GRAND RAPIDS — Blue Cross Blue Shield of Michigan has signed a seven-year lease renewal for its downtown Grand Rapids headquarters, providing a sign of confidence amid widespread uncertainty in downtown commercial office space.
Blue Cross Blue Shield, which leases the building from Rockford Construction Co. Inc., in 2004 moved from offices in Cascade Township to downtown Grand Rapids.
A “significant number” of the office’s 300 employees have been working out of the historic Steketee building at 86 Monroe Center NW over the past several months, BCBSM Vice President Jeff Connolly told MiBiz. The insurance giant continues to offer employees the option of having a flexible, hybrid work routine, he said.
“Back in 2004, we made a very strategic decision to be part of the urban core to help revitalize cities, and Grand Rapids was one of the very first cities where we did that,” Connolly said during a press conference on Thursday.
The decision to move offices from the suburbs to downtown was “not without its risks” as it disrupted employees’ routines, but it is now a preferred location for employees, Connolly added. BCBSM invested $7.5 million in renovating the Steketee building when it initially relocated its 300 employees there from the suburbs.
The seven-year lease extension is noteworthy as many businesses have been questioning the need for a physical office space based on the cost and preference for many employees to work from home, at least on a hybrid basis, during the pandemic.
“We are still committed to supporting the urban core, and at the end of the day our employees still love coming into the office and being downtown,” Connolly said. “It’s been evident, during the lockdown, that they missed coming into the office and collaborating and engaging with their coworkers in person.”
Brokerage firm JLL published a study on technology and the hybrid workplace in September, finding that 55 percent of office-based employees across the country are now in a hybrid working pattern, and only 11 percent of employers are not offering some form of hybrid work option.
“We’re progressing back to the office, but like most other companies, we’ve learned to become very efficient being virtual,” Connolly said. “As we talk to many businesses moving forward in the war for talent, you’re going to have to allow people to work from home and we were supportive of that.”
In the third quarter of 2022, the downtown Grand Rapids office vacancy rate was at 10.7 percent, according to Colliers International’s West Michigan office. That number is up from the 7.9 percent downtown office vacancy rate in the third quarter of 2021.
As part of the lease extension agreement, Rockford Construction is renovating BCBSM’s eight floors of office space in the building, and adding some features to make it more conducive to hybrid work. Construction should be complete in several months, Connolly said.
BCBSM operates out of almost the entire Steketee building, except for space on the ground floor occupied by MSU Federal Credit Union. The Steketee building was constructed in 1916 to house Paul Steketee’s & Sons department store.
Rockford Construction CEO Mike VanGessel, doing business as Monroe Center JV LLC, purchased the building in 2003 for $2.4 million from 86 Monroe Center Associates LLC, which is registered to The Arc of the United States CEO Peter Berns. Rockford also serves as the property manager for the building.
Securing the seven-year lease agreement with BCBSM was “critical,” VanGessel told MiBiz. “We’re only as good as the tenants, and obviously the energy that Jeff and his team brings, it helps the restaurants and other businesses downtown, and other properties we also own on the street. We were really focused on making this deal work.”
Rockford Construction and the rest of the ownership team of the building was proactive in reaching out early to BCBSM to work out a lease renewal deal, VanGessel said.
“We’re being very intentional about the leases and looking farther down the road more often than we did in the past,” VanGessel said.