, is not a lack of demand,” he said. “It’s a lack of available sites to build on, add new supply to accommodate the rising demand, and achieve the critical mass of people so important to retail recruitment and other economic development goals.”

 EDITOR'S NOTE: This story has been updated to reflect the accurate breakdown of downtown apartment units.

Read 6498 times Last modified on Monday, 13 April 2015 13:48

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