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LESSONS LEARNED: GR officials ‘pivot’ after lack of incentives, infrastructure challenges doom $270M development

BY KATE CARLSON, ANDY BALASKOVITZ and JOE BOOMGAARD Sunday, August 16, 2020 05:20pm

GRAND RAPIDS — The city of Grand Rapids has walked away from a nearly $270 million proposal to redevelop prime city-owned riverfront property after its chosen developer failed to secure crucial tax incentives for the project.

City officials say they will now “pivot” after spending about $230,000 on a multi-year process to evaluate proposals to redevelop 201 Market Ave. SW. Underscoring the complex nature of redeveloping the site, the city is now considering its own plan to relocate city services at 201 Market as part of an option to purchase a county-owned property farther north along the Grand River.

It’s a major shift from late 2017 when the city selected an Indianapolis-based developer’s plan to transform the 201 Market site with a hotel, residential housing, retail, parking and greenspace. The city had selected Flaherty & Collins Properties’ $268.5 million proposal over plans from Grand Rapids-based Rockford Construction Co. Inc. and Southfield developer REDICO LLC.

After three years with no changes at the 201 Market property, city officials maintain the previous RFP submissions effectively remain in play and that other proposals can be considered.

Although Flaherty & Collins’ plan is now off the table, the city “learned a lot in the process,” said Grand Rapids Deputy City Manager Eric DeLong. 

“We have the flexibility that future discussions might include talks with developers that submitted previous proposals or other parties,” he said.

Rockford Construction submitted a $238.8 million proposal for the site that included a 10,000-seat open-air soccer stadium and pedestrian bridge along the Grand River with 200 housing units, parking, office and retail components. Company spokesperson Kate Betts declined to comment for this report, citing a nondisclosure agreement. 

REDICO has not been in contact with the city about its proposal since it was submitted three years ago, a spokesperson told MiBiz.

According to Flaherty & Collins Vice President of Development Brian Prince, the city terminated the company’s exclusive development agreement on July 23.

Prince said original financial pro formas for the plan showed the project “would need incentives to make it economically viable. … After some time it became apparent that this project would not meet that designation” for the state’s transformational brownfield credits. The incentive program was approved by the state in 2017 and is meant for major projects with a community revitalization component.

“The city and F&C tried for a long time to find a way to make the program more economically viable without chopping the overall program, there were many public non revenue generating uses at the site and there was just no way to cover those costs and (have) the project make economic sense,” Prince said in an email to MiBiz.

Keeping it public

The city now plans to evaluate relocating city services from 201 Market to the Kent County Road Commission’s Central Complex at 1500 Scribner Ave. NW, a major shift that highlights the complex nature of any potential deal, as well as the city’s desire to maintain valuable publicly owned property along the Grand River. 

City officials believe relocating the services off the 201 Market site would make the location more viable for redevelopment and possibly more lucrative for the city. 

“I’m happy that the city is exploring the Road Commission site, and it’s important that we secure that site for the future,” said First Ward City Commissioner Jon O’Connor, who also served on the selection committee for the original 201 Market proposal. “It’s a critical site for the redevelopment of the river and bringing the rapids back. We need that site to remain public.”

The transaction for the 1500 Scribner Ave. NW property — which is about 2 miles north of 201 Market — would allow the city to gain control of river frontage in that area along with public parking nearby, according to DeLong. 

The Road Commission property includes more than 130,000 square feet of building space and was identified as one of 15 “priority riverfront sites” in GR Forward, a 10-year community master plan and investment strategy for downtown Grand Rapids and the Grand River corridor. The GR Forward plan accounts for a mixed-use site on the property with high loft and office space, while allowing for pedestrian access to the riverfront.

If Grand Rapids ends up buying the location, O’Connor hopes the city can avoid making significant investments into the existing Road Commission facility, which he views as a short-term transitional site that could eventually be opened for reuse as envisioned in the GR Forward plan. That would be possible once the city ultimately transitions the services to a long-term home that makes more sense for operations, he said. 

“It’s good for the city to be thinking strategically about how it invests in real property assets,” O’Connor said. “Knowing that site, it’s of significant importance to the river redevelopment. This is our one chance to make sure we control our own destiny. There’s only one time we’ll be able to buy and hold that site at a rational cost, and we should take advantage of it while we can.” 

Both sites are unique locations with close proximity to the river and infrastructure on them that complicates future redevelopment, O’Connor said.

Complex infrastructure

Meanwhile, hidden infrastructure at the 15-acre 201 Market property adds layers of complexity to any potential deal. Redevelopment has been slowed there by a massive 138-inch sewer line underneath the property that likely will need to be relocated for any future development to take place economically. 

The city originally planned for the project developer to relocate the city services and the sewer line on the 201 Market site, but this caused a “financial gap” that was difficult to overcome, DeLong said. Building over the trunk sewer would not be wise and a developer could attempt to build around it, but it would likely cause site layout issues, he said.

“We’re looking at other ways to pay for (relocating city services) that may reduce the development financial gap,” DeLong said. “If we’re in the process of moving or if we’ve moved, there are more opportunities for redevelopment.”

The city could end up footing the bill for relocating services and have a private developer or brownfield tax increment financing reimburse the city for at least part of it, DeLong said. The city also is pursuing grants that could help pay for the relocation of services, which could include U.S. Economic Development Administration grants, DeLong said.

For EDA grants to be used, the city has to identify a definitive investor for the site, DeLong said. The sewer line itself was originally constructed with the use of EDA funding because it created jobs in the area, he added.

Lever for redevelopment

The 201 Market property currently houses the city’s Office of Special Events and street maintenance operations, refuse and recycling, and a gas and diesel fueling station.

The city recently hired Bergmann, a Rochester, N.Y.-based architecture firm, as part of a contract not to exceed $78,100 to study the city’s possible relocation from 201 Market to the Road Commission property. The firm, which has an office in the city, expects to present the relocation feasibility report and design plan to the city of Grand Rapids in the fall. 

“It’s hard for the developer to visualize the development opportunity if it’s encumbered,” DeLong said of the 201 Market site. 

The Kent County Road Commission board approved a one-year option in January for Grand Rapids to purchase its Central Complex location on Scribner Avenue. The city will perform due diligence on the property and must close the deal for the 14.2-acre site for a negotiated price of $7.75 million no later than September 2022.

The city initiated discussions with the Road Commission after officials decided to shift the focus at 201 Market to relocating city services, as opposed to moving forward with a redevelopment plan, DeLong said.

The building on the Road Commission site is larger than the 201 Market building, creating potential to move additional city services to the site, according to DeLong. This could potentially free up more property for development throughout the city, he added.

“It could be a lever for other redevelopment,” DeLong said. “It’s a long term goal of the city to accomplish this, and it takes the right mixture of economic and site conditions because it’s a large urban site and a very difficult site, so it’s not unusual to take two or three opportunities to find the right use and that’s the process we’re going through.”

Despite the Flaherty & Collins plan being off the table, DeLong says city officials have learned lessons and gained valuable information from the three-year RFP process that can still be used going forward.

“Economic development is a long game and you’ve got to have tenacity and you’ve got to be resilient,” DeLong said. “The fact that we’ve pivoted to going to relocation is a learning process that will benefit us long term.”

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