Midsize cities in West Michigan could soon see more live-work options coming online.
The reason: Developers are eyeing myriad opportunities for mixed-use projects beyond cities such as Grand Rapids, albeit on a reduced scale.
For proof, one need only tour the downtowns of cities such as Kalamazoo and Muskegon, where developers are navigating complex incentive programs to redevelop aging facilities and bring new amenities online throughout the region.
“I think you are seeing good growth in every midsize downtown in the state, even though they may not all get headlines,” said Andrew Haan, an associate director in the state’s Office of Urban and Metropolitan Initiatives.
In Kalamazoo, Ransom Real Estate LLC has completed two mixed-use redevelopment projects totaling 30,000 square feet just blocks from the city’s immediate downtown area. The company completed its first project in 2011 at 515 East Ransom Street, known as the Life Story Building, and opened its most recent facility in July at 510 East Butler Court.
“Location-wise, it was close enough to downtown that it was still downtown in our mind,” said Jon Durham, principal at Ransom Real Estate. “It felt like we were reaching just a little bit from downtown, which was good. We wanted to bring the core out just a little bit. The focus was to be downtown … and maintain a cool image and be accessible and walkable.”
Tenants in the Life Story Building include design agency Ignertia LLC, technology startup Monumark LLC, and Lifestorynet LLC, a multimedia company owned by Durham that serves the funeral home industry.
The new Butler Court building houses Streamline Healthcare Solutions LLC, a software manufacturer for the health care industry. Streamline previously had an office in suburban Portage but wanted to make a move to the downtown area, Durham said. The same was true for Life Story, he added.
Combined, there are 70 people working at the two buildings, along with 11 residents, said Durham, whose partners in Ransom Real Estate include Jerry Harty and Herb Ayres.
Each of the buildings contains two condos and four apartments, the tenants of which include an array of working professionals, Durham said. One unit is rented by an engineer from Atlanta-based Newell Rubbermaid Inc., which recently opened its design facility in Western Michigan University’s Business Technology and Research (BTR) Park. Another works as an accountant for Battle Creek-based Firekeepers Casino Resort. Durham and his husband live in one of the condo units in the Life Story Building.
The immediate area just outside the downtown core where Ransom Real Estate has focused its development contains plenty more usable land, where the firm hopes to consider similar projects in the future, Durham said. According to Downtown Kalamazoo Inc., there is approximately 300,000 square feet of developable, “above-main-floor” residential space still available in the downtown area.
“We really like the (mixed-use) style, and I know people are attracted to it,” Durham said.
DRINKING THE MUSKEGON KOOL-AID
In and around its downtown, Muskegon is also seeing a splash of development, including two breweries and a smattering of new restaurants and coffee shops.
Now, residents in the downtown area are seeing a ramp-up of hotel and residential projects, many of which are being led by Muskegon-based Parkland Properties of West Michigan LLC. Associate broker and owner Jon Rooks began investing in distressed properties in Muskegon’s downtown in 2009.
The developer has a lengthy history of redevelopment projects in Grand Rapids, having worked on many of the condo buildings along North Monroe Avenue in the early 2000s.
Now Rooks and Parkland Properties are busy with projects that are almost entirely focused on Muskegon, where the developer sees opportunities similar to the ones that drew him to downtown Grand Rapids a decade ago.
“We are a development company that tries to invest ahead of the curve,” Rooks told MiBiz. “You can find really good value when you’re buying ahead of the curve, and (Muskegon) has all the natural characteristics of a great place.”
After two hotel acquisitions in Muskegon, Parkland has shifted its focus to residential projects in the city. The firm is in the process of developing the former eight-story Comerica Bank building in Muskegon to create Highpoint Flats. The project is expected to inject 72 market-rate apartments into the downtown area.
The developer is also working on a housing community in downtown Muskegon known as Terrace Point Landing, adjacent to the Shoreline Inn site. The project will offer buyers a chance to acquire property on Muskegon Lake for as little as $99,000, Rooks said. The development has 70 lots total, with 29 directly on the lake.
The residential projects followed two commercial facilities Rooks acquired in Muskegon in recent years.
In 2009, Parkland bought its first property in Muskegon, the rundown Shoreline Inn hotel on Muskegon Lake. At the time of purchase, the property was very poorly rated on hotel rating website TripAdvisor.com, but it has since risen to the number one ranking in Muskegon, Rooks said. Since the acquisition, the hotel’s revenue has also grown from less than $1 million annually to $6.2 million projected this year, he said.
Last year, the company added to its Muskegon holdings with the purchase of the nearby Holiday Inn Muskegon Harbor, which pre-dated the Shoreline Inn facility and is in the midst of a $2 million renovation.
When the Shoreline Inn was initially built in 2002, the downtown Muskegon area probably could not support two hotels, Rooks said. But that is beginning to change: In July alone, the Holiday Inn generated $980,000 in revenue, Rooks told MiBiz.
With seven developments in Muskegon, Rooks said his “plate is full.” However, he pointed to a handful of buildings that he believes would make great investments for those looking to enter the market. The Downtown Muskegon Development Corp. lists eight area buildings for sale on its website.
“I’ve got seven projects in Muskegon because I drank the Kool-Aid and got intoxicated with the vibe and energy,” Rooks said. “Grand Rapids has a lot of velocity right now. In Muskegon, it’s just starting, but there is a lot of opportunity and I think investors are missing out on not investing here.”
PROVIDING A HELPING HAND
With the momentum of urban mixed-use development in midsized cities such as Muskegon and Kalamazoo, state-level agencies are taking notice and looking for ways to get more projects off the ground.
“I think (the state has) a pretty aggressive suite of tools to help developers,” said Haan of the Office of Urban and Metropolitan Initiatives.
That “suite of tools” includes a range of tax incentives such as tax incremental financing (TIF) and brownfield redevelopment incentives.
Both Ransom’s Durham and Parkland’s Rooks said these incentives have gone a long way toward making their respective projects come to fruition.
“We’ve layered all the tools on top of each other … for the Highpoint project,” Rooks said.
In Kalamazoo, the developers at Ransom Real Estate worked closely with city officials to sort through the various levels of incentive financing to complete both of their mixed-use projects. In both cases, it helped to work closely with experienced advisers to navigate the complex process.
“We work with developers to kind of sharpen the pencil on their projects and help offset those extraordinary costs,” said Jared Belka, senior counsel in the Grand Rapids office of Warner Norcross & Judd LLP who worked with the developers. “(The building was vacant) and it needed a lot of work, which makes it financially prohibitive from an investor standpoint. … You just can’t justify sinking that amount of money in unless you’re a philanthropist.”
TIF financing helped cover demolition and some environmental analysis work that was needed, Belka said. In total, the developers received $211,000 in TIF dollars, as well as $411,000 in grant funding from the Michigan Strategic Fund’s Community Revitalization Program.
The kind of downtown and near-downtown development occurring in Muskegon and Kalamazoo is top of mind for Ann Arbor-based nonprofit Michigan Municipal League (MML). The organization seeks to act as a voice for cities and municipalities around the state.
Luke Forrest, a program manager with MML, said Kalamazoo is a city that “gets it” when aiming to develop more walkable, dense, mixed-use development communities. Much of the investment in the downtown area by Western Michigan University will serve as a catalyst for the increased development, he said.
Forrest said the organization is largely supportive of the suite of incentives available to make these projects happen.
“The financing is complex and in an ideal world, you wouldn’t need the government incentives, but the market isn’t ready for it,” Forrest said. “You have these incentives in place to fill in the gaps and hopefully they won’t last forever.”