West Michigan’s commercial real estate industry is capping off a banner year for 2016. Developers, architects and contractors have all reported success across multiple sectors, including retail, industrial and health care. And while some divisions have started to emerge about just how strong all those sectors truly are, executives across the region agree the boom in apartment development — and the corresponding need for design and construction for those projects — is real and makes for significant business opportunity. In separate interviews, MiBiz spoke with three industry stakeholders to get their take on where one segment in particular — the multifamily market — stands and where it’s going.
- The Contractor: Curt Mulder, co-President of Wolverine Building Group, a Grand Rapids-based general contracting firm. Mulder says the firm’s revenues jumped nearly 34 percent to more than $220 million in 2016, with strength across multiple markets.
- The Architect: Brad Thomas, CEO of Grand Rapids-based Progressive AE, an architecture and engineering firm. Like Wolverine Building Group, Progressive found steady work across all sectors of the commercial real estate market in 2016, which it expects to be its second-best year ever.
- The Developer: Max Benedict, a principal with Grand Rapids-based Third Coast Development LLC. The company is poised to become among the largest developers of apartments in the West Michigan region. While a handful of projects have veered into other commercial real estate sectors, Third Coast Development has nearly 10 residential developments — including both affordable and market-rate units — in its pipeline as it looks to 2017.
Here’s what they had to say.
How has significant growth in the development, design and construction of multifamily housing impacted your business this year?
Mulder: Wolverine has over the years focused on four major markets: industrial, multifamily, health care and retail. This past year, three of those four markets have been really strong. And one of those three in particular — multifamily — has been the strongest year we’ve ever had. That covers student housing, market-rate housing, affordable housing and it includes renovations of 30-year-old apartments. The idea is that there’s a significant demand for rental housing. We’ve not had a bigger year than this in terms of this kind of work.
Thomas: The housing market has been very strong. There’s a lot of multifamily housing going on both in Grand Rapids and across the state. We’re pretty diverse and pretty balanced, but (housing) was one that clearly showed a lot of strength this year.
Benedict: It’s been a transformative year (for Third Coast) getting into residential development in a big way that we never thought we would.
What are the challenges you see with sustaining the growth of multifamily housing in the short to mid term?
Mulder: Certainly (investors) work their deals to perform immediately, but they also recognize the downside risk could be slightly slower lease-up, which certainly isn’t great. But I still think there’s a continued long-term understanding that overall, it’s going to be a good deal when you look at it from a longer-term perspective. Developers who are looking for the quick dollar in West Michigan have really missed out on that boat because now the investors will be longer term.
Thomas: On the housing front, particularly the multifamily housing, our sense is that banks are getting a little tighter in terms of their lending. I don’t know if that’s concerns about overcapacity or what might be driving that, but our perception is that financing might be something we need to pay attention to in terms of how it impacts us. Interest rates, of course, have been very healthy for our industry because they’ve been so low. But what it means related to housing development is something we’re paying attention to.
Benedict: The explosion of market-rate residential housing — there’s no denying that. Driving our business forward next year, we’re really focused with all the feedback and from being on the (city of Grand Rapids’ affordable housing commission). Affordability has been underscored in our book. Moving forward, we’re going to try to help solve that problem.
How has affordable housing been addressed?
Mulder: There will continue to be a significant amount of work in West Michigan, in the downtown area. I think the product that is coming online right now, depending on what target market they’re going after, if they’re going after the high end, to a certain extent that need has been filled. If you drop down a couple notches to housing that is affordable for a downtown market, that area will be strong. The other thing I think will happen, and we’re beginning to see this: Development started downtown and now it’s moving to the Ada area and Jenison area.
Benedict: Well, the city started a Housing Trust Fund, so that’s a step. We’re going to help grow that and figure out how to make it count and I’m optimistic. But there’s also so many factors pulling on (the issue). I’d like to see it work out where wages rise and that makes for the brunt of the solution. Whether it’s for market-rate or low-income housing and with all the approvals, you’re not putting a dent (in the supply) for at least 18 months. It’s frustrating if it’s just left up to developers. But we’ve got so many people working to solve it that I think we can make strides before that.
What concerns do you have looking ahead to 2017?
Mulder: We’re just working off our backlog, but we continue to see opportunities, definitely in the industrial sector. That, frankly, is what I expect to be the next boom. … I think there is continued pent-up demand that exists. There are folks out there getting quite creative with ways to help companies achieve their business goals without having to fork out all the dollars for a plant expansion or a new facility.
Thomas: The political change is probably the biggest question mark. I don’t know if it’s good or bad. It’s change and anytime there’s change, there’s uncertainty. And uncertainty, more often than not, can slow things down in terms of people being willing to make capital investments and that’s really where we live. … We’re just waiting and seeing. But given the health of the economy, we’re hopeful it doesn’t have a dramatic impact.