Tower cranes constructing offices, hotels and apartments dot the skyline in and around downtown Grand Rapids.
While many of those cranes will remain on their respective sites in the central business district and the North Monroe corridor well into 2018, construction and development sources say more cranes could be on the way, given the right circumstances.
“I honestly think (in 2018), it’s going to be a lot of the same,” said Jim Conner, senior vice president at Grand Rapids-based Triangle Associates Inc., a construction management firm. “People are optimistic, but they’re cautious. I’m very curious to see if a couple of these big projects that are supposed to get going, if they do or don’t.
“It’s a pretty big pivot point for our area. I think with those big projects, they breed three or four other medium- to small-sized projects.”
To Conner’s point, large real estate development projects remain in the pipeline in Grand Rapids’ downtown, into peripheral neighborhoods and around the broader West Michigan region.
According to data from Downtown Grand Rapids Inc., the value of completed construction projects, projects under construction and proposed developments totals about $750 million, just in the downtown or adjacent areas.
That includes about 1,350 housing units, 794 hotel rooms, 169,130 square feet of commercial space and almost 3,500 parking spaces.
Despite considerable optimism, many real estate industry sources cite the unknown impact from the federal tax reform bill as posing more questions than answers.
Earl Poleski, executive director of the Michigan State Housing Development Authority (MSHDA), the state organization that administers the federal Low Income Housing Tax Credits (LIHTC), notes that he expects little tangible change as a result of tax legislation. However, Poleski said it’s unclear what the market will be like for the syndication of tax credits in a time of generally lower taxes.
“There are some changes that we’ll have some difficulty in measuring and determining the economic effect of,” Poleski said.
In Grand Rapids, several large-scale projects are expected to break ground next year. That includes the Studio Park mixed-use entertainment district project planned by Jackson Entertainment LLC for two surface parking lots south of Van Andel Arena.
Other projects like the the redevelopment of the Fifth Third Bank campus, ongoing work to restore the rapids in the Grand River through downtown and the city’s potential sale of its 201 Market Ave. property could also take shape, sources said.
In general, developers expressed the need for continuing development on a large scale, particularly on the west side of the Grand River.
“When you look at what’s happening near the river and what’s happening here, there’s great opportunity,” said Mike VanGessel, CEO of Rockford Construction Co. Inc., a Grand Rapids-based real estate development and construction firm that’s led much of the growth along the burgeoning Bridge Street corridor.
“I think there’s great opportunity for density, great opportunity for height,” VanGessel said during a November panel discussion on west side development. “There’s great opportunity to connect with the river in more significant ways than we currently have.”
Development opportunities also extend south to the Kalamazoo area, where new retail and residential options continue popping up.
Andrew Haan, president of Downtown Kalamazoo Inc., points to the ongoing construction of The Exchange project, a $52.7 million, 15-story office and residential tower set to open in 2019 along West Michigan Avenue.
Overall, Haan said he expects at least 500 new housing units in the downtown Kalamazoo area over the next couple of years.
“We’ll have some major changes to the skyline in the next few months, and that will send a message to the market,” Haan said. “It shows there’s investor confidence from some major developers and that our lenders are comfortable with the market. We’re just catching up to a couple other communities (around the state) that have been going full bore for a couple of years.”
The expected delivery of thousands of apartment units in 2018 all around the region has brought a mix of sentiments from industry sources.
VanGessel said his firm believes that by delivering housing units in a large, dense quantity — such as what Rockford has attempted to do around the city’s west side — it can help alleviate some of the concerns associated with increasing rental rates and gentrification.
“You build projects that have scale and density,” VanGessel said. “We believe that has positive impact on the other housing stock and stabilizes the rent. I’m not an affordable housing developer, that’s not our core business. We partner with them because then they have the ability to deal with rental rates.”
Given the number of apartments that have already hit the market and the nearly 2,000 units expected to come online at some point in the next year around the region, some sources foresee a softening in the market.
“It will be interesting to see how long it takes for the better property to lease up,” said Michael Cagen, a senior associate in the multifamily housing group at Marcus & Millichap Real Estate Investment Services Inc. in Grand Rapids. “What will need to be done from a concession standpoint to attract new tenants? It may cause a bit of softening at the top end of the market that may translate into a bit of softening in the B product or the C product, ultimately, over time.”
BRINGING BACK TAX CREDITS
The federal tax overhaul signed into law as this report went to press contained a number of provisions seen as favorable to the commercial real estate industry.
Poleski with MSHDA noted that items such as the Low Income Housing Tax Credit (LIHTC), the most popular tool for the development of affordable housing units, remained in the final legislation.
Additionally, the 1031 exchange that allows real estate investors to reinvest proceeds from sales of similar, or “like-kind,” properties while delaying any tax payments, also made it through the conference committee bill, according to reports.
On the state level, the potential return of the Michigan Historic Preservation Tax Credit also stands as particularly important for the development community.
Gov. Rick Snyder did away with the credit during the state tax overhaul in his first term, despite the tool’s frequent use in the 1990s and 2000s. As this report went to press, legislation to re-establish the credit had passed the state Senate.
That’s welcome news to Ted Lott, a principal with Grand Rapids-based architecture firm Lott3Metz Architecture LLC, who called historic preservation credits one of the “best dollar in-dollar out” programs at both the state and federal levels. The reintroduction of the credit at the state level would be a boon not just for his business, but for the broader real estate and construction industries, he said.
“Just drive down Division and think about how many of those buildings have been brought back online because of federal and state tax credits for rehabilitation,” Lott said.