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Sunday, 24 June 2018 14:00

REPORTER’S NOTEBOOK: Hinman project aside, Grand Rapids apartment development likely to continue

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REPORTER’S NOTEBOOK: Hinman project aside, Grand Rapids apartment development likely to continue COURTESY RENDERING

Nick Manes writes about real estate & development, small biz

News that The Hinman Co. plans to move forward with its long-planned tower in downtown Grand Rapids — albeit without 29 floors of residential units — indicated to many observers that the bottom has fallen out of the city’s apartment market.

Scaling back the proposed 42-story tower to 13 stories with just a hotel marked a considerable change for the highly-anticipated, mixed-use project at 10 Ionia Ave.

While some data indicate apartment occupancy could be leveling off, the top executive at the Portagebased real estate firm also noted that much of the firm’s rationale for moving forward without apartments stemmed from challenges at the specific building site.

“We evaluated a reduction in apartment floors or alternate uses, but the size and shape of the site does not work well for office and we lost the benefit of cost efficiencies of providing a second set of infrastructure (elevators and building systems) when we reduced the number of apartment floors,” Hinman Co. President and CEO Roger Hinman said in a statement to MiBiz.

In other words, the initial $90 million overall project only became feasible at a height of 42 floors. After all, economics rule the day in any business decision.

Although executives from The Hinman Co. declined to answer questions beyond what they provided in their initial statement, research from local commercial real estate brokerages tends to reinforce the firm’s decision to step away from the apartment component of the project.

An April research report released by the Grand Rapids office of commercial brokerage Colliers International Inc. found that with new apartment construction beginning to take hold downtown and in surrounding neighborhoods, occupancy levels started to retreat after hitting a peak of nearly 96 percent last spring and summer.

The Colliers report notes another 1,455 rental housing units are under construction or have filed permitting documents. Additionally, developers have brought online some 906 units since 2015 in downtown Grand Rapids and nearby neighborhoods, including Eastown, East Hills, Midtown and the near west side.

Colliers reports the total market occupancy at the time of the April study was 94.5 percent. Moreover, the firm expects vacancies to continue inching upward through at least 2023 as more real estate cycles take hold.

Similar data likely weighed on Hinman’s mind in deciding whether to go forward with the plans or change course — something he indicated in his statement to MiBiz.

“With thousands of apartment units recently built, under construction, or planned, it was necessary to revisit this part of the project in response to market pressures,” Hinman said.

Given the current price of construction and the costs associated with building a skyscraper, the rents Hinman Co. likely needed to charge for the proposed tower would have been on the higher end of the spectrum. While high-end units at the top of the city’s tallest building likely would have been a draw for renters, it’s impossible to know for sure whether the apartments would have been absorbed had they been built.

So rather than take a gamble, Hinman Co. seems to have opted to move ahead with a different project after taking into account numerous factors, especially economic ones. With the changes — albeit, a drastic reduction in height and scope — Hinman identified a way to move forward at the wedge-shaped site and make a project work for the company and the community.

“We remain committed to developing the site and doing our part to positively impact downtown Grand Rapids,” he said.

Local urbanists should rest easy: The sky is not falling on downtown apartment development — at least not yet. The Hinman project is just an example of a developer doing what is necessary to ensure a project pencils.

Read 2286 times Last modified on Friday, 29 June 2018 13:55

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