GRAND RAPIDS — A tax incentive the city of Grand Rapids and an Indianapolis developer unsuccessfully pursued to transform publicly owned riverfront property has only been used twice in Michigan.
Last month, the city terminated its exclusive development agreement with Flaherty & Collins Properties to develop 201 Market Ave. SW after selecting the firm in 2017, as MiBiz first reported. The city and developer were anticipating the $268.5 million project would qualify for the state’s Transformational Brownfield program, which was approved by state lawmakers the same year the city selected Flaherty & Collins.
After engaging in pre-application discussions with the Michigan Economic Development Corp., it became clear that the significant residential component of the 201 Market project did not meet the requirements for the Transformational Brownfield program, said Grand Rapids Deputy City Manager Eric DeLong.
Flaherty & Collins was proposing to construct 694 housing units catering to a variety of income levels and a 358-room hotel.
“We have reviewed opportunities for use of this program, but have not found an investment project that meets specific Transformational Brownfield Program requirements for new investment and new job creation,” DeLong said.
A significant amount of job creation is needed to qualify for the Transformational Brownfield tax incentives, said Lori Mullins, MEDC director of community development and incentives.
“There are certain projects that just don’t include that,” Mullins said. “There might be a different tool that might be a better fit.”
Lansing-area economic developers have also looked into using the Transformational Brownfield tool, but similarly haven’t yet found a qualifying project.
“Unfortunately, beyond several extremely preliminary discussions about the possible use of that tool for projects, we have never had any serious conversation about it,” said Bob Trezise, president and CEO of the Lansing Economic Area Partnership. “The standards are very high and very difficult to ever realistically meet.”
The Brownfield Redevelopment Financing Act of 1996, which allows for the capture of incremental property taxes to help redevelop a site by cleaning environmental contamination, was later amended to include the Transformational Brownfield Plan. The change went into effect on July 24, 2017, and allows for the capture of five new sources of tax revenues associated with a project in addition to the property taxes: construction period income tax, construction period sales tax exemptions, construction period use tax exemptions, income tax capture and withholding tax capture.
Instead of being limited to environmental factors, such as poor soil condition like a traditional brownfield plan, the eligible activities for Transformational Brownfield incentives include construction and renovation costs, Mullins said.
Brian Prince, Flaherty & Collins’ vice president of development, criticized the Transformational Brownfield program when asked why the company didn’t secure the incentive for the 201 Market project.
“Honest answer is that many feel that the program was only set up to help Dan Gilbert in Detroit,” Prince said in an email to MiBiz.
Since it was created, the Transformational Brownfield Plan has been used for only two projects across the state, including one in downtown Detroit in 2018 for Bedrock Management Services LLC. (Gilbert founded Bedrock Management.) The second was approved last year for the redevelopment of a former paper mill in Vicksburg, a village of 3,400 people located 15 miles south of Kalamazoo.
Mullins said no other Transformational Brownfield Plan applications have come before the Michigan Strategic Fund.
“The two projects that have been approved are truly transformational and are bringing large amounts of investment and jobs to the communities that they are in,” Mullins said. “This gives the state as a whole the ability to use tax increment financing to support some of these projects that have a greater financing gap in what otherwise would have not been able to have been supported.”