GRAND RAPIDS — A local developer has scrapped plans for multifamily housing at a proposed twin-tower downtown Grand Rapids development to pursue a hotel tenant instead, MiBiz has learned.
Citing fears of oversaturation in the downtown rental market and other factors, an affiliate of Grand Rapids-based Orion Construction Co. Inc. is seeking approvals to convert the proposed 123-unit apartment tower at 150 Ottawa Ave. NW to a 160-room Hyatt Place hotel.
“With the onset of over 1,900 residential units underway in the central core, and Orion and its partners involved with over 500 of them, we focused our attention on the hotel component,” Orion Real Estate Solutions President John Wheeler said in an email to MiBiz.
The company still expects the $62.5 million project to break ground this spring with a projected ribbon cutting in November 2019, according to Wheeler.
In recent statements, Wheeler said the firm thinks the neighborhoods outside of the core business district have become more attractive for apartment projects because development costs tend to be cheaper there.
Chicago-based Hyatt Corp. did not respond to requests for comment as this report was published.
The project still requires final approval on brownfield redevelopment incentives from both the city and the Michigan Strategic Fund board. Both groups could take up the issue in the next month, according to sources.
In addition to the Hyatt Place hotel, the proposed project at the northeast corner of Ottawa Avenue and Lyon Street will feature a ground-floor restaurant and corporate office space. As MiBiz previously reported, tenants will include Grand Rapids law firm Warner Norcross & Judd LLP, which is relocating from 111 Lyon St. NW, and Midland-based Chemical Financial Corp., which plans to open a regional headquarters for Chemical Bank in the facility.
According to Downtown Grand Rapids Inc. President and CEO Kris Larson, a hotel would help bring more discretionary spending to the downtown area, which could drive more retail and restaurants into the central business district.
Although the apartment plan would have nudged the city closer to DGRI’s goal of having 10,000 downtown residents, Larson dismisses the notion that revised project will prove detrimental to the city achieving a “critical mass” of people.
The shift from a residential development to a hospitality project also reflects changing economics, according to Larson.
“The cost of capital for hotels right now is easier than for the cost of apartments,” he said. “It’s a reflection of market cycles and currently we’re seeing deeper interest in new hotels as we wait to see how the absorption of over 1,000 (apartment) units plays out over the next 24 months.”
DGRI has been inundated with calls from would-be hotel developers as interest in residential development dropped off somewhat in the last nine months, Larson said. Additionally, a recent study commissioned by Grand Action called for more hotel capacity downtown, particularly near DeVos Place Convention Center, as the city looks to expand its convention business at the facility. The study called for 350 to 500 rooms attached or adjacent to DeVos Place.
While hotels in the 150-room range, including the proposed Hyatt Place, bolster the downtown inventory, they do not add the large blocks of rooms necessary for convention traffic, Larson said.
On Friday morning, the board of the Grand Rapids Downtown Development Authority — which is managed by DGRI — will vote to amend the development support agreement for the Orion project. According to DDA documents, it plans to recommend that the board extend its reimbursement for site remediation costs from 15 years to 22 years, with a maximum payout of just over $4.4 million.
The plans for 150 Ottawa have changed previously. In November, the city’s Brownfield Redevelopment Authority approved an amendment that allowed Orion to add an additional floor of parking and two more floors of offices at the commercial tower adjacent to the planned hotel. At the time, Wheeler said an office tenant doubled its space requirements, necessitating the changes, according to city documents.